De Nederlandsche Bank (DNB) head of research Jakob de Haan has issued new responses to pointed questions about the role of bitcoin in global finance.
During a speech at the reinvent.money conference on 26th September, de Haan was asked several questions about bitcoin, including ones that referred to the euro derogatorily as a “bullshit fiat currency”, with unusual candor given his status at the Dutch central bank.
A newly surfaced video[1] shows de Haan responding to the question of whether his organization is afraid it may be replaced by decentralized financial technologies, such as bitcoin, suggesting his institution remains open-minded about the technology.
De Haan said:
“Apparently, there are a few people convinced [digital currencies] are the future. Let’s wait and see. I’m not opposed to all these initiatives and if you’re right, the world will be very different and I will lose my job, but by then I’ll be retired I guess.”
De Haan went on to note that he was personally “not an expert” in bitcoin, but that the central bank is following the emerging technology closely and that researchers have been delved into the topic.
“You might think we are fundamentally opposed to these alternatives, we are not,” he said.
Further, he noted how the organization has taken steps to clarify to the public that digital currencies, while accepted as payment at select locations, don’t come with the same consumer protections as traditional alternatives, which it did in May 2014[2].
De Haan called such guidance “important” and countered a later question about whether it will be beneficial for the public should private currencies compete with public alternatives, by suggesting that bitcoin’s volatility against fiat currencies is an issue to its wider use.
De Haan concluded:
“Ordinary people benefit from price stability and that is the most important mandate for central banks.”
London blockchain startup Everledger is the joint winner of BBVA’s European Open Talent competition.
The startup, which uses blockchain technology[1] to tackle diamond fraud and theft, will be awarded a €30,000 prize[2] ($33,939) as well as an invitation to develop a project with the multinational bank.
Rounding off the competition series, with previous finals taking place in New York and Mexico DF, Everledger competed against fellow bitcoin and blockchain companies Safello[3] and Vaultoro[4].
Everledger’s win alongside Origin[5] – a marketplace that connects issues and investors in the corporate bond market – comes after bitcoin-based platform Bitnexo won[6] the Latin America final of the competition alongside Chilean startup Destacame.
A major European banking trade group has called for governments and businesses to develop regulatory solutions for cryptocurrencies.
The European Banking Federation[1] (EBF), a group representing thousands of the continent’s largest banking groups, recently released its vision for a digital revamp[2] of the banking system. Included in its proposals are several recommendations to policymakers regarding bitcoin and the blockchain.
The group points to the blockchain as an innovation that “provides a number of interesting opportunities both for financial institutions individually and for the collective ecosystem”.
The EBF proposal states that bitcoin should be regulated through the development of a comprehensive regulatory framework and the application of existing anti-money laundering statutes to digital currency transactions. It also recommended further research into the technology so ongoing evaluations of rule-making can be made.
Despite calling for digital currency transactions to be regulated to the same degree as traditional currency transactions, the EBF’s manifesto noted that “maintaining innovation should remain however a prerequisite for the development of crypto-technologies”.
The document also points to some of the potential pay-offs of the technology’s wider adoption, stating:
“Using such technology offers clear opportunities to reduce costs of moving and handling money, to secure consumer spending and to introduce greater liquidity to the market. It also improves offers of products and services and increases banks’ velocity in all their activities.”
Yet the group appears to dismiss the prospects of bitcoin’s use case as a currency, calling its future “unclear”.
“‘Bitcoin’ cryptocurrency represents probably one of the most well-known examples of crypto-technology,” the report states. “However, its future as a currency is unclear, given that it was built as an experiment.”
Chris Grundy is a self-confessed bitcoin obsessive and avid tech fan. He works for bitcoin lending platform Bitbond and has written for a variety of online publications. In this article, he speaks to a number of European bitcoin companies about why the future of cryptocurrency and blockchain technology could lie in their home continent, not the US.
Innovation is the primary distinction between leaders and followers. It represents disruption and a challenge to our way of life. [1]
Bitcoin is an important innovation, and it needs progressive legislation to unlock its full potential. Clear and progressive legislative guidance will give aspiring bitcoin entrepreneurs the confidence they need to find new use cases and bring bitcoin to the masses.
Despite this, bitcoin regulation in the US remains unfriendly.
Some, like ShapeShift[9] and Xapo[10], have re-located their headquarters from the US to Europe, as a result.
