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Bitcoin EU Government The Almighty Buck Your Rights Online

European Central Bank Casts Wary Eye Toward Bitcoin 301

Posted by Soulskill
from the new-is-scary dept.
An anonymous reader writes "Erik Voorhees blogs for bitinstant.com: 'On Oct 29, 2012, the European Central Bank (ECB) released an official (and very nicely prepared) report called "Virtual Currency Schemes (PDF)." The 55-page report looks at several facets of what virtual currencies are, how they're being used, and what they can do. As it happens, the term "Bitcoin" appears 183 times. In fact, roughly a quarter of the whole report is specifically dedicated to Bitcoin and it's probably a safe assumption that Bitcoin's growth over the past year was the catalyst for producing this study in the first place. The report from the ECB concludes, in part: Virtual currencies fall within central banks' responsibility due to their characteristics, and Virtual currencies could have a "negative impact on the reputation of central banks."' Could this be the first step toward regulation of the digital currency?"
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European Central Bank Casts Wary Eye Toward Bitcoin

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  • by durrr (1316311) on Saturday November 03, 2012 @12:26PM (#41865531)

    Virtual currencies could have a "negative impact on the reputation of central banks."'

    By showing that the legion of morons and regulation and other peripheral bullshit associated with central banks are entirely unecessary and even counterproductive. Thus rendering, among others: the person that wrote the study potentially useless and unemployed.

    • by Twinbee (767046) on Saturday November 03, 2012 @12:40PM (#41865635) Homepage
      I see banks, and their multiple saving schemes, and different types of credit/debit card, and cheque books, and different types of notes, and tedious forms to fill in, and different currencies with all the complicated mess that entails when converting, and I think how nice it would be to scrap it all and start again from scratch, done properly, with almost total automation, and no UWS (Unnecessary Work Syndrome).

      That would save billions or trillions of dollars per year probably.
      • Re: (Score:2, Insightful)

        by MatthiasF (1853064)
        "That would save billions or trillions of dollars per year probably."

        And put a lot of people out of a job, don't forget that.

        Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

        So you're stuck trying to balance efficiency with employment.
        • by fridaynightsmoke (1589903) on Saturday November 03, 2012 @01:14PM (#41865971) Homepage

          "That would save billions or trillions of dollars per year probably." And put a lot of people out of a job, don't forget that. Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible. So you're stuck trying to balance efficiency with employment.

          That must be why we subsidise the manufacture of buggy-whips and break all the windows every year to keep the glaziers in business, right?

        • by Twinbee (767046) on Saturday November 03, 2012 @01:16PM (#41865991) Homepage

          And put a lot of people out of a job, don't forget that.

          Only in the same way that the number of professional glass makers would be reduced if vandals stopped breaking windows.

          Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

          I disagree. We need to keep or gain productivity, sure. But that's what counts, not the number of workers doing said work. And no, I'm not some hardcore capitalist, as I think a basic income [wikipedia.org] for everyone would be a good idea (unconditional money on top of any regular work income). Even the rich are happier when the poor have a relatively decent standard of living.

        • Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

          They can be sent to work in the dilithium mines.

        • by jcr (53032) <jcr.mac@com> on Saturday November 03, 2012 @01:36PM (#41866241) Journal

          And put a lot of people out of a job, don't forget that.

          That's a good thing. Any job that can be eliminated through technological advancement makes people available for more important work.

          -jcr

          • by Twinbee (767046)
            Yes, or for free time, and enjoying life generally.
          • by ultranova (717540)

            That's a good thing. Any job that can be eliminated through technological advancement makes people available for more important work.

            All of which completely ignores the time and resource cost of the training required for that more important work, the fact that not everyone can do every job with any amount of training, and most importantly that people aren't spare parts that sit on a low-rent warehouse waiting for their next assignment between jobs, but fairly high-maintenance living creatures. Thus the end

            • There's plenty of work to be done that most people could do. Elderly care, for example, is an important and growing sector.

              Then again, if there's any group that deserves to be on the losing side of this dog-eat-dog battle, it's bankers.

              There's no losing side. A person in the middle class today lives better than kings did in many ways (food balance, health, access to entertainment, etc).

              Sure, we need to push back against the imbalances, but that kind of zero-sum thinking is poisonous.

