When the European Central Bank attacks (clumsily) bitcoin

Several bitcoin experts pointed out the inconsistencies of the ECB in an article published this Thursday on the queen of cryptocurrencies.

For several years, the European Central Bank (ECB) has constantly criticized bitcoin. But since the authority launched its experimental phase of a digital euro in November, its attacks have become more and more virulent. The latest: this column published this Thursday, February 22 by two members of the authority’s market infrastructure and payments department, Ulrich Bindseil and Jürgen Schaaf.

This time, it is not a question of placing the fall of the former crypto giant FTX on the shoulders of bitcoin, but of demonstrating its failure as well as its dangerousness then. that the asset trades above 50,000 dollars. “For society, a new boom-and-bust cycle of Bitcoin is a disastrous prospect. And the collateral damage will be enormous, including environmental and the ultimate redistribution of wealth”, we can read.

“Hardly not used for payments”

However, several inconsistencies which appear in this article have been pointed out by bitcoin experts. On the one hand, the ECB maintains that despite its creation 15 years ago, bitcoin remains little used as a means of payment.

Today, “Bitcoin transactions remain impractical, slow and expensive. Outside of the darknet, the hidden part of the Internet used for criminal activities, there is practically no used for payments”, points out the ECB.

At present, bitcoin is already used to pay, its use varying from one user to another depending on their needs (because they do not have a bank account, to protect their privacy, to transfer value to another country etc.). For example, in a country like El Salvador, which adopted bitcoin as legal currency in September 2021, it is easier to pay with bitcoin than elsewhere.

Likewise, at the start of 2024, the bar of 10,000 merchants worldwide accepting bitcoin was crossed, according to data from the specialized site BTC Map. Paying in bitcoin while avoiding the obstacles of your blockchain (slowness and cost of the transaction) is also possible using the so-called Lighting Network system (see our article: we paid for a drink in bitcoin in a business in France with the Lightning Network).

Finally, we are seeing an increase in the use of crypto payment cards which allow you to pay for any service in France, with its cryptocurrencies.

Link to illicit activities

Another criticism from the ECB: bitcoin is the currency par excellence for financing illicit activities. The ECB highlights that illicit activities financed in bitcoin are increasing, based on a report from Chainalysis. “The title of the report is literally ‘Illicit activity is decreasing’. We are told that activity is increasing while it is decreasing,” notes Alexandre Stachchenko, author, speaker and independent crypto expert on Bitcoin and digital assets.

“The answer is quite simple, the authors of the article take the previous reference year (2022) compared to that of even before (2021). Why? Because that this serves their discourse. Between 2021 and 2022, illicit activity increased (in value, not necessarily in proportion). Between 2022 and 2023, it decreased”, specifies the latter.

Likewise, Chainalysis does not at any time cite bitcoin as the only cryptocurrency that has contributed to the financing of illicit activities, but rather the entire crypto market. Furthermore and as a reminder, only 0.24% of transactions for all cryptocurrencies in 2022 (compared to 0.12% in 2021) were associated with illicit activity, according to the latest Chainalysis report on the financial crime.

It is therefore appropriate to qualify the use of cryptocurrencies in the context of illicit activities, although it is an additional tool in the same way as cash. Furthermore, fewer and fewer criminals are using cryptocurrencies which are traceable on public blockchains, like bitcoin, as declared Colonel Nicolas Duvinage.

Accroître la réglementation

Finally, the ECB considers that the regulatory projects for cryptocurrencies, in particular MiCa (for Market in Crypto Assets) which will come into force in Europe this year, do not go far enough. The authority took the opportunity to put forward the idea of ​​regulating bitcoin.

“The Bitcoin network has a governance structure in which roles are assigned to identified individuals. Given the scale of illegal payments using Bitcoin, authorities could decide to sue them. Decentralized finance can be regulated with as much force as the legislator deems necessary”, we can read.

On the one hand, for the Bitcoin code individuals are identified, “but not at all on the acceptance of changes in the Bitcoin network, which are accepted or not (by the majority) by the minors who are not identified individuals”, points out bitcoin expert Renaud Lifchitz. On the other hand, the Bitcoin blockchain has nothing to do with decentralized finance (DeFi), the ECB’s argument falling apart.