In its February 2015 report on “virtual currency schemes”, the ECB analyzes existing and potential benefits and threats of cryptocurrencies. It believes them to be insignificant at the moment but potentially dangerous in the future.

The name of the new report is “Virtual currency schemes: a further analysis”. Many things have changed since October 2012, when the ECB issued its first report on cryptocurrency, and the new document tries to take these changes into account. It provides a detailed overview of new categories of actors in the cryptocurrency ecosystem and of different kinds of altcoins. 

Virtual currencies, says the report, have a number of advantages over competitors in terms of consumer fees, global reach, anonymity of the payer, and the speed of settlement that might make them successful in the future, especially for payments on web platforms and cross-border payments. But these advantages, “whether real or only perceived”, are not so important when weighed against risks presented by the lack of transparency, absence or unclarity of legal status, potential illiquidity, high IT- and network dependency, and high volatility. The report cites famous cases such as the crash of Mt. Gox, the hacking of Bitstamp, and the recent closure of MyCoin.

Because of these flaws, cryptocurrencies could become a threat in the future, says the report. After a major incident, users could lose all confidence in electronic payments as a whole and in specific solutions used by e-commerce. But right now there is no threat because the significance of cryptocurrencies is very low. Comparing the market capitalization of bitcoin, by far the most popular of them, with the supply of money for various fiat currencies, the authors conclude it is two times less important than boliviano, the currency of Bolivia, and two thousand times less important than euro.

The 2012 ECB report defined virtual currency as “a type of unregulated, digital money, which is issued and usually controlled by its developers, and used and accepted among the members of a specific virtual community”. The new report believes that it is not widely accepted enough to be termed as money. Instead, it is classified as “a digital representation of value, not issued by a central bank, credit institution or e-money institution, which, in some circumstances, can be used as an alternative to money”.

However, in the future the situation could change if cryptocurrencies become more widely used and there are major financial actors participating in the cryptocurrency ecosystem, making it a part of the regular financial system.

Right now, according to the authors, statistical information on bitcoin is gathered by cryptocurrency “stakeholders or operators of web pages connected with them and is thus unverified”. Therefore, monitoring by people not associated with cryptocurrencies is necessary. For decentralized cryptocurrencies, it is not difficult as the blockchain “is openly available”. But the main bitcoin exchanges and trading platforms should be “be invited to provide information on their transactions”, as well as issuers of centralized altcoins.

Regulation efforts should also be coordinated, first on the European level and then globally. “Regulatory responses are likely to be more effective if they are internationally coordinated. A patchwork of inconsistent national-level regulatory responses to financial stability concerns may not address risks – as the activity of agents in this market may be international”.

The report does not mention any “Bitcoin 2.0” applications or the potentional for non-currency uses of the blockchain technology at all. Colored coins are mentioned, but only once, in passing. It also does not mention the efforts of bitcoin companies to address the problems of security and volatility, such as multisignature wallets, pegging bitcoin to fiat currencies, and gold or derivatives trading.