        • by Znork (31774) on Saturday November 03, 2012 @01:38PM (#41866257)

          Indeed, as the ultimate goal of humans is to work as much as possible. Almost everyone on their death bed regrets not having worked more. Or maybe not.

          We're rapidly leaving the age of scarcity. Within years whole swaths of current human fields of labour will be rendered obsolete, even now Chinese labour is getting replaced by robots, 3d printing will probably do a lot more in and we're on the cusp of losing vehicle piloting to automation which will wipe out large parts of the transportation industry. Increased demand is simply fulfilled by more automated processes, it doesn't create more need for labour to anywhere near the extent it used to.

          Ultimately we will have a choice. Either keep the few employed in productive necessary labour, while directly and indirectly taxing them like hell to support the rest of the population in meaningless make-work or outright welfare. Or we can cut working hours/days until equilibrium is restored and more equitable distribution of labour is achieved.

          Personally I prefer the latter. I can live with having more free time, but both working my ass off to keep everyone else fed or, to paraphrase Keynes, doing make-work by burying money and digging it up again just to keep 'money' flowing aren't among the more palatable ways of living life.

          • by Twinbee (767046)
            Did you ever watch Fraggle Rock? In it, there were these characters called the 'Doozers' which lived to just work. They created (edible) 'buildings' just so that the fraggles would tear them and eat their handiwork. Kinda comical really. Anyway, I agree, free time is definitely undervalued. Even some or all of the mostly highly respected jobs will be automated eventually.
        • by Kergan (780543)

          Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

          Ever heard of Milton Friedman [wsj.com]?

          At one of our dinners, Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: "You don’t understand. This is a jobs program." To which Milton replied: "Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels."

        • Re: (Score:2, Offtopic)

          by zotz (3951)

          "Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible."

          But I have the perfect solution for that little problem and have been quietly promoting it in my country for years now:

          The Department Of Beach Surveys.

          The government hires people and sends them to the beach every day. They get a clipboard and a short form to fill out daily.

          Date:
          Location:
          Survey Taker:

          Did you see any sea life today? Y/N
          Did you see any bird

        • by pla (258480)
          Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

          Working to create goods or value does not equal working to shuffle goods or value around on paper (as distinct from physically relocating goods, ie shipping, which does create actual value).

          Some jobs just should not exist in the first place. Putting people out of them merely means having people available to do "real" work.
        • And put a lot of people out of a job, don't forget that.

          Every time you make a system too efficient, you reduce the number of workers but with economies it's important to have as many people working as possible.

          The obvious solution is persistent, self-sustainable jobs. For example, if we turn those ex-employees into glue, then they'll be employed for a long time, say, holding layers of plywood together, a task for which they're admirably suited. They'll also stop needing basic needs and social services, and be far less of a drain on the rest of society.

          The only drawback is that tax revenue might decline for a time. But given that we can spend without actual revenue, I don't see this as a significant issue.

          As

        • by spire3661 (1038968) on Saturday November 03, 2012 @02:33PM (#41866739) Journal
          Who gives a fuck if a job is lost? I have no problem replacing men with machines. A competent man will find a new way to sustain himself without relying on holding back progress.
        • My god, you're right.

          We must immediately set half the unemployed to digging ditches while the other half fill them up again. It'll save the economy! You're brilliant!

      • by Kergan (780543)

        So, in other words, expand something like the EU's common currency to the entire world for the sake of simplicity? A little birdy tells me this might be problematic in the current political and economic environments.

      • by Luckyo (1726890)

        Different banks. Central banks have little to nothing in common with savings banks.

    • by matunos (1587263)

      Until bitcoins are widely used enough to become the major currency of a country, a comparison is just specious.

  • Wonderful (Score:5, Funny)

    by skipkent (1510) on Saturday November 03, 2012 @12:31PM (#41865573)

    They're both in the business of creating money out of thin air, so of course they'd see a problem with it.

    • by Anonymous Coward

      Bit coin is a joke currency based on misusing my computers processing time, and the ECB is now operating like the FED with it's OMT's (Outright Monetary Transactions) The only real currencies are:

      family

      friends

      seeds / food / land

      survival equipment

      gold

      silver

      Bitcoin, though (arguably) well meaning, is a joke.

