The French Senate's committee on finance recently issued a rather positive report on virtual currencies. The document stated that the technology "can no longer be disregarded by public authorities", and, despite the risks, "Bitcoin offers multiple opportunities for the future, both as payment system and, above all, as a decentralized validation protocol," said the report.
On July 23, the committee of finance heard a communication by Senators Philippe Marini and François Marc on the topic of virtual currencies. The 140 page report noted that despite the risks of volatility, anonymity and the lack of legal guarantee, Bitcoin's technology offers a wide range of opportunities and "public authorities should work on a well-balanced regulatory framework", which is said "to be carried out at a European level, and if possible at the international level, considering the transnational nature of virtual currencies."
- Sénat of France
Based on researches and comparisons made by the French Treasury for the account of the committee, France is said to be standing halfway between countries with the strictest regulations, e.g. China, Japan and Russia; and those with the lightest, e.g. the US, Canada or Israel. However, France’s Bitcoin economy is relatively large and falls in the top ten in the world based on the number of Bitcoin clients downloaded. Additionally, back in May, the first ever Bitcoin center - La Maison du Bitcoin – opened its doors to Bitcoin fans and the public alike in Paris. The project is focused to educate the public on cryptocurrencies.
And according to the report, the Senate has been focusing on the impacts of the digital revolution on the economical sector, and it is with little surprise that the authority is now taking interest in Bitcoin and virtual currencies. The authority noted that virtual currencies have significantly questioned the monopoly of Central Banks on money creation, which is said to be the ultimate demonstration of its Regalian power.
The report mentioned Bitcoin as the most popular and successful virtual currency, defining it as "open-source, anonymous and decentralized, providing its users the ability to exchange goods and services without recurring to the traditional currency." Therefore, the document added that Bitcoin couldn’t be considered as a legal currency, neither as a legal tender, regarding the French Monetary and Financial Code (code monétaire et financier), and is said to be a "virtual barter system".
Among Bitcoin's attributes, the report noted its near-zero transaction fees, as well as its high-level security, adding that transactions were encrypted and had to be confirmed by a network of computers in a decentralized manner. This goes in the opposite of a "central" system, which is by definition more vulnerable.
The document also cited the "ingenuous mechanism of 'monetary creation'" which consists in rewarding miners for allocating their calculation power to confirm transactions. So far, it is estimated that 100,000 processors are participating in this operation.
On the other hand, one of the major risks is its volatility. This characteristic is said to be one the consequences of the system itself; a system that the authority qualified as "intrinsically speculative" due to its "organized rarity" (limited supply). However, the document noted that it is also a success factor as there is no "Bitcoin printing press".
The lack of legal guarantee is a major risk for investors, as Bitcoin isn't backed by any "real" asset. In fact, Bitcoin's value is majorly based on the level of credibility attributed to the virtual currency by the members of its community.
Although the validation process is said to be secure, it isn't necessarily the case of Bitcoin storage. The report illustrated this argument with the case of Mt.Gox, once the largest Bitcoin exchange platform.
Finally, the anonymous character of Bitcoin makes it a staggering windfall for cyber-criminality and money laundering, said the document.
However, the report said excessive alarmism is not needed at this stage and added that volatility and the absence of a legal framework were the elements limiting Bitcoin's development.
Moreover, the document also stated that, due to its negligible money supply - between 5 and 8 billions of dollars versus thousands of billions of dollars for important fiat currencies - Bitcoin wasn't a threat to the macroeconomic stability.
On January 15, the committee on finance had organized an audition with the concerned administrations to express their positions on virtual currencies. The meeting was composed of representatives from the French Treasury, the Customs, the Bank of France and the anti-money laundering service Tracfin, as well as an entrepreneur and a scholar working on the topic.
On July 11, Tracfin issued its report on the subject, enouncing concrete measures such as anonymity limitations, a ceiling payment amount in virtual currencies and a clarification of the fiscal regime.
Although a formal regulatory plan is yet to be issued, the French Senate's committee of finance stressed that an European, and if possible, a global clarification should be carried out, considering the transnational nature of virtual currencies:
"Bitcoin isn't the only 'virtual currency' [...] there had been some (Liberty Reserve, e-Gold), and there will be others (Litecoin is an example inspired by Bitcoin) [...] Thus, it is important that public authorities do not step back and reinforce these innovations with an appropriate regulatory framework [...] [Public authorities] should work on an adapted regulatory framework. All these actions are to be undertaken at the European level in order to be truly effective. "
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