Bitcoin Conference St. Petersburg Part 3

This is the third article in our series summarizing the Bitcoin Conference St. Petersburg, Russia, which took place in early December of 2014. The information in our summary series comes from a report received from a conference attendee. In the first article, we gave a general overview of the conference and summarized the speech given by Alex Fork.

In the second article, we summarized the second speech of Bitcoin Conference St. Petersburg, which was given by Michael Chobanian. In this third article, we will provide a summary of the lecture given by Paul Shust, a representative from the Electronic Money Association.

Paul Shust: Bitcoin “Changed the Rules of the Game”

The third speaker at Bitcoin Conference St. Petersburg was Paul Shust, a representative from the Electronic Money Association. This association is a European trade body that represents electronic money providers and other individuals or businesses that create innovative payment systems.

From the Association’s official website:

“ The EMA is the European trade body representing electronic money issuers, and other innovative payment service providers. Members include electronic money institutions (EMIs), payment institutions (PIs), banks and payment schemes. In 2012 our members executed some 1.5bn transactions across the EEA.”

The History of Electronic Money

Shust began his speech by giving the audience a brief overview of the history of electronic money. He highlighted various key milestones in the development of electronic money from the 1980s, 1990s, and the 2000s.

The first milestone Shust mentioned was the failure of digital cash, a system in which banks issued numbers — like the serial numbers one would find on the paper notes of a fiat currency — that individuals would use in place of physical cash. These numbers would be transferred from computer to computer through one of several competing digital cash protocols. This system was expected to become commonplace by the early 2000s, but was pushed aside by the widespread adoption of debit and credit cards.

Paypal was the next major milestone in the development of electronic money. Paypal allowed users to send payments to send money directly to each other from their Paypal accounts, rather than a bank wire transfer. This new form of electronic payments made e-commerce much easier and more appealing, as it cut down on bank fees and waiting periods. However, Paypal is a centralized system, in which all of their users’ information is stored on centralized servers. Such a system decreases privacy and requires that users trust Paypal in processing their transactions. Furthermore, this system created a central point of failure; if Paypal were to go down for whatever reason, its customers would lose any money they had stored on their accounts. Thus, while Paypal made online transactions faster and easier, it did nothing to lower the risk involved in trusting a third party with your money.

Crypto-Currency Changed Everything

The next monetary advancement on Shust’s list of major milestones was crypto-currency. According to Shust, crypto-currency “changed the rules of the game.” Bitcoin, the very first crypto-currency, introduced an entire monetary system that was totally decentralized. From Bitcoin mining to actually transmitting Bitcoin payments, decentralization permeates every corner of the Bitcoin protocol. There is no central bank for Bitcoin; in fact, no banks are needed at all for Bitcoin. Given the digital nature of the currency, storage costs can be as low as the price of a flash drive or a slip of paper. Therefore, in a Bitcoin economy, the only practical function of a bank would be to act as a credit agency.

According to Shust, Bitcoin is the first truly independent currency we have seen in a very long time. All other currencies can essentially be regarded as forks of the United States dollar, since it is the reserve currency of the world. Bitcoin, however, is totally independent of the US dollar. Bitcoin is trustless and has no central issuer; to Shust, those qualities make Bitcoin immune to any attempts by governments or central banks to destroy or restrict the digital currency.

What Governments Should Consider when Making Bitcoin Regulation

Because of the unprecedented characteristics possessed by Bitcoin, regulators have had a hard time deciding how to treat the crypto-currency. It’s decentralized and pseudonymous nature have created fears that Bitcoin could strengthen the drug trade, finance terrorism, or contribute to any kind of illicit activities. Thus, some governments have moved to ban Bitcoin outright, while others have considered implementing strict Know Your Customer and Anti Money-Laundering laws against Bitcoin.

Shust stated that these regulators should slow down and consider the full potential of Bitcoin before passing any legislation. Bitcoin could remove our dependence on banks, eliminating the need for trusting third parties with our money. Additionally, Bitcoin’s protocol provides high levels of security to responsible users, making theft unlikely.

Instead of banning Bitcoin or regulating it to the point of uselessness, governments should pass legislation that helps integrate Bitcoin into the existing financial infrastructure. Shust stated that most of Bitcoin’s success relies on this integration. There are very few independent financial instruments for Bitcoin, so the digital currency must have access to the traditional financial infrastructure in order to go mainstream.

Following his statements on Bitcoin regulation, Shust closed his speech by making a small prediction for the future of Bitcoin. He speculated that the market for retail payments in Bitcoin would likely improve, meaning that many companies will begin to make Bitcoin a part of their business models.

What do you think about Paul Shust’s ideas on Bitcoin regulation? Let us know in the comments below!

Images courtesy of Alexander and Business Insider