      • by biodata (1981610)
        You forgot the most important one - water.
      • by pmontra (738736)
        Gold and silver currencies are not as important as the other ones you listed, not even close to being fundamental. Some countries used shells, they are the same. Gold you mine, shells you fish.
    • A virtual currency has its prpblems, but keeping transactions encrypted and away from pryi (read: taxing) eyes is a government's worst nighmare.

      • Re:Wonderful (Score:4, Insightful)

        by arose (644256) on Saturday November 03, 2012 @01:20PM (#41866039)
        All bitcoin transactions are publicly recorded, it's a cornerstone of the protocol. The only secrecy is that you are pseudonymous as a function of being identified by a public key.
      • Some amount of tax is good for currency: it creates demand. It creates a believable reason why anyone would want the currency.

        Value does not come from scarcity only. There is not much "authentic betterunixthenunix urine" in the world, but I doubt that you would give me anything more than your own urine in exchange for it. Supply and demand are where value comes from, and Bitcoin in particular lacks demand (game currencies don't: you need the game currency to have fun in the game [or to increase the
  • by nurb432 (527695) on Saturday November 03, 2012 @12:37PM (#41865615) Homepage Journal

    No, its the first step toward eradication of it. The freedom of being able to buy something anonymously is soon coming to an end. Not only does it threaten banks and their empire, but governments too.

    • by Twinbee (767046)
      If people can't be trusted to pay tax, then we could still have something like Bitcoin, automated, online, but officially recorded as well. In a way, I prefer recording the transaction for security purposes (to prove I've paid), but it's quite an involved subject, and I'm sure there are pros and cons.
      • by nurb432 (527695) on Saturday November 03, 2012 @01:20PM (#41866031) Homepage Journal

        A private sale of a used product should not be a tax event ( which is what is mostly happening today with anonymous currency ). It doesn't matter what i bought or sold, I dont want my transactions 'officially recorded' its no ones business other than mine and the seller/buyer.

        If you want to talk about businesses not collecting tax on a new item, then that is not a problem of the currency, but of fraud and will be caught evenutally due to 'missing' inventory reports and such. ( and it should still be anonymous, no one needs to know i bought a candy bar.. )

        • by Twinbee (767046)
          I can't see any real problems of even second-hand items or candy bars being recorded. What would the worst case scenario be? I'm sure Facebook et al. are 100x worse, and even that's not incredibly inconveniencing the world.
    • by pla (258480)
      The freedom of being able to buy something anonymously is soon coming to an end.

      I know, right? Like how they scanned my driver's license last time I bought something with cash; or how I had to register with the Bureau of Private Transactions this past week when I traded a friend a Snickers for a Milky Way.

      Bitcoin makes it easier to make semi-anonymous purchases online. It makes it easier to get around stupid government regulations on how I can spend my money, like anti-gambling laws. It makes it eas
    • by LodCrappo (705968)

      "The freedom of being able to buy something anonymously is soon coming to an end"

      Cash? It's not exactly new.

    • by AmiMoJo (196126) *

      Did you read the report? It seems fairly clear that they are worried about the possibility of an unregulated virtual currency becoming popular enough to cause a financial meltdown in the wider economy. Unscrupulous people could do all the dodgy financial wrangling that we already banned in the real world, and in fact already are with ponzi schemes and totally unregulated and insecure banks.

      But hay, don't let TFA get in the way of your paranoia.

  • Einen moment, bitte. (Score:5, Interesting)

    by istvaan (66491) on Saturday November 03, 2012 @12:39PM (#41865623) Homepage

    Correct me if I'm wrong, but isn't the whole premise of bitcoin to be a currency that has no central authority?
    That is, it's a currency designed from the ground up to exist without and outside of central regulation and interference.
    I suspect that, if regulators attempt to get their hands on it somehow it will consider those attempts to be damage and, like the Internet, route around them.

    • by Sir_Sri (199544) on Saturday November 03, 2012 @12:49PM (#41865711)

      Well the central authority is built into how it was designed in the first place. You don't need a persistent authority because the core monetary rules of the currency exist from its inception and are unchangeable.

