MasterCard rails against Bitcoin's anonymity

MasterCard has used a submission to a Senate inquiry to argue for Australian regulators to move against the pseudonymity of digital currencies such as Bitcoin.

"Any regulation adopted in Australia should address the anonymity that digital currency provides to each party in a transaction," the company's submission (PDF) states.

"Contrary to transactions made with a MasterCard product, the anonymity of digital currency transactions enables any party to facilitate the purchase of illegal goods or services; to launder money or finance terrorism; and to pursue other activity that introduces consumer and social harm without detection by regulatory or police authority."

All Bitcoin transactions are visible on the block chain, which acts as a distributed ledger for the crypto-currency. However, Bitcoin 'wallets', which are used to store, send and receive bitcoins, can be easily generated and are not always easily linked to real world identities.

MasterCard cites the example of the collapse of Mt Gox, at one stage the most popular Bitcoin exchange, as an example of what it sees as a problem with the pseudonymity of Bitcoin-style currencies.

"As we have learned from the experiences emanating from the Mt. Gox Bitcoin exchange collapse, the existence of a 'block chain' does nothing to allow law enforcement, other government authorities or the public to identify the real identity of the parties to a digital currency transaction," the submission states.

MasterCard believes that "all participants in the payments system that provide similar services to consumers should be regulated in the same way to achieve a level playing field for all."

Regulations should be "technology neutral" to "ensure that they can and do apply to all new providers of payment services to consumers".

The company also argues that because "there is no bank, administrator, or regulator" backing the value of a digital currency, "consumers have no recourse if a digital currency loses its value or if the digital currency system fails".

Along with the minimal fees for peer-to-peer transactions, the absence of centralised bodies governing the currency is often cited as one of Bitcoins' strengths by advocates.

"For Australia to take a market leadership position, it will have to address risks that harm consumers and those that enable criminal behaviours while developing clear and consistent regulation which allow lawful digital currency businesses to flourish," MasterCard argues.

Steps that Australia could take include requiring all digital currency transactions go through "regulated and transparent administrators subject to supervision by Australia authorities (rather than just the current block chain process)"; licensing "all administrators comparable to non-bank money transmitters" and imposing conditions on them such as implementing an anti-money-laundering program; and introducing consumer protections, such as charge reversal processes.

In a submission (PDF) on behalf of the Australian Bankers' Association, the ABA's Tony Pearson, a former advisor to Treasurer Joe Hockey, argued for "uniform client identification, information security and reporting processes across all payment platforms".

The ABA represents 24 Australian banks, including the Commonwealth Bank, ANZ, Westpac and NAB.

"The payments system is a vital part of the financial system," the submission argues.

"The system is regulated by the authorities to ensure it is soundly based, secure, and that the community can trust that the value of the currency or the means of payment will be preserved. Maintaining confidence in the safety and efficiency of the payments system is crucial to the public’s ongoing trust and willingness to participate in the payment and banking systems.

"To ensure the integrity and stability of the whole system it is crucial that all channels of payment are subject to the same regulatory oversight."

The Senate inquiry into digital currencies by the upper house's Economics References Committee was established in October on the initiative of Labor Senator Sam Dastyari.

At the first hearing of the inquiry, held on 26 November, the crypto-currency's advocates said that a ruling by the Australian Taxation Office on the treatment of Bitcoin was acting as a brake on Bitcoin-related businesses in Australia.

Follow Rohan on Twitter: @rohan_p


Copyright © 2014 IDG Communications, Inc.

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