3 January 2009: release of the virtual currency Bitcoin. What is Bitcoin? Who created Bitcoin? What are the advantages of Bitcoin? What are the disadvantages of Bitcoin? What about Bitcoin and taxes? What is Bitcoin mining?

1. Bitcoin: the virtual
currency conquers the
real world
Advantages and disadvantages
of the most widespread
“democratic” payment system
October 2015

2. 3 January 2009
Release of the virtual currency Bitcoin, an open source
software using a peer-to-peer method to manage a common
database (block chain) in which all transactions are recorded.
It is a system that is:
The cryptocurrency
safe: all transactions are public and traceable, even if the
identity of the user remains secret;
easy: to use Bitcoins all you need to do is install a software
to create your own digital portfolio – wallet – to which you
associate a Bitcoin address where you store your coins
(the address corresponds to your bank account, but has no
operating expenses);
convertible: algorithms are used to calculate the exchange
rate (not by a central bank) that is updated every
minute. Today 1 Bitcoin is worth roughly 1,000 dollars;
next

3. widespread: it is accepted as online payments in many
specialised shops (Amazon, E-bay) or music or game
platforms; several Apps provide maps of the (real) shops/
services that accept Bitcoins;
it has a capped growth: Bitcoins will be issued until
its maximum number has been reached (21 million); a
Bitcoin block is ‘issued’ every four years: in 2017 the
number of Bitcoins will have reached 3/4 its maximum
growth; the process will be complete in 2040.
The cryptocurrency

4. A revolution
still looking for its inventor
It’s not clear who invented Bitcoin.
The person who invented Bitcoin used the pseudonym Satoshi
Nakamoto, but no-one knows whether it represents a single
individual or a group.
It’s thought that Bitcoin was invented as a fallout to the 2009
financial crisis by an online community called Cypherpunks
committed to promoting free global information.
In 2014 Leah McGrath Goodman, a journalist at Newsweek,
wrote that the inventor of this virtual currency may indeed be
called Satoshi Nakamoto, a man of Japanese origin living in
California.
So far Dorian Prentice Satoshi Nakamoto has denied
“having created, invented
or worked at developing Bitcoin”.

5. Bitcoin is a cryptocurrency; it is not made of paper or metal,
but bits, arithmetic operations that are part of cryptography
and ensure safety.
These operations require more and more computing power,
and this power is provided by the users who let their personal
computers be used to execute the calculations required: it’s
a rather complicated calculation system, like trying to open
a safe using one combination from amongst the three billion
possible combinations!
This operation is called mining and the virtual currency
operators are called miners.
Mining pools are quite common, i.e., a system whereby users
combine the computational power of their personal computers
to carry out mining. The reward (Bitcoins) for the computational
input providedis thensplit proportionallybetweenthemembers.
How to earn coins

6. Bitcoin: the advantages
It’s instant: members can make online payments from and
to anywhere in the world almost in real time.
Low transaction fees: transactions cost significantly less
than traditional payment methods. This makes Bitcoin ideal
even for small payments, for example in cafés, restaurants,
etc. – you can use a smart phone to pay for your coffee!
It’s available round the clock: you don’t have to wait
for your bank to open and you can always withdraw/deposit
Bitcoins. It cannot be blocked or limited by Governments as
a economic policy measure.
It cannot be depreciated: when the maximum number
of Bitcoins has been issued, no more Bitcoins will be issued
and therefore there is no inflation.

7. It’s not accepted in many places: although it’s steadily
becoming popular, very few people know about Bitcoin,
and even less use it.
It’s volatile: since it’s a young currency and is not used
everywhere, the value of Bitcoin varies substantially.
Itcanbeimproved:the technology is still being developed;
many features still have to be added/enhanced.
It’s irreversible: transactions cannot be cancelled, not
even if you punch the wrong key or send coins to the
wrong address. Be careful with your wallet!
It’s anonymous: this could encourage the use of Bitcoins
in illegal operations.
Weak points

8. Several operators exchange Bitcoins for traditional currency:
the exchange rate, calculated at the time the transaction
takes place, is based on the Bitcoin demand/supply mechanism
– the greater the demand, the greater its value.
In Italy this service is provided by the Robocoin Italia
platform. It has installed Bitcoin ATMs in Milan, Rome and
Florence. The number of affiliated merchants is gradually
increasing.
Roughly 200 shops all over Italy accept payments in Bitcoins.
The declared goal is
“hundreds of outlets by the end of 2015”.
Bitcoin and (non digital) reality: how to buy
traditional currency and goods/services

