Why Bitcoin's Future Is in Europe?

     The difference between leaders and followers lies in innovation, which represents subversion and challenges to our way of life.

     Bitcoin is an important innovation that requires progressive legislation to unlock its full potential. Clear, progressive legislative guidance can give aspiring Bitcoin entrepreneurs the confidence to explore new use cases and bring Bitcoin to the masses.

     Still, U.S. Bitcoin regulations remain highly unfriendly.

US Market

     In April, it was announced that the deadline for Bitcoin license applications would be August 8, 2015. The result (confirmed so far) is that 22 Bitcoin companies have submitted applications, and 15 Bitcoin companies have ceased their business operations in New York State. Poloniex, BitFinex, Kraken are several important Bitcoin companies that have left New York State, and BTC Guid has decided to shut down completely.

     Some companies, such as ShapeShift and Xapo, have moved their headquarters from the United States to Europe.

     Just a few hours away from New York, Connecticut passed a questionable Bitcoin bill that gives state lawmakers the power to reject or accept any qualified money transmitter license application if it involves digital currency.

     Separately, in March 2014, the Texas State Securities Board sent a cease and desist letter to Balanced Energy LLC, an oil and gas exploration company. The company was ordered to shut down because its acceptance of Bitcoin as a payment method was deemed to pose a risk to investors.

     On the west coast of the United States, California has proposed a bill that, if passed, would require digital currency exchanges to start charging a $5,000 nonrefundable registration fee. The bill has not been endorsed by any banks or lawmakers.

     For small, scaled innovators, this expense can make them hesitate to enter the industry.

     Alena Vranova, co-founder of SatoshiLabs and founder of bitcoin wallet Trezor, said: “The barrier to entry for newcomers to financial services is too high.”

     As a result, Europe has become more attractive for Bitcoin entrepreneurs.

Why Bitcoin Needs Progressive Legislation

     Jean-Louis Schlitz recently wrote an article for CoinDesk describing how Luxembourg is approaching bitcoin legislation. In it, he detailed how the Luxembourg Securities and Financial Supervision Commission (CSFA) is providing bitcoin companies with “the fundamental regulatory approach to success.”

     In doing so, the Luxembourg Securities and Financial Supervisory Authority not only clarifies legislative norms, but also encourages entrepreneurs to operate their businesses with confidence by establishing a set of basic rules.

     Luxembourg is not the only country in Europe that has introduced a workable legislative framework for Bitcoin companies.

     Germany’s BaFin confirmed in 2013 that it had classified Bitcoin as a “financial instrument,” giving companies in the space greater clarity on where they stand within the legal system.

     Kaja Ribnikar, executive assistant at Bitstamp, said her company has received nothing but positive feedback from its contacts with European lawmakers. She added: “Not to mention their willingness to engage in dialogue. They are more tolerant of Bitcoin and have a more balanced view. Obviously, the environment for operating Bitcoin in the U.S. is much more hostile.”

     Even before the Bitcoin license was issued, the lax legislation and numerous legal fees prevalent in the United States had made entrepreneurs cautious.

     Henrik Hjelte, co-founder of ChromaWay, an open-source colored coin wallet company based in Stockholm, explained that his company almost moved to the United States a year ago. However, expensive legal fees scared the team off, and they ultimately chose to base the company in Europe. “So far, we have not regretted this decision,” he added.

     LedgerWallet, a provider of Bitcoin smart card security services, is based in France to avoid legal regulations due to the nature of its business. CEO Eric Larchevêque believes that being based in Europe, and in France in particular, has “benefited the company greatly.”

     “ We … have access to various state-funded grants to help us with research and development or to develop production facilities,” he added.

The inexplicable conflict

     The US’s resistance to progressive Bitcoin legislation is puzzling given the tax revenues it faces. 77% of Bitcoin exchange is in US dollars, yet the US has never officially recognized Bitcoin as a currency.

     In early 2014, the IRS ruled that Bitcoin must be defined as an asset for tax purposes, but the federal judge in charge of the Silk Road case, Chief Justice Frank Fletcher, ruled that Bitcoin is a currency.

     Some impartial observers have pointed out that European governments are more willing to see Bitcoin as an opportunity rather than a threat. In 2013, the UK issued a tax and customs briefing that listed items for taxing Bitcoin income.

     In addition, the Spanish Ministry of Finance confirmed in April that it would exempt Bitcoin from VAT. Following this decision, the European Court of Justice's General Counsel also stated that digital currencies like Bitcoin should be exempt from VAT.

ChromaWay's Hjelte welcomed the legislation, saying: "The most important aspect of innovation right now is sound legislation. This all depends on our governments, who need to stimulate innovation in a responsive and cost-effective manner. "

Europe as Bitcoin Hub

     Despite these positive developments in Europe, there has been little media coverage. The wave of European startups is often dismissed by their American counterparts. Only 25% of Bitcoin network companies are based in Europe, which is understandable if you put the United States first in the Bitcoin startup base.

     Nevertheless, Europe has been very helpful in shaping Bitcoin. For example, Bitstamp, which is based in Europe, was born out of the first generation of Bitcoin trading platforms. It implements a comprehensive KYC (know your customer) process and hot wallet multi-signature technology.

     Other European-based companies in the space include bitcoin wallet providers Trezor and LedgerWallet, as well as Bitbond and colored coin provider ChromaWay, which is currently implementing an open-source protocol for creating digital assets based on the bitcoin blockchain.

     In addition, there is SatoshiPay, a company based in Berlin, which is an open nano-payment platform that supports "tens of thousands or even as small as a single transaction." The company has also established a cross-site content payment mechanism without users having to register or download software.

Inappropriate thoughts

     Bitcoin is a disruptive innovation, a global movement for change. Its success will be based on the use cases that have been discovered and invented. Advanced legislation is also needed to enable this innovation.

     Bitcoin needs governments to see its potential and allow it to develop at its own pace.

     As Bitstamp’s Kaja Ribnikar said, European regulators have realized that clamping down on Bitcoin would mean “killing a very strong and creative ecosystem.”

     Many entrepreneurs point to the US’s unparalleled level of venture capital as a palliative for its unfriendly legislation, which, as SatoshiPay CEO Meinhard Benn points out, “facilitates well-funded companies while stifling innovation.”

     We should not have the idea that progressive legislation can open the door to innovation. Many European countries, by providing a legal framework, only give Bitcoin entrepreneurs the confidence to inspire them, but they also need to translate this information into creating and finding new use cases using Bitcoin and blockchain technology.