Bitcoin inquiry: PayPal calls for clarity on digital currencies
- 08 January, 2015 12:00
Bitcoin transactions between individual users shouldn't be regulated — but businesses offering services based on Bitcoin and other digital currencies should be regulated in a similar manner to other payment services, PayPal has argued.
In a submission (PDF) to the Senate inquiry examining the regulation of digital currencies, including Bitcoin, in Australia, the company argued that it is "important to draw a distinction between digital currencies, versus the companies that trade or facilitate transactions in digital currencies".
The submission states: "While the currency itself should not be regulated, and transactions by individual users without the assistance of intermediaries should not be regulated, companies that provide a financial service for digital currency transmission, for issuance or sale of digital currency, or for exchange with other currencies such as the Australian Dollar, should be regulated in a manner similar to the existing regulations that apply to other payment services.
"Those regulations, however, should be adapted to recognise the specific details of how different digital currencies work, particularly 'decentralised' digital currencies that are not controlled by a specific issuer."
The company added that regulators should clarify that the use of Blockchain-style technology for non-financial applications shouldn't be regulated in the same fashion as digital currencies and providers of digital currency services.
PayPal argued that as a provider of a digital wallet that accepts multiple types of currency it was already adequately regulated by existing laws and should not be caught up in legislation focussed on digital currencies.
"One of the factors that has discouraged PayPal from adding Bitcoin as an additional type of currency in the PayPal wallet is the lack of clarity related to regulation of digital currencies (as with other jurisdictions PayPal is regulated in Australia and is a significantly different business model to digital currencies)," the submission states.
PayPal's recommendations• Digital currencies should be clearly defined and regulated and recognised as financial instruments - this would facilitate more certainty and clarity of digital currencies and create more consumer protection.
• Technology neutral regulation is preferable to ensure innovation is not stifled.
• A registration process and licensing regime could be applied to companies providing digital currency financial services in Australia.
• Regulators such as AUSTRAC, the Australian Securities and Investments Commission and the Reserve Bank of Australia could regulate digital currency financial services companies ies and provide effective regulatory oversight and prudential supervision of the development of digital currencies in Australia.
• Digital currency financial services companies at a minimum should be subject to the AML/CTF Act.
PayPal is yet to include support for the cryptocurrency in its digital wallet or directly support processing of bitcoin-based transactions on its payments platform.
"At this stage, consumers will not be able to store Bitcoins in their PayPal digital wallets," the submission states.
"The rationale for this is that PayPal wants to ensure that while embracing innovation we remain committed to making payments safer and more reliable for customers – all users of PayPal are linked to a specific named PayPal account, with consumer protection for buyers, but identity and consumer protection are not built into Bitcoin today. Therefore, we are proceeding gradually, with some support for merchants in the U.S. who want to accept Bitcoin, while holding off on other aspects."
In September last year, the company announced that subsidiary Braintree, a payment gateway provider, would allow US businesses to accept bitcoin payments through the service.
PayPal in September also announced that it had struck agreements with BitPay, Coinbase and GoCoin to integrate support for bitcoin payments in PayPal's Payments Hub, which can be used to accept payments for digital goods.
The Senate inquiry into digital currencies was established in October last year.
It followed in the wake of guidance issued in August by the Australian Taxation Office that GST will be charged when businesses supply bitcoins or receive bitcoins in return for goods and services.
Although Bitcoin is the only crypto-currency with market strength in Australia, it still represents a "relatively low" fiscal risk according to the ATO.
Late last year the Australian Crime Commission revealed the existence of an operation to monitor the use of digital currencies, including BitCoin, by criminals.
Representatives of Bitcoin-based businesses and advocates of the crypto-currency appearing as witnesses before the inquiry have argued that Bitcoin should be treated like money, not a commodity, for tax purposes.
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