Regulation of Bitcoin is not a recent idea; it has been there around for a while now. There have been debates on the usefulness, or lack of it, of the regulation of the leading cryptocurrency.
In several areas, frameworks have been put in place to regulate an aspect or the other regarding to bitcoin and other digital currencies. New York, for example, has introduced a regulatory framework that will see to matters pertaining to virtual currencies. The UK is also in the process of determining what aspects of Bitcoin ecosystem needs to be regulated and the approach to adopt.
Will these regulatory efforts determine where the world’s bitcoin hub will be sited? This was the focus of a recent piece by University of Luxembourg guest professor and former Luxembourg Cabinet minister Jean-Louis Schiltz for leading cryptocurrency news service CoinDesk.
Need for Regulation
Well before regulatory moves gathered momentum in the US, UK and several other places, Luxembourg had been making moves to regulate bitcoin. The country’s regulator Commission de Surveillance du Secteur Financier (CSSF) had issued a warning around two weeks before the collapse of the infamous bitcoin exchange Mt. Gox that bitcoin businesses to be established in the country will have to submit to regulation. The CSSF considered virtual currencies same way as a fiat currency and, as such, need to be regulated.
The Luxembourg regulator believes regulation could help bitcoin companies to be more successful. In a statement released February 14, 2014, the CSSF gave a formula for achieving success. It urged bitcoin businesses to clearly define their purposes and activities to help making licensing process easier for the regulator. Possible categories of regulated activities suggested by the CSSF include payment services provision, issuing means of payment and platform or market setup.
Schiltz prefers to look beyond the seeming pro-regulation stance of the regulator’s advice, saying it also means bitcoin businesses could “well become payment institutions, electronic money institutes, markets or multilateral trading facilities under the Markets in Financial Instruments Directive, or possibly even banks in a few months or years.”
The CSSF carries out its bitcoin regulatory function using existing EU rules for new businesses rather than re-inventing the wheel altogether. It believes users’ concerns are better addressed in a regulated system than one without regulation.
A Central Hub
On the idea of regulation leading to a single bitcoin hub in the world, Schiltz does not foresee that possibility. Regulation will instead lead to the emergence of hubs on both sides of the Atlantic as well as possibly in Asia. The former Luxembourg Cabinet minister thinks these hubs will very likely surface in established financial centers in the U.S. and Europe, predicting at least one emerging within the Euro zone.
The University of Luxembourg guest professor said many hubs may well crop up in several locations around the globe sometime soon when actors in the cryptocurrency community focus more on business-to-business activities that are directed at facilitating payments. This, Schiltz seems to believe, will encourage greater adoption of digital currencies in many places.