Only a few hours drive away, Connecticut has passed questionable bitcoin legislation, giving individual state regulators the ability to deny or accept applications for a money transmission licence by an otherwise qualified applicant, if digital currencies are involved. [11]
Additionally, in March 2014, the Texas State Securities Board served a cease and desist letter to Balanced Energy LLC, an oil and gas exploration company. The company’s acceptance of bitcoin as payment method was regarded as such a risk to investors, that it was shut down.[12]
On the West Coast, a bill has been proposed in California,which would result in a $5,000 non-refundable registration fee for any digital currency business. This bill comes with no guarantees, from banks or legislators. [13]
For small, un-established innovators, the fee could make the difference between getting into business or not.
“The barrier of entry for newcomers to financial services is too high.”
Thus, Europe is becoming more attractive for bitcoin entrepreneurs.
Why bitcoin needs progressive legislation
A recent article on CoinDesk by Jean-Louis Schlitz described Luxembourg’s approach to bitcoin legislation. He explained how the Commission de Surveillance du Secteur Financier (CSSF), has provided bitcoin companies with “the basic regulatory recipe for success”. [16]
By doing so, the CSSF has provided legislative clarity and given entrepreneurs the basic principles they need to run their business with confidence.
Luxembourg is by no means alone in Europe for providing actionable legislative frameworks for bitcoin companies.
German financial regulator BaFin confirmed in 2013[17] that it classified bitcoin as a “financial instrument”, which gave companies operating in the space a better idea of where they stood in regards to the law.
Kaja Ribnikar, executive assistant at Bitstamp, said her company has had positive experiences with European regulators, adding:[18]
“It goes without saying that they are open for dialogue, they are receptive and have a more balanced view on bitcoin. It is evident that the US is a much tougher environment to run a bitcoin business.”
The prevailing regulatory insecurity and the necessary legal bills incumbent in the US made entrepreneurs wary even prior to the BitLicence.
Henrik Hjelte, co-founder of ChromaWay, a Stockholm-based open-source coloured coins wallet, explained his company was close to moving to the US around a year ago. However, the thought of expensive legal bills “scared” the team, so it decided to settle in Europe instead. “So far we have not regretted it,” he added.[19]
LedgerWallet, a provider of smartcard security for bitcoins, is based in France and manages to largely sidestep regulation because of the nature of the service it provides. However, CEO Eric Larchevêque believes that, by being in Europe (and especially France), the company enjoys “major benefits”.[20]
“We … have access to a large range of state-sponsored grants, helping us fund R&D or develop production facilities,” he added.
Impartial observers point towards the willingness of European governments to see bitcoin as an opportunity rather than a threat. In 2013, the United Kingdom issued a Revenue & Customs Brief, outlining levied taxes for bitcoin-generated income. [25]
ChromaWay’s Hjelte welcomed these regulations, stating: “The most important thing for innovation here is the legal aspects. It is up to our governments to stimulate innovation by being responsive, fast, cheap.”
Europe as the center of bitcoin
Despite these positive developments in Europe, media coverage has been thin on the ground. The waves European startups are making are often neglected for their US counterparts. With only 25% of the bitcoin network located on European soil, you might be forgiven for putting America first.[28]
However, Europe has been instrumental in shaping bitcoin. Bitstamp, for example, comes from the first generation of bitcoin exchanges. It has enforced full KYC processes and implemented hot wallet multisig technology.[29]
Other Europe-based companies in the space include bitcoin wallet providers Trezor and LedgerWallet; Bitbond and coloured coin creator ChromaWay,which is implementing an open-source protocol for creating digital assets on the bitcoin blockchain. [30][31][32][33]
Additionally, Berlin-based SatoshiPay, an open transaction-focused nanopayments provider, enables the payment of “thousands, hundreds or even single satoshis”. The company has also built a cross-website content payment mechanism that works without the user having to sign up or download.[34]
The takeaway
Bitcoin is disruption. Bitcoin is innovation. Bitcoin is truly global. Its success will be based on the use cases found and invented for it. In order for innovation to take place, progressive legislation is required.
Bitcoin needs governments to see its potential and let it grow at its own pace.
As Bitstamp’s Kaja Ribnikar said, regulators in Europe have realised that clamping down on bitcoin would mean “killing a very powerful and productive ecosystem”.