      This is of course one of the two fatal flaws of bit coins - like gold - you severely limit the flexibility of the currency to cope with a crisis. And secondly, alternate currencies are essentially a mechanism to dodge tax (including barter), they have other advantages and disadvantages*, but you can use them to dodge tax, which means governments are going to clamp down on it, as it undermines the basis of a functioning society when people are legally dodging large amounts of tax.

      And yes, much of this is like regulating the chips in a casino.

      *Those advantages and disadvantages matter a lot of course. The primary benefit of Bitcoins is anonymity, which can be accomplished other ways with regular currency (cash..). But that could potentially be a serious drawback if it can be used to circumvent sanctions for example.

      • by durrr (1316311) on Saturday November 03, 2012 @01:07PM (#41865893)

        People legally dodging large amounts of tax?
        You mean like the entire range of Fortune 500 companies and the associated persons?

        • by Sir_Sri (199544)

          You mean like the entire range of Fortune 500 companies and the associated persons?

          and as I said, it undermines the basis of a functioning society. Look at how long and hard the US has had to fight for healthcare, look at wealth distribution, the constant lies told by the corporate media etc. And they are, including fortune 500 companies, on the scale of things, relatively honest. Compared to say, north korea.

      • by arose (644256)
        Pseudonymity with an arbitrary number pseudonyms that are all completely independent (you can't swap money between your accounts privately), not anonymity.
      • by Richy_T (111409)

        For me, the primary benefit is that it is not subject to arbitrary inflation. This is not the case with cash.

    • by ultranova (717540)

      I suspect that, if regulators attempt to get their hands on it somehow it will consider those attempts to be damage and, like the Internet, route around them.

      Bitcoin has two problems: the size of the network and the fact that there is a network.

      The size of the network is a problem because an attacker with more computing power than the rest of the network combined can subvert Bitcoin. At the current size, it's plausible that a government might be able to do this. This is also a problem with any future decen

    • by click2005 (921437) *

      If any regulation is added it'll be no different to Chip & Pin, Verified by Visa or any number of other security failures badly added to prevent fraud (shift liability to the customer) or as an inconvenience (DRM).

      Trying to add some kind of regulation would probably be so badly implemented that it'll increase the risk of fraud or exploitation.

    • ... it will consider those attempts to be damage and, like the Internet, route around them.

      The nineties called; they want their argument back (they're probably looking to get this put-down back too).

      What we've seen in the last decade and more is that regulation of the digital realm is absolutely possible (think "Great Firewall of China") and can shut down or marginalize targeted activities quite effectively. Not perfectly, mind you, but law enforcement has never been perfect in the analog world either.

      Time to update our thinking.

    • Correct me if I'm wrong, but isn't the whole premise of bitcoin to be a currency that has no central authority?

      Aside from the serious technical and economic problems that creates, there is nothing about a lack of central issuing authorities that makes Bitcoin impossible to regulate. People do, in fact, rely on the government to do things for them, which is why the government is able to regulate anything at all. You know those daytime court shows, where some celebrity judge settles disputes between ordinary people? That is not just TV; ordinary people do, in fact, have disputes with each other and with the busin

      • by sosume (680416)

        But the government has no power over Bitcoin. You could have millions of USD in Bitcoins but as long as you refuse to hand over your wallet, they will never know or be able to prove this. And they will be unable to take it away unless you are locked up for life.

        • But the government has no power over Bitcoin. You could have millions of USD in Bitcoins but as long as you refuse to hand over your wallet, they will never know or be able to prove this. And they will be unable to take it away unless you are locked up for life.

          Right, and when I steal that car that you bought with your unregulated currency, you'll have the following choices:

          1. Go to the police, and they'll just say, "What car? You don't have any paperwork to show that you purchased a car."
          2. Find a gun and a group of friends to chase after me, and pray that you actually survive a shootout.

          Unless society collapses, the government will always be able to regulate currency, even if for some reason the currency is not being issued by the government.

  • by stevegee58 (1179505) on Saturday November 03, 2012 @12:44PM (#41865665) Journal
    I'm not sure how a decentralized, electronic currency can be "regulated" at all.
    • by cmburns69 (169686)

      You can "regulate" it by making laws against using it at all. Enforcing them may be difficult, but it could come to the point of it being a criminal offense to even have bitcoin software installed on your machine.

