BitcoinCentral operates as bank,reflections from multiple perspectives

Pierluigi Paganini December 09, 2012

Virtual currency schemas, despite used by large communities, face with intrinsic instability that makes them not ideal for investments for financial entities. Banking systems represents the unique opportunity for investors that while accepting the risks related to financial transactions don’t want to work with a currency with no real equivalent or that it is managed by private entities based in fiscal heavens. Many economists believe that with large adoption of currencies such as Bitcoin by legitimate business and governments the scenario could rapidly change.

In December 2012 a website works as exchange, Bitcoin-Central, converting real-world currencies for virtual bitcoins, has been granted the status of a bank.

Bitcoin-Central has reached an agreement with French financial institutions Credit Mutuel and Aqoba to grant it the status of a “payment services provider” (PSP) recognized by European Laws, the direct implications of the deal are meaningful, customers will have easier and safest access to Bitcoin system. Customers of exchange could operate freely exchanging money with other bitcoin accounts and with real banking accounts.

Recognizing Bitcoin-Central as a PSP means to equalize it to other payment providers such as PayPal and WorldPay.

One of the pillars for Bitcoin system is the anonymity of transaction, the possibility to separate the real identity of the investor from the financial transaction undertaken, with obvious repercussion under the security perspective.

Vitalik Buterin, editor of Bitcoin magazine, commented on BBC that the agreement could could serve as a driving force for businesses to accept bitcoins:

“The more we see governments and banks being willing to deal with Bitcoin, the more comfortable a lot of organizations are going to be making the step forward themselves,”

Another aspect to consider is the way the exchange Bitcoin-Central has to held its deposits backing them with same compensation laws and schemes applied to cash held in other bank accounts,  protection that must be applied to balances held in euros rather than bitcoins.

Bitcoin Central enumerated the advantages in an announcement:

  • Each user will soon be able to order its own debit card that will use their EUR and BTC balance to honor purchases and cash withdrawals
  • We’ll have direct access to the banking networks which will let us 100% automate all incoming and outgoing transfers
  • Corporations will have an actual financial institution talking with them if they wish to start accepting Bitcoin and be safe from a regulatory point of view
  • Paymium will have a much better legal standing and a much higher attractivity for second and third-round investors

But the statements appears in totally antithesis with the original idea of the creator of bitcoin virtual currency schema, Satoshi Nakamoto that described its system with following statement:

“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”

The agreement could represent a menace to the original idea that made famous the virtual currency, virtual currency risks to lose the principles that made it far from the control exercised by central authorities.

CTO of Paymium, David Francois, that was involved in the Bitcoin-Central deal declared:

“Some people might argue that regulation is a bad thing. We respect this opinion, but we’ll have to agree to disagree,” 

The capitalist world has historically fought against a financial system that isn’t able to control, but suddenly it has discovered the possibility to make covert affairs and dirty business that’s why it is trying to engulf bitcoin world extending its service to it.

Don’t forget the Bitcoin is born as a decentralized monetary systems, it is the largest virtual currency schema with around $140 million USD in circulation and counting, which will be the future for famous digital currency?  Bitcoin considered as untraceable currency, certainty in a near past and utopia for next future.

Under security point of view, cyber security experts provide an increase of cyber attacks against the new currency, the increase of diffusion of Bitcoin schema will give more opportunities to cybercrime to steal the “digital money”. Once again cybercrime could be less risky and high profitable respect conventional crime, due this reason it could be possible to observe in the incoming months an increase of the number of malware that try to steal Bitcoin wallets or that infects victims to exploit its computational capabilities to mine new coins.

Another phenomena than will increase are the phishing attacks against the customer of principal exchange services that must be prepared to mitigate the cyber offensive. Consider Bitcoin as Paypal means also that the famous currency schema will suffer similar attacks, new fraud schemas will be developed to steal money to the Bitcoin users.

Cybercriminals follow money and diffusion of Bitcoin also in legitimate market could represent a great occasion for crime.

In the past it has been observed how much vulnerable is Bitcoin Economy to cyber attacks, let’s remind thet after a famous attack the value of currency had fearful oscillations which feed the distrust of investors … a mature financial system must be prepared to respond vigorously to such events.

Pierluigi Paganini

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