CRYPTOCURRENCY ACCEPTANCEMAXINE MAJORFEBRUARY 13, 2014

Domestic and Global Acceptance of Cryptocurrencies

OVERVIEW

Questions Threats Legal acceptance

Domestically Globally

Conclusions

QUESTIONS

Where are cryptocurrencies legal? Where are they given legal protections? Where are they merely permitted? Where are they banned?

Are digital currencies more accepted in other parts of the world?

What would it take for cryptocurrencies to be accepted?

THREATS

Cryptocurrency concerns: Instability Uncontrolled inflation Loss of faith in government to provide

financial stability Downfall of banking infrastructure Money laundering

USA

No official government stance yet. U.S. Senate hearings Nov 2013

Acknowledge legitimate uses of BTC Not ready to regulate BTC yet “Virtual currencies, perhaps most notably Bitcoin, have

captured the imagination of some, struck fear among others, and confused the heck out of many of us.” – Tom Carpenter, U.S. Senator, Delaware

However, U.S. not adverse to cashing in $25 mil BTC from Silk Road

USA

Financial institutions reluctant to support BTC. “Saying bitcoin in a bank is like yelling fire

in a theater” - Kinnard Hockenhull, Bitbox founder E.g., Coinabul, San Diego precious metals

buyer (Nov 2013) “banks are unable to accurately assess risks

without clear guidelines” Unsure if assisting in illegal transactions.

USA

Financial institutions Digital currencies are in conflict with

banking systems. Regulators concerned can’t protect

customers. Bank-backed politicians. Government support may be needed to

help BTC stabilize.

USA

Internal Revenue Service (IRS) statement: “The IRS continues to study virtual currencies and intends to provide some guidance on the tax consequences of transactions involving them. The agency is also aware of the potential tax compliance risks posed by virtual currencies.”

USA

New York state may be first state to regulate digital currencies Regulations coming later this year “BitLicences” for businesses that use

digital currencies Consumers need to know more information

about cryptocurrencies (e.g. transaction irreversibility)

USA

Vicco, KY Police chief to be paid in BTC Self requested“I pretty much think it will eventually take over," he said, "or I hope it does.“

– Tony Vaughn, Police Chief Springfield, MO

Star Trek convention official currency is Peercoin

CANADA

BTC not a legitimate currency “Only Canadian bank notes and coins are

recognized as legal tender in Canada. Bitcoin digital ‘currency’ is not legal tender in Canada.”

Tax rules proposed for digital currency transactions (April 2013)

CANADA

First BTC ATMs Toronto & Vancouver

VirtEx developing BTC debit cards BTC converted to Canadian currency Merchants can use card terminals

such as CoinKyte.

CANADA

Royal Canadian Mint developing official currency backed by Canadian dollar (MintChip) Currency encrypted on “tamper proof” chip

USB, MicroSD, SIM card Cloud storage

CANADA

MintChip Transactions directly initiated

E.g., mobile-to-mobile, text, email, etc. $10 or less per transaction

Currency conversion via authorized brokers For use with wireless point-of-sale (POS)

systems using near field communication (NFC)

MINTCHIP

SOUTH AFRICA

Standard Bank Customers can buy & sell BTC through

online banking Can use BTC to pay from

regular bank account Managed by Switchless,

South Africa’s only Bitcoin exchange.

BRAZIL

Law No. 12,865 (Oct 2013) Indirectly permits “normalization of mobile

payment systems and the creation of electronic currencies”

“Payment arrangement” – rules regarding a transaction

“payment institution” – entity agreeing on rules “electronic currency” – resources on an electronic

system allowing a payment transaction Rules still exist governing behavior of financial

institutions

RUSSIA

BTC use banned“The ruble shall be the official monetary unit (currency) of the Russian Federation. It shall be equal to 100 kopecks. The issue of any other monetary units or quasi-money shall be prohibited in the Russian Federation.”

- Russian Federation Federal Law, Article 27 “Systems for anonymous payments and cyber

currencies …are money substitutes and cannot be used by individuals or legal entities” – Prosecutor General’s Office

Use of BTC “potentially suspicious” Associated with illegal activities

CHINA

People’s Bank of China Notice on Precautions Against the Risks of Bitcoins

(Dec 3, 2013) Official Statement (Dec 5, 2013)

BTC is not recommended for use 24 hours of continuous open transaction, no price limit, the price likely

to be controlled by opportunists. Resulting in volatility, the risk is great. Ordinary investors blindly follow and can easily suffer heavy losses.

High risk of money laundering Risk of being exploited by criminals or organizations Financial institutions may not conduct business with Bitcoin, nor may BTC

be sold or traded by a third party. Ordinary people have freedom to participate(Above text paraphrased from Google translation of Chinese website)

FRANCE

BTC not a real currency or payment method Instrument for money laundering and

illegal activities Conversions of BTC to real currencies

should only be handled by authorized payment service providers.

…who are authorized by the government of France

FRANCE

Bank of France:“Even if Bitcoin is not currently a credible investment vehicle and therefore do not pose a significant risk to financial stability, they represent a financial risk for those who hold them.”

INDIA

No ban on digital currencies Reserve Bank of India (RBI) public

advisory Financial, operational, legal risks Due to pressure, BuySellBitCo.in

suspended operations.

GLOBAL

Germany: Cryptocurrency is a taxable asset

India: Reserve Bank of India: use at your own risk

Croatia Not illegal.

“it is not electronic money since it’s not debt to the issuer“

Cyprus: Not regulated Regards “the use of any kind of virtual money as

particularly dangerous“

GLOBAL

Denmark – Bitcoin not regarded as a currency. “…will not regulate bitcoin use.“

Japan, South Korea No laws or regulations

Taiwan “highly speculative virtual commodity.”

Thailand “using bitcoins . . . was illegal because of a lack of

existing laws” United Kingdom

Not regulated … yet BTC are “single purpose vouchers” (tax 10-20%)

BTC NEAR YOU

http://coinmap.org/

CONCLUSIONS

“Bitcoin's supporters have consistently argued that the currency is impossible to fully ban, since it exists as a decentralised network of transactions. But if it can be rendered useless to merchants and customers, an actual ban may be unnecessary.”

CONCLUSIONS

Until legality issue is determined worldwide, BTC (and other cryptocurrencies) may not stabilize E.g., Bank of China condemning BTC led to

20% drop in trading price (temporary)

CONCLUSIONS

Cryptocurrencies are so new, most governments are not ready to regulate “Better safe than sorry” approach “Let’s see what will happen” approach

As cryptocurrencies become more broadly used, the U.S., and other governments, will likely take a position.

CONCLUSIONS

Opinion: In order for BTC to become a currency, a government will need to control it. “The most important hurdles would be that government would need to register each bitcoin to an individual and be able to track each transaction to make sure it is not being used for illegal ends” – Peter Cohan (adjunct lecturer Babson College, President of Peter S. Cohan & Associates, a venture capital firm)

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