In a general report on competition in the financial technology market, the EU Economic, Scientific and Quality of Life Policy Department devoted a chapter to discussing “digital currency” and compared the similarities and differences between privately issued digital currencies and central bank issued currencies. .
According to the report, both types of digital currencies use blockchain and distributed ledger technology; however, central bank digital currencies issued based on blockchain do not currently exist, although many countries are considering implementation.
Privately issued digital currencies, including Bitcoin, Ethereum, Litecoin, Ripple and other digital currencies. Although the report calls them “digital currencies,” they are fundamentally different from centralized currencies. The report also explains the potential of Bitcoin and commented on the EU legislature's Facebook Libra hearing last week.
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At the same time, the report stated:
“These digital currencies provide some technical and operational paradigms that are subversive for the entire industry, including monetary policy and financial stability.”
EU competition concerns
However, the report pointed out that Bitcoin and Ether are consuming too much market share in the digital currency. In March 2017, they collectively “accounted for 88% of the total market value of digital currency…this is a feedback on relevant indicators of current market concentration”. In March 2015, only Bitcoin accounted for 86% of the market (currently less than 70%).
The policy department seems to regard Bitcoin and Ether's market dominance as a basis for competition between digital currencies.
The report said: "Given the digital currency market is part of the blockchain, its competition problem is quite complicated." At the same time, the report said that one of the more complex anti-competitive trends is "the existence of network effects," which will lead to " The number of users is increasing." This sounds like an implicit euphemism for free market dynamics.
For the EU, the most obvious "remedy" for enhancing market competition is the central bank to launch digital currency.
“The digital currency endorsed by the central bank will reshape the current competition in the digital currency market and increase the number of competitors.” But at the same time, the EU believes that the digital currency will have a certain impact on the central bank’s monetary policy. Therefore, whether the EU will accept digital currency or whether it is trying to catch up is still to be verified.
Bitcoin service "Cartel (Corporate Alliance)"
The EU acknowledges that “any participant in the cryptocurrency market operates in a global location outside the jurisdiction of the European competition regulator, which makes it more difficult to investigate or prosecute anti-competitive behavior”. Even so, it is still concerned about the auxiliary market of cryptocurrency.
It is particularly concerned about the so-called “vertical integration strategy” where “exchanges, wallets and payment providers may design behavioral practices that exclude each other from the market, for example, by motivating miners who support a particular cryptocurrency. Or get incentives from some of the leading players who try to exclude competitors from other activities."
According to the specific data cited in the report, the trading volume of the five exchanges accounts for 75% of the total market transaction volume. The company also said that because of the high barriers to entry, there are not many Bitcoin mining competitors. Energy and hardware costs make this market relatively closed. (Currently, the top five known mines account for 64.7% of the bitcoin network hash rate).
European wallet and exchange suppliers account for 42% and 37% of the global digital currency market, respectively, with encrypted payment platforms accounting for 33% of the world. But Europe accounts for only a small 13% of Bitcoin but the mining industry, because mining is the most strategic, complex and technology-dependent.
Author: Colin Harper
Editor's Note: The original title is: The EU says the current digital currency market is “anti-competitive” and the currency issued by the European Central Bank will help.