Mark Thomas Williams, a faculty member in the Finance and Economics Department at Boston University, presented his top-10 most significant risks associated with Bitcoin at World Bank forum.
Professor Williams was invited to speak about 'virtual currencies' at the World Bank's Law, Justice and Development (LJD) week, held from October 20 to October 24, 2014, at the World Bank Headquarters in Washington.
On October 21, Williams discussed the topic 'Virtual Currencies: Regulatory and Legal Challenges of New Peer-to-Peer Technologies in Financial Services,' along with Steven Englander from CitiBank, Dirk Haubrich from the European Banking Authority and Ernie Allen from International Center for Missing and Exploited Children.
The purpose of this panel was to contribute to reaching a global understanding of the legal, regulatory and policy challenges related to 'virtual currencies,' says the session's abstract.
The academic gave a lecture on his "top-10 most significant risks associated with Bitcoin," which included:
- Bitcoin is not legal tender: "It is a voluntary currency and its use as a transactional currency is limited to those willing to accept it," argued the professor;
- Extreme Price Risk;
- Extreme Price Risk Can Quickly Erase Company Profit Margins: "This triple-digit annual price risk makes Bitcoin more suitable for Wall Street type trading companies possessing sophisticated management systems, controls and tolls than for merchants";
- Bitcoin is a Hyper Asset Bubble in the Process of Deflating: "Bitcoin - Big bubble or big innovation," reads one of the slides;
- Growing Concentration and Bankruptcy Risk to Financial Middleman: "Risk-mitigation services of firms such as Coinbase and Bitpay [...] don't eliminate system-wide Bitcoin price risk but simply warehouse the risk on their books;"
- Bitcoin Exchange Bankruptcy Risk;
- Bitcoin Use Can Trigger Significant Tax Risk: "Bitcoin has been designated by the IRS [...] as property [...] Unlike 'legal tender,' consumers that use Bitcoin can be subject to additional taxes;"
- Transactional Fraud Risk – Double Spending;
- Significant Consumer Protection Risk: "There are no laws in place protecting consumers against theft, fraud or human error [...] Bitcoin [...] eliminates banks as financial middleman and in doing so also eliminate the legal protections offered by such structures;"
- Sovereign Attack Risk: "Governments exercise a monopoly power on currency creation with the understanding that doing so will provide its citizens with a greater level of economic stability."
Williams concluded that while Bitcoin is a new technology with clear promises, "it also poses a multitude of risks to consumers, companies and sovereigns."
"To counteract the panoply of risks associated with virtual currencies such as Bitcoin, there needs to be greater regulation, international oversights, sovereign control and stronger consumer protection rules put firmly in place."
Finally, the professor argued that in order for Bitcoin to benefit as a "payment platform," there needs to be "regulation, central banker oversight and ownership made transparent."
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