Liability with Bitcoins: Is the core risk really still too high?
Liability protection regarding cryptos was one theme that was being discussed in cryptocurrency circles in July when I had a conversation with a crypto expert. Nevertheless, it’s going on to 6 months and nothing seems to be happening on that front. Blockchain and Bitcoin (Litecoin, Ripple, and the list will definitely increase) are now mainstream. However, the one conversation that still hasn’t gained traction is liability protection.
No one seems to attach a higher importance to the fact that businesses and customers that use virtual currency are still prone to risk. Transactions made with digital cash aren’t subject to liability protection and can only be reversed by the person receiving the funds – consumers who encounter suspicious vendors are often forced to deal with the consequences.
Will the yet to be finalized Bitcoin and cryptocurrency regulations hamper adoption?
Bitcoin now has momentum as both a technology and a movement, which will help improve adoption. This momentum is easily quantifiable: the number of Bitcoin-related startups and jobs is growing, the number of businesses accepting Bitcoin is at an all-time high, and developers are busier than ever.[clickToTweet tweet=”Bitcoin usage is still monetary in nature and that equates to volatility and risk via @KevinMoseri” quote=”The activity around Bitcoin is still monetary in nature, and that equates to volatility and risk.” theme=”style3″]
Here is the state of regulation as of November 2015:
- The European Union is years away from implementing a consistent framework for cryptocurrency regulation. Reason: A lack of convincing arguments to include virtual currencies under the EU’s current legal frameworks (see the PSD2 and AMLD4 report from SWIFT)
- US financial regulators are now bringing certain virtual currency service providers – mainly the virtual currency exchanges – under the existing legal frameworks regarding money services business BUT not the cryptocurrency itself. (see the BitLicence in NY and California)
- The most of Bitcoin trading in Asia happens in China where there is no outright ban on Bitcoin. However it is clearly frowned upon as a tool for getting around capital controls and money regulations. Translation? No viable regulation
Liability protection is not really a priority conversation
Banks have the power to lobby for better regulation but are not inclined to do so. At the moment the major global banks are only interested in Blockchain and the monumental impact that technology has on future banking frameworks.
Clearly a majority of the regulatory efforts have been towards the cryptocurrency exchanges and NOT the liability protection in the usage of cryptocurrencies which is subject to volatility and risk.
In a conversation with Oliver Doering, of Interim Solutions, the missing precipitator of liability protection is the fact that although Bitcoin is not a fiat currency and it is predominantly popular in the dark net. When it comes to AML/CFT discussions e.g. regarding PSD2, Tumblers should immediately force a discussion on liability protection. With global banks increasing their appetite for Blockchain (R3 Project), the discussion is long overdue.
So if you are a crypto user, I’d love to hear what you think of liability protection and the state of crypto regulation. Use the comments section below.