      • I have a few friends that have considered going into Bitcoin. I always make the same comment the parent mentions. All your government has to do is pass a law making it illegal and suddenly its worthless, unless you don't mind breaking the law.

      • I recall a law like that in the past. It was called Prohibition. Turned whole populations into criminals until they repealed it.
      1. Barter is regulated in the United States. You are expected to report large barter transactions on your taxes, and if you fail to do so you could be caught in an audit.
      2. Good luck taking someone to court with a dispute involving an unregulated currency.

      Yeah I know, anarchist fantasies about the world of people living without the government. Except that we do not live in a fantasy, we live in the real world where disputes need to be settled and where settling disputes without courts degenerates into violen

      • by Richy_T (111409)

        Between losing a few bucks now and then to disputes which aren't settled satisfactorily and losing more than a third of my income to the government each year, the choice is an easy one.

        • More like losing your life to a dispute. Here is what happens when we don't bother with courts to settle our problems:

          https://en.wikipedia.org/wiki/Murder,_Inc [wikipedia.org].
          • by Richy_T (111409)

            I bet those dead guys are sure glad the government was there to protect them.

            • by betterunixthanunix (980855) on Saturday November 03, 2012 @02:56PM (#41866925)
              Well, if you think the government is not going to protect you, I hope you live in a tactically advantageous location, have a stockpile of ammunition and guns, and a magic source of food. If not, then tell me this: what stops me and a group of my friends from coming to your home, killing you, and claiming your property as our own?

              See, if we have a dispute like this -- one in which I claim that I am actually the rightful owner of your things -- we can either ask the court (i.e. government) to settle the dispute, or we can let strength settle the dispute. In some places, where the courts are not respected, that is how disputes are settled, and people kill each other all the time (which actually leads to more disputes, and more killing). That is why we have courts, laws, and governments: so that we do not kill each other over disputes.
        • by pmontra (738736)
          But without the interposition of police or equivalent organizations you might die in any of those disputes, which I bet will increase dramatically. Historically people valued their lives more than their possessions and created police corps even if they had to pay for them. That's why we are living in this kind of world.
          • by Richy_T (111409)

            I bet they were paying rather less than a third of their income to those police corps though, right?

  • Bitcoin does potetially weaken the power of central banks and governments, transfering it back to the people, the way it was for thousands of years. Is it an outright threat? Only if your goal is to control people through virtual currency, and maintain the power to transfer wealth from the people to the government without the people being able to oppose it by printing money.

    Interestingly, while we compare it to western banking, it really undercuts more corrupt regimes that try to boalster their self-infl

    • Bitcoin does potetially weaken the power of central banks and governments, transfering it back to the people, the way it was for thousands of years.

      Nonsense. At no point in human history has a disorganized group of people had any meaningful currency. Currency is valuable because of authority; societies stay together because there are authorities keeping the peace.

      No, it is not fascist to say that. Courts have authority; the reason people don't go around killing each other when they feel like they are owed money or that they were cheated is that we have such authorities, and that we respect their decision. The point of democracy is to ensure th

      • by Richy_T (111409)

        Bitcoin may yet fail. And yet more and more, people see their savings dwindle away as the government prints more money or find that it's not even worth having savings and so we have the terrible consumer debt-ridden powder keg we now live in. People will want to store their wealth somewhere other than the next bubble. Bitcoins offers a similar option as gold which is, after all, just a shiny metal with little industrial use.

        The delflationary spiral is a lie, brought to you by the same kind of thought proces

  • by MatthiasF (1853064) on Saturday November 03, 2012 @12:57PM (#41865791)
    Not many people realize why central banks exist, but their primary role to to assure a consistent monetary policy, specifically one encouraging minor inflation (1-4%). Why is that important and necessary? Because economies run best at a steady, expected pace. When inflation grows out of control, habits change with spending and investing (people buy less long term investments and more short-term riskier ones, or consumers horde goods) and we know from history that when an economy goes from inflation to deflation there is massive chaos not only in the markets but with consumer spending (as people sell off short-term investments for long term or consumers decide to hold off buying things knowing the cost will go down).

