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Will Cyprus miss the bitcoin train?

24 February, 2014

 * California more friendly, changing attitudes in New York, Canada * Ukraine to regulate bitcoin businesses *

The appeal and nationwide acceptance of the bitcoin virtual currency in Cyprus is picking up momentum, in line with a worldwide trend, despite a resistance from local authorities to help regulate the new payment system.
Cyprus is one of the five European and Asian countries together with the Ukraine, Estonia, Greece and Kazakhstan where consumer awareness by bitcoin promoters is focusing on the benefits as well as risks of virtual currencies.
Already, the National Bank of Ukraine (NBU) has issued a formal guidance to its native bitcoin community saying that bitcoin payment systems and payment infrastructure services must register with the agency and abide by existing laws related to the management of electronic money.
The announcement positions Ukraine closer to the European Union than Russia on matters of virtual currency regulation, as Russia abruptly banned bitcoin recently, in what has been one of the more hostile reactions to the emerging technology.
The topic of whether bitcoin businesses necessitate unique laws is being debated around the world, and as such, Ukraine’s decision to use existing laws gives it a unique position on the global stage.
The NBU stated that bitcoin businesses have the right to perform services only after registering with the government, suggesting that those that have not are in violation of current law. It also requires payment service providers to introduce a mechanism to settle cases of failure, disputes and transparent channels of money transfer to enhance consumer protection.
Roman Skaskiw, an American bitcoin enthusiast living in Kiev, suggested that Ukraine should strive to create a permissive environment for virtual currency that would place the east European state at the forefront of the bitcoin community.
But just as slow-paced regulation resulted in Cyprus losing the gaming industry overnight, while forex traders are often baffled by the plethora of rules in place, major investors are suggesting that the island, too, can become a global player to attract bitcoin traders and become a hub for the bitcoin ecosystem.
Asked if Cyprus authorities should regulate and embrace bitcoin or outright reject it, Antonis Polemitis, managing partner of New York-based Ledra Capital told the Financial Mirror, “of course Cyprus should embrace and regulate (bitcoin) given it is a financial services hub.”
“Just look at Singapore as a case in point,” he said.

UNIC DEBATE
A similar heated discussion took place at a workshop hosted last week by the University of Nicosia, the first educational centre to accept tuition fee payments in bitcoin that plans to introduce the Master’s degeree in Digital Currency later this year.
The discussants included senior executives from Neo & Bee, the local promoter of bitcoin, who defended the wider use of the virtual currency and the real benefits Cyprus could benefit from embracing it.
So far, the Central Bank of Cyprus has twice issued a warning to consumers, saying there are risks involved in trading in virtual currencies, in line with a December ruling issued by the European Banking Authority (EBA). This hesitation has resulted in the Cyprus Stock Exchange and the Securities and Exchange Commission (CySEC) having cold feet, despite initial keenness to allow bitcoin-traded products, such as derivatives.
However, the resistance to proper regulation of the bitcoin has spurred growing public interest to look into the use of the virtual currency, especially as there is general abhorrence towards the traditional banking system in Cyprus that has collapsed due mainly to the lack of proper regulation and transparency.
A senior executive at a leading travel company involved in both incoming and outgoing tourism, told the Financial Mirror they are investigating the pros and cons of accepting bitcoin as an alternative method of payment.
“There are issues such as hedging of foreign currency that we often do in order to pay future contracts for, say, the summer of 2015. Then, there is the case of refunds if we hold on to bitcoins and not exchange them. So, we are investigating the whole matter and seriously considering it.”

ONLINE STORES
Airfasttickets.com became the first online travel booking agency in the U.S. and Europe to announce this month that it, too, will accept payment in bitcoin, while the list already includes the likes of Amazon, Ebay, Zappos.com, Overstock.com and Virgin Galactic.
On the regulation side, California is debating a bill that would make bitcoin ‘lawful money’. Due to its position as a hotbed for technological innovation, California has thus far adopted a friendly stance toward its emerging bitcoin and virtual currency communities.
Now, following a January 29 vote in which it passed a final round of vetting by the state’s Assembly, California seems poised to broaden its definition of “lawful money” to include virtual currencies with the passage of AB 129.
The bill suggests that current state laws restrict the definition of money to the point where other forms of value, such as loyalty points or community currencies, are actually illegal under state law. As such, adverse actions taken against bitcoin, but not these equal alternatives under law, would represent a selective enforcement of the law.
The bill’s most recent revision, issued January 23, allows people to issue any instrument of value that is “redeemable for lawful money of the United States or that has value based on the value of lawful money of the United States”.
However, the bill would still give the US dollar precedent over alternatives, as it would “prohibit a person from being required to accept alternative currency.”
New York's financial regulator revealed new details on how the state plans to govern virtual currencies such as bitcoin.
"Our objective is to provide appropriate guard rails to protect consumers and root out money laundering without stifling beneficial innovation," said Benjamin Lawsky, superintendent of New York's Department of Financial Services.
Lawsky said last month that his agency plans to issue rules for businesses handling virtual currencies, including a "BitLicense", which could make New York the first U.S. state to regulate virtual currencies such as bitcoins.
Signals are emerging that Canada is also about to tighten its grip on bitcoin and other decentralised digital currencies, after finance minister Jim Flaherty singled out bitcoin by name in his federal budget, and announced forthcoming laws that would regulate it.
When such laws emerge, they will most likely be developed by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), which is the country’s financial intelligence unit, responsible for preventing money laundering and other financial acts that could support terrorism.
FINTRAC has practically ignored bitcoin since its inception, but things may be changing. An internal report from the organisation has revealed that the agency is contemplating a range of regulatory measures.
Eric Spano, director of finance at the Montreal-based Bitcoin Embassy and a director of the Bitcoin Alliance of Canada, said that the Canadian government had let bitcoin breathe for a while without regulatory smothering, and welcomed the next step.
“Now that Canada is becoming a hub for Bitcoin enthusiasts and businesses, we’re very happy to see FINTRAC’s interest in the technology,” he said.