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The risks presented by digital currencies far outweigh the benefits, MasterCard has claimed.

The global payment processor made these comments in its submission to the UK Treasury’s call for information on digital currencies last November.

According to the four-page submission, obtained by CoinDesk via a freedom of information request, MasterCard doesn’t believe digital currency has many, if any, strong benefits.

It attacks claims of digital currency’s low transaction costs, low payment processing time and strong system safety. The document reads:

"We would argue that, when compared to MasterCard’s network, the claims pertaining to the speed and safety of digital currencies [do] not hold up, not least given that on average it takes 10 minutes for a block to be verified and that digital currencies are far more susceptible to hacking attacks."

MasterCard goes on to say digital currency transaction costs may currently be lower than those involved in traditional payments methods, but this is because digital currency service providers don’t currently bear the cost of complying with consumer protection and anti-money laundering laws.

However, if regulation requiring this is introduced, the company says, the transaction costs will soon rise.

Consumer protection

MasterCard's submission suggests any new regulation the UK government creates should address the current lack of consumer protections in the digital currency space.

One of the risks it flags is that consumers currently have no form of official redress if they use digital currency to make a purchase and the merchant fails to deliver their goods.

To further highlight the safety of the existing financial system in comparison, the document references the UK’s Financial Services Compensation Scheme, which guarantees customers of registered companies up to £85,000 per person in compensation if the firm goes out of business.

The response makes numerous references to the high-profile failure of bitcoin exchange Mt Gox, highlighting how customers can suffer due to the lack of protections in the digital currency space.

MasterCard also believes bitcoin users are in danger as the cost of mining bitcoins will rise when usage of the currency increases, until the cost becomes unsustainable. It continues:

"To achieve economies of scale, the higher marginal costs of digital currencies will lead to a reduction in the number of miners down to a monopoly miner, defeating the original design of digital currencies and opening them up to system-wide fraud."

Final recommendations

MasterCard suggests the government should create regulation that addresses the risks associated with cryptocurrency while still enabling lawful digital currency businesses to "flourish".

The "current blockchain process" doesn’t provide sufficient transparency, it says, and regulation should require all transactions to go through regulated and transparent administrators, which would be supervised by relevant domestic, European or global authorities.

Digital currency companies should also be licensed and supervised in the same way non-bank money transmitters are. They should be required to "perform Know Your Customer checks, maintain an AML program, file suspicious activity reports and address cybersecurity vulnerabilities".

Finally, MasterCard believes the government should develop consumer protections which would force digital currency companies to create a formal consumer complaint process and enable the reversal of unauthorised charges.

Other submissions

Other companies to submit responses to the call for information include Accenture and Citi.

in its response that the UK government should consider regulating bitcoin wallets, applying the same identification requirements as it does to bank accounts.

Citi’s Treasury and Trade Services Technology and Innovation Team, on the other hand, suggested the Treasury should think about creating its own digital currency.

View MasterCard's full response below:

Check out our in-depth bitcoin regulation report for more on this topic.

MasterCard image via Radu Bercan /


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