Speakers and participants at the recent Global Digital Currency Conversation (GDCC) Summit in Brisbane believe the current regime of banking and finance regulation is struggling to accommodate peer-to-peer digital currency transactions. Appropriate regulation must address the needs of commercial users, personal users, law enforcement, and the social good.
With traditional forms of online payment, Australians are accustomed to a high level of protection. Consumers are empowered to recover unauthorised payments and to dispute payments when an item is not received or is not as described. Online banks provide encryption to protect funds.
The risks of fraud under the current regulatory regime are therefore borne by sellers. Companies such as ReD, represented by Naomi Nixon, analyse transactions to identify suspicious activity in order to protect online sellers from financial losses. Other speakers, such as Ryan Singer of Domus Tower Inc and Nigel Phair from the University of Canberra Centre for Internet Safety suggested that digital currencies such as Bitcoin may place the burden of risk back onto consumers.
This is because, in digital currency transactions, there are no intermediaries offering to safeguard digital accounts or provide compensation for purchases gone awry. Bitcoin transactions are generally not reversible, even if they are mistaken or fraudulent. The onus of securing a digital wallet against malware and unauthorised access rests on the owner. Digital files containing details of bitcoins can be lost or accidentally deleted with no avenue for recovery.
Much of the regulatory burden in the traditional banking sector is aimed at avoiding financial crime where large amounts of funds are held in trust. Digital currencies are not held in trust, but are distributed. The central ledger is visible to all. According to Ivan Zasarsky of Deloitte Australia, the ledger technology of Bitcoin, the block chain, is simply too complicated and therefore uneconomical to attack or tamper with. Ryan Singer argued that this means traditional regulatory oversight will be redundant. Tessa Hoser of Norton Rose Fulbright raised the possibility of open source governance, a substantial conceptual and cultural change from traditional governance.
Digital currencies have also attracted the attention of law enforcement agencies because the potential for pseudonymous transactions has obvious criminal application, Nigel Phair said. Bitcoin has been the currency of choice in online marketplaces where illegal goods are traded, such as Silk Road and Black Market Reloaded. The association of digital currencies with criminality is both a regulatory challenge and a factor that limits mainstream adoption.
Speakers agreed that a new regulatory approach will be required as digital currencies enter the mainstream. There was no clear vision of what an appropriate regulatory approach would be, but there was fear in some quarters that excessive or inappropriate regulation could damage the nascent digital currencies industry, leading to loss of business opportunities and related benefits for Australians. Regulation of digital currencies is the subject of a Senate Economics References Committee inquiry, due to report in March 2015.
- Highlights from the Brisbane GDCC Summit 16-17 November 2014
- Bitcoin: A Primer for Policy Makers, by Jerry Brito and Andrea Castillo