In a recent report, the European Parliament looks at cryptocurrencies with a mixture of openness to innovation and uncertainty in how to tackle it.
The EU Parliament regards cryptocurrencies in its current form mostly as a means to increasing efficiency and lowering transaction costs. Similar to the Bitcoin approach of many banks, the underlying Blockchain technology is seen as a means to fulfil the goals of the European Union, like lowering transnational transaction costs.
Similar to approach of banks
The report says:
“The main opportunities of VCs and DLT in the field of payments relate to reductions in transaction costs and the ease of use while providing for resilience and varying levels of privacy”.
Volatility of cryptocurrencies and room for speculative bubbles are concerns raised by the European Parliament.
Many might believe that for the European Parliament anonymity and traceability of cryptocurrencies are no cause for concern. That is not the case. The expectation is that such systems would not offer full anonymity in case of malfeasance. The EU parliament accordingly also takes a balanced point of view on Blockchains and potential criminal abuse and rather ‘… acknowledges the potential of DLT in assisting governments to reduce money laundering, fraud and corruption’.
Cross border transactions
One of the key targets of the European Common Market is to ‘tear down walls’ between its member countries. This is laid out in the Schengen Agreement, which allows citizens of states who signed the treaty to travel and live freely within those countries. For years the EU has been trying to bring down roaming fees for telecommunication providers who charge extra fees for calls across country borders. Cryptocurrencies and the Blockchain industry are a way to fulfil that ideal for transnational payments.
“Lowering transaction and operational costs for payments and especially cross-border transfer of funds, quite possibly to well below 1 %, compared to the traditional 2 % – 4 % for online payment systems –, and to more than 7 % on average for the cross-border transfer of remittances”.
Bitcoin, as we know, goes a step further: it does not just reduce transaction costs for cross-border payments, it also doesn’t recognise the concept of a border at all. There are low fees, but their amount is in no way linked to the concept of borders of countries - unlike banks.
This perspective shows a common underlying approach the European Parliament takes towards cryptocurrencies. The focus of the European Parliament is to look at the underlying Blockchain technology. This technology innovation will help realize the traditional goals of the EU in lowering artificial borders between countries. And in some respects, the European Parliament looks at cryptocurrencies very similarly to how banks do it.
The goal is to make smart use of the Bitcoin technology.
No broader vision
However, there is this ‘other’ libertarian and more radical aspect of Bitcoin eliminating banks from payment traffic and redefining the role of central banks. In the European context let’s imagine how a truly decentralized currency could inspire a federalist Europe with a common currency. Imagine what a truly borderless currency could imply for a super national entity like the EU and its monetary policy. However, there is little to no reference to such broader visions in the report.
The report deliberately raises many questions, opportunities and risks more than making firm statements on where cryptocurrencies will develop. Consequently, the parliament gives advice to the European Commission to invest more into expertise and build up a taskforce under the leadership of the commission. We hope that such investigation and research will take a much broader view and investigate other aspects of the Blockchain - not just from the technological perspective.
In the second part of the article, we will write on how the euro as a transnational currency could take some inspiration from Bitcoin.