    So, economic systems need a slow upward progression for currency to assure the economy to be healthy and Bitcoin offers that with the algorithmic generation but if the coins are generated too quickly (by some advance in computer processing), horded by a few people or other circumstances that reduce the liquidity of the currency (like the massive exchange thefts we've seen), the currency itself will begin to shift from the programmed inflation to deflation.

    What's more is the fact that Bitcoin has a limit to the number of coins, which means when it hits that limit and the price of an apple goes from 1 coin to 0.1 coin, you just created programmed deflation and the behaviors of the users of the currency will change causing chaos against other world currencies that are targeting gradual inflation.
    • Re: (Score:2, Insightful)

      by Anonymous Coward

      I hear this tirade over deflation over and over again... but I see no actual evidence for it, and there is a spectacular counter-example: technology. The tech industry has been in constant deflation since its inception. You get more and more computer (memory, storage, processing, bandwidth, what-have-you) for less and less money every year (if not every month). Yet the tech industry has not come falling down because of rampant deflation. Where's the proof that deflation is bad?

      • by arose (644256)
        It's been in inflation, not deflation. You did show, however, that people would still actively produce something that's value was virtually certain to drop rapidly, congratulations.
    • by Linsaran (728833)

      It will be a long time until BitCoin reaches the maximum number of coins in circulation, specifically around 2140, and at the time, the number of bitcoins will be approximately 21 million. Since each bitcoin is currently divisible up to 8 decimal places, that means that when those last bitcoins are mined, there will be about 2.1 quadrillion individually accountable units of bitcoin currency available for use. That means that there is a controlled inflation value until 2140, and only after that point would

      • by Teancum (67324)

        I've always though that the programmed maximum was silly, but largely irrelevant. There already are competing distributed alternate currencies to Bitcoin that use other allocation systems, so it is largely meaningless as well.

        The real threat to inflation will be the large number of Bitcoins in clients that are being hoarded but not used (often because somebody lost their wallet, their computer crashed, or had bitcoins and stopped using them), and if some alternate system can hack at those old hashes to "re

        • by Linsaran (728833)
          I know I'm over simplifying things here, but if someone wanted to 'release' lost bitcoins, they'd need the wallet file, in which case they'd no longer be lost. The wallet could be encrypted, but that's not really a lost wallet so much as a wallet locked up inside a safe that you don't know where the key is for. When bit coins are 'sent' what's really done is they are signed with a public key that matches the private key in your wallet file. For them to travel onto somewhere else you have to process them w
          • by Teancum (67324)

            For many years people thought the MD5 hash algorithm was secure, but eventually a flaw was found that could crack that hash. See also http://en.wikipedia.org/wiki/MD5#Security [wikipedia.org]

            You don't necessarily need the "wallet file" but you do need to be able to reconstruct it. This is all theoretical, but assuming that the current algorithm being used for Bitcoin had a similar mathematical vulnerability where you could crack a wallet some time in the future with ordinary computers in under a minute of effort, some of

    • Well said, but I would like to clarify some things you said.

      Even though the exact nature of the price level (value of money) is still a bit murky to economists, it is generally agreed that the total value of money should have some relation to the total value of the economy. That is, the total value of money should be approximately equal to some fixed proportion of the total value of the economy. We can think of this as the equivalent of setting aside a percentage of the economy to use for barter.

      Now since

  • The actual report is about all virtual currency schemes, including the likes of Bitcoin, PayPal, or Second Life money.

    Moreover, the precise conclusions from the executive summary:

    It can be concluded that, in the current situation, virtual currency schemes:

    - do not pose a risk to price stability, provided that money creation continues to stay at a low level;
    - tend to be inherently unstable, but cannot jeopardise financial stability, owing to their limited connection with the real economy, their low volume traded and a lack of wide user acceptance;
    - are currently not regulated and not closely supervised or overseen by any public authority, even though participation in these schemes exposes users to credit, liquidity, operational and legal risks;

    Translation: they're completely irrelevant to the monetary system as things stand, are unregulated, and present the same kind of risks as legal tender does (aka you can go in debt).

    - could represent a challenge for public authorities, given the legal uncertainty surrounding these schemes, as they can be used by criminals, fraudsters and money launderers to perform their illegal activities;

    Translation: criminals can do illegal stuff with Bitcoin and PayPal.

