Bitcoin is Not an Alternative to Fiat Money, Dutch Central Bank Consider

De Nederlandsche Bank (DNB) the central bank of Dutchland, has made an advance notice on digital currencies such as bitcoin.

Photo: Radio Nederland Wereldomroep/Flickr

Photo: Radio Nederland Wereldomroep/Flickr

De Nederlandsche Bank (DNB) the central bank of Dutchland, has made an advance notice on cryptocurrencies such as bitcoin, saying that they “are unlikely to become a viable alternative for traditional currency in the foreseeable future.”

Recognising that digital currencies  is not under control of bank;s policies and regulations, the statement on the DNB website warns:

“There is also no security in respect of funds received, ie no guarantee that balances will be returned following bankruptcy, and outstanding payments will be executed. No-one monitors whether virtual currency institutions have sound and responsible business operations”.

Measured but Negative

In December 2013, the former president of the DNB, Nout Wellink, dismissed bitcoin, saying that the “façade” and hype around the currency would eventually disappear – comparing it to the ‘Tulip Mania’ of the 17th century.

In April the deputy director of the Dutch Payments Association, said digital currencies were technology.

This latest statement is saying how digital currencies work, including mining, before warning: “There is a lot of interest in virtual currencies, owing to their innovative character and their way of challenging the current financial system, but this does not make them a viable alternative for the basic functions of money.”

Amid many similar bank warnings, the organisation got concerned about the fact that there is no central authority looking after the bitcoin industry, with “market players in virtual currency systems [providing] only weak security guarantees”.

Theft and Compliance

Moreover, the security of users’ fundscan also can be an issue,remembering Mt. Gox’s situation:“…virtual currency systems are definitely still falling short where security is concerned.

Due to its decentralised set-up, there is no central party in the virtual currency world that has the responsibility to hold market players to account when they fail to comply with conditions for use, security demands, or legal frameworks.”

Furthermore, DNB warning says the usage of  virtual currencies are not widely spread, due to their disadvantages. Currently, there are less than 1,000 transactions per day in the Netherlands, while the daily payment equals to more than 16 million euro.

Issues for Users

Along with the bitcoin’s uncertainty and security problems, the DNB have doubts whether the software used in digital currency transactions is reliable: “The software supporting a virtual currency system may be faulty, meaning that the integrity of transactions cannot be guaranteed.”

One of the main advantages of bitcoin and other cryptocurrencies is that it is extremely cheap to make a transaction compared with international bank transfers.

However, the central bank believes that this will not be the same in the long term: “… when the majority of the maximum number of 21 million bitcoins will have been created around 2030, transaction processing costs will have to be recovered from transaction fees. The current low fees are then unlikely to be maintained.”

Nothing new

Jelmer Baukema, a lawyer in the Banking and Finance practice at Van Doorne, Amsterdam, and who also specializes in working with digital currencies, mentioned:

“I think [the bank’s statement] will not affect the Dutch bitcoin system, as the DNB did not explicitly express its disapproval against the use of bitcoin. The bank seems, at least for the moment, to be playing down the role of bitcoin in the Dutch economy (rightly or wrongly).”

According to Mr. Baukema, except this official statement, there have been unofficial from DNB bank, saying that it provide, or plans to provide, supervision to companies that manage bitcoin-related activities.

Moreover, Baukema said about DNB plan to write an official report on bitcoin in the near future.

“In general, this DNB statement on bitcoin is very limited and its contents do not provide new insights on how bitcoin related activities are, or will be, regulated or supervised in the Netherlands,” Baukema finalized.

Even though the banks of Netherlands have been negative toward bitcoin, the industry is having a boom in the country, with the Bitcoin 2014 Conference that takes place in Amsterdam next week.

Furthermore, Dutch bitcoiners can even book a helicopter flight with digital currency.

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