Many entrepreneurs point towards the incomparable level of venture capital available in the US, as a palliative for the unfriendly legislation. As Meinhard Benn, CEO of SatoshiPay, has stated, however, US legislation “gives advantage to well-funded companies, which in turn dampens innovation”.[35]
What we should take away from this is that progressive legislation can open the door to innovation. By providing a legal framework, many European countries are giving bitcoin entrepreneurs the confidence they need to create and find new use cases for bitcoin and the blockchain.
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
Coinify has acquired competing Europe-based payments processor Coinzone as part of an undisclosed deal announced today.
With the move, the Denmark-based company has expanded its merchant base to an estimated 10,000 actively monthly customers, up from 8,000 before the acquisition. Further, it has grown its employee base to 17, with the addition of Coinzone[1]‘s sales staff.
Coinify[2] CFO Christian Visti Larsen indicated that the purchase comes as his firm is seeking to shift its focus from acquiring individual merchants to payment service providers (PSPs). He explained Coinify is seeking to replicate a model invoked by its US peer Bitnet, in that it will seek to partner with larger entities that provide payments support to thousands of online merchants.
Visti Larsen told CoinDesk:
“More merchants today do business with a PSP and would rather have multiple payment options through a PSP. Most of Coinzone’s partners were asking for this service, so it seemed like a perfect match.”
Visti Larsen also commented on the success of this model in the US, where bitcoin payments are already supported by PSPs such as CardinalCommerce[3], PayPal[4] and Stripe[5]. He suggested it was time for the European market to “step up” its performance and said Coinify is working on as many as eight deals with regional PSPs.
Outgoing Coinzone CEO Manuel Heilmann told CoinDesk his firm’s existing management staff will remain at the company for a “transition period”, though no executives will join Coinify in full-time roles. Heilmann said he is seeking to return to the e-commerce industry, but will continue to advocate for the technology.
Founded in 2014, Coinzone is an Amsterdam-based payment processor that had garnered most of its traction in eastern Europe[6].
The Estonian central bank has denied statements that have suggested the country’s banking system relies on the use of a blockchain to secure information.
One of the more curious observations included in documents recently released by the European Securities and Markets Authority (ESMA) was a submission from Deutsche Bank[1].
The letter, a response to ESMA’s call for information[2] on digital currencies, included the claim that the blockchain was already being widely used in the country’s financial sector. The claim was cited by Deutsche Bank as an example of how blockchain technology is being used to solve complex problems in the world’s financial markets.
When contacted for comment, Piret Putko, a representative for Eesti Pank[3], Estonia’s central bank, told CoinDesk that while there is activity among the country’s banks to develop products based on the technology, there is no nationwide effort to broadly integrate banking and the blockchain.
Putko noted:
“I guess that blockchain is expected to be put into operation in Estonia soon because one of our banks is developing new products which will be based on blockchain. But, it certainly does not give us the right to say that Estonian banking infrastructure is secured with a blockchain.”
He added that Deutsche Bank may have confused an existing card security system with the blockchain concept.
Putko’s refers to ongoing projects at LHV Bank, a major domestic bank that has been conducting experiments with bitcoin and earlier this year developed a wallet product for the digital currency.
When reached for comment, bank representative Priit Rum echoed this sentiment, suggesting that the two systems had been confused.
“Although for example we at LHV bank are experimenting with blockchain – this infrastructure has not been used that thoroughly here [in] Estonia,” he said.
Blockchain toolkit Blockstrap is launching a series of developer workshops to make the technology more accessible for beginners.
The Neuroware[1] company, which offers an open-source API, will begin its educational outreach tour across six countries next week.
Johnny Mayo, co-founder of Blockstrap[2], told CoinDesk:
“The goal is to introduce and encourage adoption of the technology to not just developers, but students, startups, and anyone else from across the continent who just wants to understand how it all works.”
The first beginners session will take place in Istanbul, followed by Amsterdam, Barcelona, Prague, Berlin and London. While attendees in the Turkish city will be subject to a small entrance fee, the remaining sessions are free-of-charge.
‘Steep learning curve’
Many developers are interested in both bitcoin and the blockchain, Mayo said, but lack the expertise to experiment with their own projects.
“For developers there’s a lot to take in and it’s still a pretty steep learning curve, so a day of structured learning is really valuable.”
Blockchain technology, he said, is nothing short of revolutionary but it is still in its early, nascent stage. “There’s a lot of work that needs to be done on introducing people to how the technology works and what they can do with it.”