    - could have a negative impact on the reputation of central banks, assuming the use of such systems grows considerably and in the event that an incident attracts press coverage, since the public may perceive the incident as being caused, in part, by a central bank not doing its job properly;

    Translation: if a virtual currency scheme collapses, victims might point to us for n

  • 19th Century (Score:5, Interesting)

    by TubeSteak (669689) on Saturday November 03, 2012 @01:00PM (#41865821) Journal

    But beyond any market-level incidents caused by a new currency, itâ(TM)s important to understand that virtual currencies can actually damage the faith people put into central banksâ"and fiat currenciesâ"as institutions themselves. People are taught that central banks are necessary to manage money supplies (even though the US boomed through the entire 19th century, most of which didnâ(TM)t have a central bank). But, if it is demonstrated that money can work without central planning, and maybe even work better, then indeed the faith in central banks will be undermined, and with good reason.

    Why do we have centralized banking (aka the Federal Reserve System) in the USA?
    https://en.wikipedia.org/wiki/The_Panic_of_1907 [wikipedia.org]

    And you know what the solution to that panic was?
    A bunch of rich guys injected liquidity into the system because there was no central bank to do so.
    100 years later, when confronted with the same market situation, our central bank injected liquidity into the system and kept things from getting worse.
    Imagine that! Unelected ivory tower banking eggheads made the exact same move as laissez-faire capitalist J.P. Morgan and friends.

    The issues surrounding non-centralized banking isn't whether money works better or worse,
    it's about what happens during the edge cases, when shit hits the fan.

    • From my very cursory recall of my history classes, the Panics of ______ tend not to get touched on, which is funny if they were bad enough to be called "Panics of ____". There's a bunch of them, I'm too lazy to look up the exact dates, but one after the Civil War, one near the 1890's, and now the 1907 one. The main money event anyone really remembers is the Great Depression day.

    • by westlake (615356) on Saturday November 03, 2012 @10:14PM (#41869809)

      People are taught that central banks are necessary to manage money supplies (even though the US boomed through the entire 19th century, most of which didn't have a central bank.

      The US went bust in 1819, 1837, 1857, 1873 and 1893.

      The Great Depression of the 1930s was called "great" for a reason. It followed a long series of depressions which afflicted the American economy throughout the 19th century.

      Crop failures, drops in cotton prices, reckless railroad speculation, and sudden plunges in the stock market all came together at various times to send the growing American economy into chaos. The effects were often brutal, with millions of Americans losing jobs, farmers being forced off their land, and railroads, banks, and other businesses going under for good.

      In early May 1893 the New York stock market dropped sharply, and in late June panic selling caused the stock market to crash.
      A severe credit crisis resulted, and more than 16,000 businesses had failed by the end of 1893. Included in the failed businesses were 156 railroads and nearly 500 banks.
      Unemployment spread until one in six American men lost their jobs.

      Financial Panics of the 19th Century: Severe Economic Depressions Occurred Periodically [about.com]

  • Could this be the first step toward regulation of the digital currency?

    This might be a further, albeit small, step toward further success of digital currencies in general and Bitcoin in particular. If and when a central bank reacts in such a way, such a reaction may betray it feels threatened. Which proves at least implicitly that virtual currencies in general and, particularly, Bitcoin fulfill their purpose. QFD.

  • From my dearest possession, the Oxford English Dictionary:

    "Scheme: 5.b. A plan of action devised in order to attain some end; a purpose together with a system of measures contrived for its accomplishment; a project, enterprise. Often with unfavourable notion, a self-seeking or an underhand project, a plot, or a visionary or foolish project"

    The ECB systematically referst to virtual currencies ( and to Bitcoin ) as "schemes". The contempt of these bankers in their Frankurt ivory tower is almost tangibly present in this report....

    • by zotz (3951)

      In the Bahamas our own government chose to name something the "National Insurance Scheme" so there you go.

      drew

  • I'd worry more about how the Euro is having a negative impact on the reputation of central banks. It's not like they've been doing a bang-up job with their own virtual currency lately.

  • Virtual currencies could have a "negative impact on the reputation of central banks."

    Judging by the economic situation in Europe, I think it's more accurate to say:
    "Central banks could have a "negative impact on the reputation of central banks."

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