Bitcoin and Cryptocurrencies’ Regulation in Europe
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For better or worse, the exponential growth of cryptocurrency and its chaotically rises and falls in value have not gone unnoticed by the European Union, nor the governments that comprise it. It is quite difficult to agree as to imagine what role this intervention will play in the upcoming future, and without the right know-how, all conjecture lacks authority. While the delocalized natures of cryptocurrencies, including (but by no means limited to) Bitcoin, make it hard to see the effectiveness of these restrictions, some are hopeful that these laws might even help their growth instead of hindering it. To others, however, any and all restrictions on these cryptocurrencies stand to insult the ideals behind their conception and are intolerable.
Who can really say which view is right or wrong? Of course, both sides of the discussion have made valid points. Both only want what’s best for everyone. The matter is not really as straightforward as it seems.
In this article, we will look into the actions taken by the European Union and the governments of European countries with regards to Bitcoin and cryptocurrency.
Why Did the European Union Step In?
The European Union made its first move way back in 2012, despite the fact that Bitcoin debuted in 2008. Why did they wait these years?
First, let’s look at the changes in the price of Bitcoin from the year 2009 to the year 2012.
- In 2009, Bitcoin wasn’t traded on any exchanges, so that year’s data is not valid, as technically it can be argued that the price of one Bitcoin was zero dollars!In 2010, the Bitcoin began to be traded on a few exchanges, so the value rose. The maximum price became 0.39 dollars that year.
- In 2011, for the first time, Bitcoin gained parity to the United States Dollar in between February and April. Then, on the 8th of July, Bitcoin reached a peak of 31 dollars.
- In 2012, the value rose from around 2 dollars at the end of the previous years to 13 dollars.
So, it can be seen that Bitcoin was at the time showing serious fluctuation, a characteristic quality of cryptocurrencies, but at the same time, it wasn’t really growing all that much. It had done better than anyone had thought possible, but that was only because nobody had expected it to survive this long at all.
Such a disparity in pricing, where an item can lose half its value in a month, and triple it the next year, is unfavorable to investors and the global market. It creates a reluctance in buyers and mistrust in the system. Ultimately, it can cause an economic crisis if left unchecked; and this is one of the primary reasons that the European Union felt the need to take a stand in 2012.
What Did They Do and What Have They Done Since?
Well, for starters, the E.U. issued a report on the proliferation of the cryptocurrencies (as several had begun to spring up since 2011). This marked the first formal acknowledgment that Bitcoin and cryptocurrencies were a powerful force to be reckoned with and began also our story. They used a different term, ‘virtual currency’ but it’s really the same thing. So, the Virtual Currency Scheme came into being and was presented in 2012.
Then, all was silent till the end of 2013, when the European Central Bank warned investors not to buy into the trend without actually having surplus cash. That might seem pointless, but this behavior caused the Great Depression nearly 90 years ago.
Another caution was sent to the national supervisory authorities in 2014, to ‘discourage’ all financial institutions from having anything to do with virtual currencies until a proper check and balance could be established. Basically, they were like ‘don’t let a Great Depression happen again, guys’ and thankfully, no such thing occurred.
In 2015, following a massive theft from an online company (Mt. Gox), the E.U. released a new V.C.S. (virtual currencies scheme) that properly detailed their manifesto towards cryptocurrencies. You can read them here.
Key points of this VCS:
- Cryptocurrencies do not meet the functions of currency as:
- Media of exchange
- Stores of value
- Units of account
- While they can be afforded the ‘store of value’ status of money, they are ill-suited for this role due to their inconsistent growth trends.
- The E.U. deemed cryptocurrencies as contractual money, and that remains their position today.
Then, later in 2015, a commission for the E.U. reported its unease due to the accessibility cryptocurrency provides for buying weapons, following terrorist attacks in France.
In subsequent meetings held between November 2015 and mid-2016, the E.U. discussed the need for a system of checks and balance for crypto investors. Many wanted users of cryptocurrency to have to go on the record with their usage data, to prevent illegal activities and to maintain complete transparency.
The motion to tax cryptocurrency was passed during this time period as well. The E.U. has a tax on cryptocurrency holdings, investments, on crypto tokens and on many transactions done in cryptocurrency. While this displeased many, the motion still stands. Funny how quick governments will tax something they don’t consider as wealth or having the same status as currency.
As for the United Kingdom, the general view is that Bitcoins are not legal tender, and all crypto coin and virtual debit card user information will go to the government. All transactions are recorded, and the government can look into them, from buying Bitcoin online with a virtual card to buying grapefruit with an Amon card.
It is noteworthy that while many Bitcoin debit cards exist, the majority of them operate within the E.U. and the United Kingdom, so I guess that these regulations are actually a lot more beneficial than they seem. Also, a great deal of cryptocurrencies operates within this region with great success, which is another plus point. The E.U. prevents countries from introducing their own cryptocurrencies to prevent over competition; Estonia was forbidden from making Estcoin, a government backed currency, by the Union recently.
The best that can be said about these actions, no matter what your views on the topic, is that they were done in the best of interests for not just the governments, but people worldwide.