The workshops[3] are free because the sole purpose of Blockstrap is to get developers on the blockchain, which, he added, would also indirectly benefit the company.
Course attendees will receive a 50% discount on CoinDesk’s comprehensive, 55-page ‘Cryptocurrency 2.0 report[5]‘, which provides an in-depth look at the ever-expanding world of blockchain technology.
MonetaGo, a new exchange with ambitions to take bitcoin “global”, launched across 40 countries today.
First announced in April, the platform offers bitcoin buying and selling in 28 local currencies. As a twist, MonetaGo[1] users can also ‘fix’ or ‘peg’ their bitcoin to these various exchange rates.
Speaking to CoinDesk, serial entrepreneur Jesse Chenard, MonetaGo’s CEO, said:
“Digital currency is supposed to be this global phenomenon that is going to enable the seamless transmission of funds across borders, but the reality of it is that 90-something percent of all bitcoin trading happens in three currencies only.”
In extending services to underserved markets outside the dollar, yuan and euro, Chenard and his co-founders hope to make bitcoin more accessible and cost effective for new users.
On the surface, MonetaGo’s interface is little different to other exchanges out there. However, under the bonnet the platform – built using Alphapoint technology – has access to 35 order books from a network of regional partner exchanges, via their API.
Chenard said the platform aims to reach 50 partners by the end of 2015.
Fixed value
Much like Bitreserve[2], MonetaGo offers users the ability to ‘fix’ their bitcoin value to any of its 27 regional currencies. However, whereas the former does not offer the option to cash out ‘Bitdollars[3]‘ into real dollars (only bitcoin), MonetaGo does.
The ability to send this fixed-value bitcoin to other users, who can then convert it into other currencies, could be beneficial to businesses, not just consumers, Chenard said.
Besides shielding both parties from bitcoin’s volatility, the process could speed up payments for companies who lack a fast and reliable corresponding banking network between them.
“You have a balance of $12 and you wind up having to spend another $45 to get them their $18.”
Chenard says he is “still rationalising” how people will use this ‘send’ functionality. For now, the focus is on getting MonetaGo’s banking relationships watertight, to ensure fiat on-and off-ramps are smooth.
In terms of fees, the platform will be free-of-charge for the first few weeks, later charging between 0.1% and 0.5% per trade, dependant on each user’s monthly volume.
“If you’re converting twice [by using the ‘send’ function] we’re looking at ways to halve that fee as we’re double charging at that point,” the CEO said.
Compliance
MonetaGo is privately funded by a handful of investors, including Chenard, who says the exchnage is likely to raise a round “fairly shortly”.
Alongside Chenard, whose company Tremor Video went public[4] in 2013, MonetaGo’s founding team includes Chenard’s “serial co-founder” CMO Tad Davis, ex-Alphapoint CEO Margaux Avedisian and Igot’s Patrick Manasse.
Since its beginnings in October 2014, MonetaGo’s team have been laser-focused on compliance. The New York company is in the process of completing the paperwork for its Bitlicense, but has spent the last six months in talks with regulators and banks across the globe.
From these conversations, Chenard described a “shaking out phase” for bitcoin. Though some states, like New York, have made demands others remain tight-lipped on the subject of bitcoin. This may soon change:
“I feel this year there is going to be a lot of clarity bought to how we are supposed to operate and what standards we are supposed to meet.”
Blockchain technology has the potential to reduce costs, improve product offerings and increase speed for banks, according to the most recent report from the Euro Banking Association (EBA).
Founded in 1985 and supported by the European Commission, the EBA[1] is a practitioner’s body for banks and other service providers that promotes a pan-European payment system and business practises.
Despite mostly dismissing digital currencies – the report[2] notes they differ from “legitimate fiat currencies” – it asserts their applications are essential for “gaining more advanced knowledge of crypto technologies”.
These technologies are likely to be integrated with the existing financial system in the next one to three years, the EBA says.
“Apart from possibly being able to speed up processes and reduce their complexity, crypto technology applications in this area can also be integrated with legacy IT, legal frameworks and existing assets (currencies, stocks, bonds, etc).”
Crypto 2.0 and traditional banks
According to the EBA, cooperation, adoption and their two respective sub-drivers (communication and regulation) will be decisive factors in the future of the technology.
