Topic: Good news; ECB 2012/10 report on virtual currencies - page 3. (Read 6864 times)

3.1.4 Security inci dents an d ne gative press
From time to time, Bitcoin is surrounded by controversy. Sometimes it is linked to its potential for
becoming a suitable monetary alternative for drug dealing and money laundering, as a result of the
high degree of anonymity.9 On other occasions, users have claimed to have suffered a substantial
theft of Bitcoins through a Trojan that gained access to their computer.10 The Electronic Frontier
Foundation, which is an organisation that seeks to defend freedom in the digital world, decided not
to accept donations in Bitcoins anymore. Among the reasons given, they considered that “Bitcoin
raises untested legal concerns related to securities law, the Stamp Payment Act, tax evasion,
consumer protection and money laundering, among others”.

However, practically identical problems can also occur when using cash, thus Bitcoin can be
considered to be another variety of cash, i.e. digital cash. Cash can be used for drug dealing and
money laundering too; cash can also be stolen, not from a digital wallet, but from a physical one; and
cash can also be used for tax evasion purposes. The question is not so much related to the format of
money as such (physical or digital), but rather to the use people make of it. Nevertheless, if the use of
digital money in itself complicates investigations and law enforcement, special requirements may be
needed. Therefore, the real dimension of all these controversies still needs to be further analysed.

Yes, this actually is a really good report.


What is the difference between an electronic and a virtual currency...  

Yes, this actually is a really good report.


What is the difference between an electronic and a virtual currency...  

no one is legal tender and the other is not, yes?

In electronic money schemes the link between the electronic money and the traditional money
format is preserved and has a legal foundation,[...]

bitcoins - virtual currency with physical counterparts (Casascius, bitbills, ect..)

euros - "electronic" currency with physical counterparts that are legal tender

Seems to me, there is only one difference between these two currencies and it's not that one is a virtual currency and the other isn't.

As much as it can be frustrating to deal with bureaucracy in the EU, Canada, etc. - it is refreshing to see disinterested, non-corrupted bureaucrats do their jobs well, and provide service to the paying public. This study is a good example.

These schemes can have positive aspects if they
contribute to financial innovation and provide additional payment alternatives to consumers.
However, it is clear that they can also pose risks for their users, especially in view of the current
lack of regulation.
In essence, virtual currencies act as a medium of exchange and as a unit of account within a
particular virtual community. The question then arises as to whether they also fulfil the “store of
value” function in terms of being reliable and safe, or whether they pose a risk not only for their
users but also the wider economy.

bitcoins - virtual currency with physical counterparts (Casascius, bitbills, ect..)

euros - "electronic" currency with physical counterparts that are legal tender

Seems to me, there is only one difference between these two currencies and it's not that one is a virtual currency and the other isn't.

Can't agree more, strange...

We could use this to help define our terms as we continue to refign how we communicate what bitcoin is to a non-users.

I've hear people refer to bitcoin as electronic money, which according to this paper would refer to a unit of account that has a physical counterpart with legal tender status, ie western union.


Virtual currency schemes differ from electronic money schemes insofar as the currency being used as the unit of account has no physical counterpart with legal tender status.

In electronic money schemes the link between the electronic money and the traditional money
format is preserved and has a legal foundation, as the stored funds are expressed in the same unit
of account (e.g. US dollars, euro, etc.). In virtual currency schemes the unit of account is changed
into a virtual one (e.g. Linden Dollars, Bitcoins).

hazek

[snip]This also means that since the only difference between bitcoins and dollars is that bitcoins' physical counterparts aren't legal tender that they admit dollars, euros and the rest of the fiat currencies are essentially virtual currencies.[/snip]

I don't follow.

We could use this to help define our terms as we continue to refign how we communicate what bitcoin is to a non-users.

I've hear people refer to bitcoin as electronic money, which according to this paper would refer to a unit of account that has a physical counterpart with legal tender status, ie western union.


Virtual currency schemes differ from electronic money schemes insofar as the currency being used as the unit of account has no physical counterpart with legal tender status.

(emphasis mine.)

This sounds pretty prudent and promising to me.

and later:


interesting, no FUD so far or misinformation or misunderstandings, just facts I can agree with... this is weird, I'll keep reading.

Virtual currencies resemble money and necessarily come with their own dedicated retail payment
systems; these two aspects are covered by the term “virtual currency scheme”. Virtual currency
schemes are relevant in several areas of the financial system and are therefore of interest to central
banks. Virtual currency schemes have been subject to increased press coverage, even being featured
in respectable media publications. The ECB has been contacted a number of times in recent months
by academics, journalists and concerned citizens, who want to know its view or want to warn the
institution about potential problems with virtual currency schemes. In this context, it was considered
advisable to strive for a common understanding and, thereafter, to formulate a coordinated response.
This explains the ECB’s interest in carrying out a more detailed analysis, especially in view of its
role as a catalyst for payment systems and its oversight role. The present report is the result of this
analysis. It is a first attempt to provide the basis for a discussion on virtual currency schemes.

Money is a social institution: a tool created and marked by society’s evolution, which has exhibited
a great capacity to evolve and adapt to the character of the times. It is not surprising that money has
been affected by recent technological developments and especially by the widespread use of the
internet.