Italian Banking Group: Bitcoin's Advantage is its Network Effect

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Aug 5, 2015 at 8:31 p.m. UTCUpdated Aug 6, 2015 at 6:27 p.m. UTC. The European Securities and Markets Authority has published a number of responses stemming from a request for information on the topic of virtual currency.

The ESMA, which regulates securities activity in the European Union, first sought submissions from the finance and digital currency industries in April.

The agency published 14 responses from participants such as German megabank Deutsche Bank, Italian banking group Intesa Sanpaolo, regional trade group European Central Securities Depositories Association and interbank messaging network SWIFT, among others.

Intesa Sanpaolo, like a growing number of banks worldwide, has gone as far as to establish an internal working group called an "Innovation Area" focused on cryptocurrencies as part of a broader effort to innovate on the technology side.

Intesa Sanpaolo noted that among its possible use cases, bitcoin could function as a network for rights management, writing that " potential is far from being fully explored especially as a means to transfer rights and value in a very secure way".

The bank went on to suggest that ESMA avoid using the phrase "Virtual currencies", offering alternatives such as "Distributed ledger technology", "Limited supply digital entitlement", "Digital scarce asset" and "Mathematical commodity".

At the same time, Intesa Sanpaolo wrote that among both implemented and envisioned distributed ledgers, bitcoin itself remains "The first and the most important of Internet of Value protocol", citing the adoption of TCIP-IP over alternatives as possible precedent.

"There are high chances that it can establish itself as a global standard, as it leverages at least four powerful network effects: [the] bitcoin network has by far the largest hashing power, the higher capitalization, the largest user adoption, the best and largest developing and maintenance effort around it."

The ECSDA, which represents 41 central securities depositories in Europe, said that it supports a regulatory regime for digital currencies, adding that such a framework "Needs to be developed to avoid disturbances to financial stability".

"Looking at technological developments in conjunction with, but also separately from, virtual currencies and virtual currency investments, could enable securities regulators to find the right balance between promoting innovation and mitigating the related risks."

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