Last week, Bitcoin-Central, a Bitcoin exchange and storage service provided by the French company, Paymium, made a huge announcement. In essence, they said that they will now legally be able to carry out all of the functions of a payment service provider (such as Paypal or Dwolla)—with "legally" being the key word here. The truth is that it looks like a bank and it talks like a bank. But it's not really a bank.
But that's okay. For the moment, let's just talk about appearances. Because in this case they are very important.
Bitcoin is a digital currency that was built to operate completely outside the influence of governments and financial institutions. Bitcoins, the unit of currency, are created, transferred and secured exclusively by the people who run Bitcoin software.
By offering regulated banking services, Bitcoin-Central has torn a little hole into the fabric of the international financial system, a hole through which Bitcoins can now legitimately flow and mingle with national currencies. Each Bitcoin-Central account will now be given an international bank account number which will allow customers to make and receive transfers with other banks. If they want to, customers can use this number to set up direct deposits with their employers and request that whatever currency coming in be converted immediately to Bitcoin. It also means that Bitcoin-Central will be able to begin issuing debit cards that withdraw from balances maintained in either Euros or Bitcoins. Futhermore, any balances kept as Euros will be insured by the taxpayers, just as they would at any other bank. The only thing Bitcoin-Central will not be able to do is invest its clients money and issue credit.
If this little fissure grows larger, it is very likely to lure in new Bitcoin investors, the kinds that have been watching from the sidelines waiting for someone to iron out all of the wrinkles. Bitcoin's legal status may be the biggest wrinkle of all, in that no one knows exactly how the courts will define it. This uncertainty has caused some companies to back away from their associations with Bitcoin. Last year, Mt. Gox, the largest online Bitcoin exchange, was temporarily unable to accept Euro deposits when the Bank de France, fearing that the exchange was operating outside European regulations, suspended its account with Mt. Gox.
According to Bitcoin-Central (rather, a user named "davout" who claims to speak for the company on the Bitcoin forum), Mt. Gox's snafu in France was the reason they decided to sort out their legal status.
According to Davout:
"Since 2010 we kept learning, when mtgox got kicked out of France for not complying with the law we learnt from it, when our banks gave us a hard time we learnt from it, when we discussed with smart people on these very forums we learnt from it."
But, like I said, this does not mean that Bitcoin-Central is a bank. It's not even a payment service provider (PSP). In fact, what they have done is partner with an outside bank called Credit Mutuel Arkéa and a registered PSP called Aqoba, both of which operate out of France. Aqoba will operate a third-party payment account for Bitcoin-Central which will facilitate Bitcoin transactions through the account. The relationship with Credit Mutuel Arkea will provide insurance to all Euro funds. So Bitcoin-Central itself has not gained any new legal status, but it has made some important new friends.