Breakingviews - EU Transparency Purge May Boost Bitcoin Legitimacy

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MILAN (Reuters Breakingviews) - A European Union transparency drive may boost bitcoin’s legitimacy. The bloc agreed on Monday to force cryptocurrency exchanges to identify users. That will make it harder for criminals to use virtual cash to hide their ill-gotten gains.

The EU’s bitcoin assault is part of a broader attack on money laundering and the financing of terrorism. To do so, the bloc is updating the existing anti-money laundering directive to shed light on opaque areas of the financial world. One key novelty is a requirement for the dozens of European exchanges which trade in currencies such as bitcoin or ethereum, and the technology companies that store the money in so-called wallets, to carry out the same know-your-customer checks as ordinary banks.

The new rules are an important step in the fight against illicit money flows. Anonymity, guaranteed via encrypted procedures, is probably one of the main reasons for the soaring popularity of digital currencies, which have seen their market values exceed $400 billion this year. Paying for goods and services in bitcoin or similar allows users to bypass regulated payment systems. That appeals to drug dealers or terrorists. BlackRock Chairman Larry Fink recently called virtual currencies an “index of money laundering”.

The European transparency push could help change things. If transactions are no longer secret, this should deter usage for illicit means, and facilitate the work of law-enforcement agencies. It may also make it harder for criminals to hack exchanges, as happened with Slovenian group NiceHash last year.

Criminals can still use exchanges outside the EU. There’s also a danger that more trading simply moves off exchanges. But Europe is not alone in the fight. South Korea imposed similar rules earlier this year, and the United States may not be far behind. If more trading happens out of the shadows, virtual currencies could become more respectable.

Business/Financial News