Here, the report says that the level of cooperation between Payment Service Providers (PSPs) and the crypto technology community – also between PSPs themselves – will determine the future relationship between banks and ‘crypto 2.0’ companies.
Notably, it draws parallels between the concerns and industry dynamics that surfaced when voice over Internet protocol (VoIP) applications such as Skype launched approximately ten years ago.
EBA’s report also speaks of two-fold benefits for PSPs and crypto businesses.
If regulation is favourable, PSPs may benefit from entering into partnerships with the crypto technology community, as they would be able to get a first-hand idea of long-term developments and would be better positioned to take advantage of the latter when the technology reaches the desired level of maturity.
In turn, it notes how the crypto technology community would benefit from the PSPs’ legitimacy and procedural knowledge, concluding:
“What can be safely said at this point in time is that crypto technologies are an area to be closely monitored and revised for further analysis.”
Though it is difficult to predict the way in which crypto technologies will the existing financial infrastructure, the report adds that further developments – and progress – can be expected.
Four use-case scenarios
The report groups blockchain technologies into four key categories: currencies, asset registries, application stacks and asset-centric technologies. It notes, however, that the lack of regulatory and technical maturity diminishes the use-case for the first three, adding that they still warrant close monitoring by industry players.
A chronological representation of the four development categories of crypto technologies, according to EBA’s report.With this in mind, the paper describes four real use cases where blockchain technology could improve foreign exchange and remittances, real-time payouts, documentary trade and asset servicing – concluding that asset-centric developments were potentially the most interesting for transaction banking and the payments industry.
Progress in the other three areas has been hindered by technological and regulatory challenges, the EBA says.
The paper suggests that the banking and payment industries should attempt to “reach, conversion and cost advantages of currencies and reductions in auditing and governance expenditures from asset-centric as well as radical innovation from application stack technologies”.
Transformative potential
The EBA’s report follows on from a European Central Bank publication[3], which described digital currencies as “inherently unstable” but potentially transformative in the realm of payments.
Prominent bankers, such Santander’s Mariano Belinky[4] and Barclay’s Usama Fayyad[5] have commented on the ledger’s transformative potential and Swiss investment bank UBS recently opened a blockchain technology research lab in London to see how it could be applied in the wider FinTech community.
The blockchain has also captured the attention of companies from outside the banking space. US insurance giant USSA is allegedly pouring resources into investigating[6] how to incorporate the blockchain into its existing infrastructure.
Denmark-based bitcoin platform Coinify has announced its expansion within the Single Euro Payments Area (SEPA) network, enabling customers in 34 countries to buy and sell the digital currency.
SEPA is a European Union (EU) payment integration scheme that aims to ease euro denominated bank transfers between 28 EU member countries[1] as well as Iceland, Norway, Liechtenstein, Switzerland, Monaco and San Marino.
Christian Visti Larsen, chief financial officer at Coinify[2], told CoinDesk:
“Coinify has two operation legs, one for payment service providers and one for traders. The expansion within the SEPA network is a movement for supporting both the pay-in and pay-out operations for both legs. In simple terms – we can now move faster and cheaper.”
In addition to its consumer features, Coinify allows businesses to accept bitcoin and receive next-day settlement in fiat currencies, including euros, dollars and kroner, among other currencies.
Larsen said the company was planning to take on further investment in the second half of this year.
“We expect to raise a significant amount to make sure that Europe will be playing a leading role in this new payment space. We believe that our strategy on providing the traditional payment service providers with dedicated service is our way in to the market,” he added.
Coinify announced[7] a seed funding round in September last year, with investment from venture capital firm SEED Capital[8] and startup accelerator Accelerace[9]. The total remains undisclosed.
With the funds, Coinify acquired Bitcoin Nordic[10], a bitcoin broker and the merchant services formerly offered by Bitcoin Internet Payment Systems (BIPS[11]).
Competition
With its European expansion, Coinify is entering a hotly contested space, competing with various bitcoin exchanges also supporting SEPA payments.
San Francisco-based Coinbase[12] recently announced its expansion to the UK, enabling customers to add euros to their wallets using SEPA.
The exchange, which now serves over 20 countries in Europe[13], previously sent its co-founders Brian Armstrong and Fred Ehrsam, on a tour[14] of the region to meet potential customers and promote the company’s API to developers.
Bitcoin exchanges Bitstamp[15] and Safello[16] also allow customers to purchase bitcoin through SEPA deposits.
