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European Central Bank casts wary eye towards Bitcoin

Anonymous Coward writes | about a year and a half ago

Bitcoin 1

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.” 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

+ Virtual currencies could have a “negative impact on the reputation of central banks”

Could this be the first step towards regulation of the digital currency?"
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1 comment

Virtual currency, why? (1)

Shavano (2541114) | about a year and a half ago | (#41864373)

There are three kinds of currency in the world.

Currency with intrinsic value. (e.g. gold, silver and copper coins) whose value equal the value is derived from the metal they are made of. One can imagine many kinds and denominations of intrinsic-value currency. Anything that is chemically and physically stable and hard to produce will do. The point is it will hold some value because you can't just make an infinite number of them with no work. People will consequently accept them as a holder of value.

Fiat currency has value because some government somewhere declares that it is a valid medium to remit debts and taxes. You can accept it as payment for labor or goods because you can use it to pay debts and taxes. This kind of currency is accepted by users based on the stability of the government and economy on which it is based. The bigger and more stable the government, the more people trust its fiat currency.

Then there is Bitcoin. It has value because... um... DANG!

For bitcoin or other virtual currencies to have value, people have to trust it based on something other than government fiat or intrinsic value because it has neither. It's easy for whatever authority that governs it to produce it in any numbers with near-zero effort. So why would you accept it as payment? You need some sort of assurance that its' value is not going to evaporate before you can turn it into some other form of value like goods, services, land or some more stable form of currency. If the central banks get involved and start regulating it, that could give it the legitimacy it would need to become a viable currency. But then why use it instead of euros or dollars?

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