9. It’s not a real coin, so it can be considered a common
asset, a product one can invest in. In fact, some people have
bet on (and turned a profit) by investing in Bitcoin.
Who?
The producers of the digital infrastructures, platforms and
financial software used to Exchange Bitcoins and buy goods
and services.
All over the world you can count the number of Bitcoin
investors on the fingers of one hand; young entrepreneurs
who were the first to believe in this cryptocurrency.
A few examples of these virtual finance markets: Mt. Gox,
BTC China, First Meta, Bitstamp.
Virtual currency, real returns: who invests
(and turns a profit) in the Bitcoin world

10. Bitcoins and the tax system: it’s neither an
asset nor a currency – how should it be taxed?
Debunking mythes
It’s not true that transactions/investments in Bitcoins are
not taxed because it’s an intangible currency - goods/services
purchased with Bitcoins are taxed as if they had been purchased
with traditional currencies.
For example, if I buy a car, I cannot expect it to be exempt
from VAT!
Regarding VAT: the EU Court of Justice has ruled that Bitcoin is
not a currency and that exchange with a traditional currency
(and vice versa) is a provision of services in return for payment;
since it falls into this group, it has to pay VAT.
A step forward regarding the tax system for Bitcoin.

11. According to the judicial organ of the European Union, No
Country has adopted a regulatory frame work for digital
currencies:
Singapore, Germany and Slovenia have taxed crypto-
currency operations on a case by case basis: as capital
income, private currency/barter etc.
In Denmark, profits from Bitcoin are tax free.
China, instead, is against e-money and has forbidden its
use in the financial sector.
The United States consider Bitcoins as property (like
owning a share or a house) with a value that fluctuates over
time and produces capital income; hence, it has to be taxed.
Bitcoins and the tax system: it’s neither an
asset nor a currency – how should it be taxed?

12. What’s the situation in Italy?
In Italy there is no legislation as it (nearly always!) happens
when technological novelties are truly revolutionary. Since the
issue significantly affects consumer protection – given the
growing number of users – Italian Institutions should take
urgent action.
Many people hope that the EU will approve harmonised
legislation for all Member States.

13. Bitcoin and cryptocurrency are not yet widespread in Italy,
but the issue of how to regulate and integrate them into the
monetary system is now on the country’s political agenda.
Some call for caution, others instead do not want the free
development of the sector to be hindered by legislation.
2013
The Bitcoin Foundation Italia was created.
“We support the universal right of every human being
to carry out free financial transactions, without interference
by third parties. We believe that decentralised finance can
lead to a free and just economy and society”.
Bitcoin in Italy:
growing stakeholder interest. Early initiatives

14. 2014
In June the Hon. Stefano Quintarelli (Per l’Italia) organised
first meeting at the Chamber of Deputies: “Bitcoin in Italia:
what opportunities for ‘arithmetic currencies’ in Italy?” -
#bitincamera.
A second meeting, entitled “Bitcoin in the real economy” was
organised by the Hon. Sergio Boccadutri (SEL).
The CashlessWay Association dedicated their “No Cash Day”
annual meeting to Bitcoin.
Bitcoin in Italy:
growing stakeholder interest. Early initiatives

15. July 2014
Boccadutri (SEL) presented the Draft Law “Mandate to
the Government to regulate the issuance and circulation of
complementary currencies”; the Finance Commission, charged
with examining the proposal, has yet to table it for
discussion.
Boccadutri stated:
“I am acting on a request by the market:
when contacted by those who accept Bitcoins,
the Tax Agency said it was waiting to see what to do.
I’m a MP and I asked myself how should we deal
with this problem”.
The legislative proposal

16. Mandates the Government to adopt ad hoc regulations to:
establish a definition of complementary currencies as well
as the criteria required to identify them;
oblige the entities that issue cryptocurrencies to indicate
a fixed exchange rate with the Euro;
specify that it is a voluntary payment system;
enhance the traceability of the payments;
oblige the entities that issue cryptocurrencies to send
a biannual report to the Bank of Italy regarding its
management and the protection of the interests of those
involved.
The contents of the Draft Law

17. The Draft Law defines the currency as an exchange tool and
not a deposit tool.
In other words:
it regulates purchases but not accrual, hence it
does not regulate the objective value of Bitcoin, whereas
the main weak point of e-money is precisely the fact its
value is so volatile.
The critical point?

18. There’s no question that cryptocurrencies are here to stay,
there’s no going back now and banks were the first to
realise its potential: Goldman Sachs, Barclays and Ubs have
all become interested in investing in the sector.
This innovative phenomenon called Bitcoin will undoubtedly
develop; it would be impossible to backtrack now, nor would
it be advisable.
However important steps have to be taken before we can
consider cryptocurrencies equivalent to traditional currencies;
regulation is the first and most important step.
Possible developments