Lloyds Bank and other major banks have announced that they will be preventing their customers from purchasing Bitcoin using credit cards attached to their banks.
According to Fortune, this decision was made to protect banking consumers from “both financial and legal risk” of investing in Bitcoin. Along with Lloyds Bank, Bank of America and JPMorgan will also be implementing the same ban this week.
Citigroup also announced their stance, joining the other big banks on Bitcoin purchases.
This is not a direct “rebellion” by the banks on Bitcoin, Fortune noted. Since last year, the banks have been monitoring the move on Bitcoin and one of the biggest motivation for new Bitcoin investors is the access to retail credit cards like VISA and MasterCard. This means users are purchasing Bitcoin with money that they loaned from the banks. Since Bitcoin’s worth has dropped 50 percent since December, it is highly likely that those who used their credit cards to buy Bitcoin are now “underwater” and may be incapable of paying off their initial Bitcoin purchases.
It is not only the banks who are taking a stance against the cryptocurrency world. Government regulations have already been implemented in the U.S., South Korea, China, Russia, and India. Germany, on the other hand, calls for a global regulation on Bitcoin and other cryptocurrencies.
Facebook also made its move to ban advertisements related to cryptocurrencies, citing that they want to prevent users from investing in scam ICOs (Initial Coin Offering).
Crypto and Bitcoin Frauds Arise
Banks and governments are intervening because there have been multiple frauds and hacking on the crypto world. Because the system is decentralized, it is highly susceptible to money laundering. Just this January, $300 million has been stolen in one of the crypto platforms. Though an investigation has opened up, it would still be challenging to track $300 million of unaccounted transactions.
According to New York Times, it’s the Ponzi schemers and hackers who are currently winning in the current scenario. The frauds have become so massive that two main regulatory agencies in the U.S. will report to SEC and Commodities Futures Trading Commission, to testify on their policing on the virtual currency fraud.
Wharton School Professor Kevin Werbach said that virtual currencies are the “perfect vehicle for scams.”
“The combination of credulous buyers and low barriers for scammers were bound to lead to a high level of fraud, if and when the money involved got large. The fact that the money got huge almost overnight, before there were good regulatory or even self-regulatory models in place, made the problem acute.”
The technology is also the problem. Though the initial concept of cryptocurrency seems progressive, the open-sourced blockchain technology also encourages hackers to manipulate the prices of the tokens. If this were a share in the stock market, there are multiple monitoring bodies to confirm and assure a buyer of the certain price of a stock during a specific period of time. With the blockchain technology, especially for those who are new, it’s the developers who have full control.
Fred Wilson, a partner at the venture capital firm Union Square Venture and one of the earliest advocates for Bitcoin, said that he acknowledges the rampant scamming on the platform and “it’s not obvious to me how that is easily removed.” Wilson believes regulation should now be carefully implemented to protect its users and investors as well.
“Regulation, ideally prudent and informed regulation, can help. But we may also need to have a big correction to really clean things up.”