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French Company's Move Gives Regulators a Window on Bitcoin

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Bitcoin-Central, a French digital currency exchange that handles the largely unregulated Bitcoin currency, now operates under French regulation after parent-company Paymium partnered with payment services provider Aqoba.

Bitcoin was created as a digital alternative to cash. It has many of the same properties as cash, such as the ability to enable anonymous transactions without a system for chargebacks, but because Bitcoin is not a government-issued currency it has struggled to find mainstream acceptance.

The arrangement between Paymium and Aqoba "moves Bitcoin more mainstream and gives it more legitimacy," says Gareth Lodge, senior analyst of banking with Celent. "It creates an opportunity to more easily use the bitcoins in the real world."

Paymium, a software company focusing on payments and security, claims it operates the first Bitcoin exchange conforming to European regulations.

Aqoba handles payments for merchants through a relationship with the French bank Credit Mutuel Arkéa. The bank which will now "carry the burden of capital requirements" and "provide a guarantee for deposits in fiat currency," says Pierre Noizat, co-founder of Paymium.

While many publications have hailed the announcement as a Bitcoin exchange becoming a bank, the details are slightly less dramatic — consumers won't have a bank account with Bitcoin-Central but instead Credit Mutuel.

And while Bitcoin enthusiasts on the bitcointalk.com forum expressed excitement about the launch, some are skeptical about adding more regulation, including anti-money laundering laws and the Know Your Customer rules on any transaction over 250 euro.

Bitcoin-Central "is two steps removed from the actual bank," says Jon Matonis, a payments industry veteran who evangelizes for the digital currency on his blog, The Monetary Future. "I don't necessarily agree with or support the strategy of immediately going towards a model of more regulation."

But Noizat says not much has changed within the exchange. Even before the partnership, users of Bitcoin-Central had to provide identification to a bank to deposit into the Bitcoin exchange through wire transfer.

The move provides stability to the exchange, Matonis says. Many Bitcoin exchanges have accounts with banks in many countries because occasionally banks would stop processing bitcoin payments or freeze exchange accounts.

Now consumers are covered by the state-issued insurance, 'Garantie des dépôts', a French equivalent to FDIC, Noizat says. 

The partnership also allows users to order debit cards from Aqoba. The cards are funded in euros, with Paymium handling the conversion to and from bitcoins as required by each party in the payment. The merchant would need to be signed up with Bitcoin-Central to handle Bitcoin payments.

Since the cards can handle payments in euros, they would also work with merchants that do not know about Bitcoin.

"Bitcoin is becoming a new currency, a universal currency, but first it must prove its liability and performance as a transaction network," Noizat says. "This is the best way to establish Bitcoin as a viable method as an alternative to the banking network."

Getting merchants to join the Bitcoin community and accept payment in the decentralized currency is a main goal for U.S. enthusiasts too. Last month, Bitcoin enthusiasts, playing off the holiday tradition of Black Friday sales, held their own Bitcoin Friday, with about 74 merchants participating.  The event provided some bump in spending, but did not recruit a substantial number of new Bitcoin users.

While the partnership provides benefits to French consumers, some U.S. citizens are asking about membership on the bitcointalk.com forum. The French issuing bank will likely require French residency before issuing debit cards, Matonis says.

Paymium didn't expect international interest, but Noizat says the companies are looking at the steps to take to serve a global audience.

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