Bitcoin and blockchain may be heading for a messy divorce, as support, cash and industry sway for the ledger technology continue to prise it away from the crypto-currency which brought it into the mainstream.
Once inseparable, their paths have splintered into very different directions as the volatile crypto-currency is linked with pyramid schemes while the technology graces the covers of mainstream magazines.
The European Commission this week signalled its approval for ledger visionaries to continue tinkering.
A commission spokeswoman told BlockchainBriefing: “Innovation in financial markets is something the commission supports but there are no legislative developments in relation to blockchain at this stage.”
Brussels has never spoken of Bitcoin in terms of innovation or support.
Bitcoin: ‘On life support’
Indeed, it is on life support according to the boss of a major investment bank.
JPMorgan chief executive Jamie Dimon made waves with recent comments that “my personal opinion; there will be no real, non-controlled currency in the world”.
“There is no government that’s going to put up with it for long … there will be no currency that gets around government controls,” he told Fortune.
Adding that the underlying technology, blockchain, would flourish, he said: “It may even be used to transport currency but it will be US dollars.”
Dimon’s firm is part of the now 25-strong blockchain initiative brought together by innovators R3.
It is collaborating with Deutsche Bank, Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse, Goldman Sachs, Royal Bank of Scotland, State Street, UBS and many more to create a global standard in blockchain technology.
None of the above appears interested in Bitcoin, other than UBS which is experimenting with a hybrid version of its own crypto-currency, very different from its decentralised forbearer.
Global anti-money laundering (AML) watchdogs are also pushing the message that exchanges, where the crypto-currency can enter the traditional financial system, will be regulated first.
R3 itself is very much “virtual currency agnostic”. It cares solely about the foundation technology, which carries a degree of risk, but nowhere near the controversy of Bitcoin.
Managing director Charley Cooper told BlockchainBriefing: “While it is true that distributed ledger technology grew out of the e-currency world, it is certainly in no way reliant on it and in many ways the underlying infrastructure has now far outgrown Bitcoin itself.
“The potential for this technology in financial markets is vast — we believe it is the catalyst to enable banks to enter a new frontier of technology, as they did in the mid to late-nineties with the adoption of the internet, delivering huge improvements in transparency, efficiency and risk.”
From rolled eyes to rolled sleeves
Regulatory uncertainty looms over the crypto-currency, and pressures in this area were cited as a factor in the swing in attention.
For others in the space, the almost limitless promise of what a ledger can do as an automated, speedy, irreversible, incorruptible record of transfer value, offers far more potential.
Daniel Tannebaum, director in auditing giant PricewaterhouseCooper’s financial crimes advisory practice and the leader of the global financial services sanctions practice, said that suspicion has been quickly replaced with opportunity.
“A lot of our clients are the global financial institutions, they are primarily concerned with what blockchain technology can do to disrupt their business, and they are trying to front run that by putting pilots into place along those lines,” he told BlockchainBriefing.
“For the custody business, it’s about how can we leverage blockchain to manage the custody of assets.
“I hear a lot about chain of custody, given I work with a lot of custodians, and initially their eyes would roll, now they are taking it seriously over what it will mean for business.
“Custodians are excited, they are looking at it as an efficiency play in a number of areas,” he said.
For Tannebaum, the industry is on the brink of a new dawn, similar to the introduction of the Automated Clearing House (ACH) or SWIFT networks.
The game-changing computer based networks allowed the processing of enormous volumes of payments across the globe, now totalling trillions of dollars a year.
ACH began life in 1974, pre-dating not only Bitcoin and the blockchain but the internet, smartphones, mobile and e-money.
Forty plus years of invention, globalisation, the evolution of banking and the payments space and huge leaps in technology, plus the emergence of non-traditional types into the space, has left it trailing.
Bank glitches are more frequent as out-dated systems crash under the weight of demand.
The new technology promises to end all that, to the tune of $20bn in savings a year.
“I think blockchain has staying power,” Tannebaum said.
“There are a number of companies springing up that are looking at these platform plays, and a number of banks really looking at integration seriously.
“I don’t think Bitcoin is dead yet but right now blockchain is what everyone is talking about,” said Daniel Tannebaum, leader of the global financial services sanctions practice at PwC.
“From a regulatory standpoint I think it is relatively straightforward, certainly nothing new if you are talking blockchain specifics.
“It’s just a different type of program that you have to build a control frame around, that is it.”
Financial services expert Margo Tank, a partner at BuckleySandler’s Washington, D.C. office, believes engaged and inquisitive lawmakers may be just what the space needs to aid growth.
“We have seen a wave of regulatory pressure sweep over the industry,” she said.
“However, it may be what is needed to get virtual currency, the blockchain and payments innovation to the next level.
“The Uniform Law Commission and the Conference of State Bank Supervisors are ones to watch closely in the US as they have shaped the way regulation is formed at the state level in the past and there is no reason to think they won’t be involved in the future.”
Education, education, education
Tannebaum’s point that regulators cannot be innovators comes from his own experience on both sides of the fence, believing legislators and law enforcement are not the enemy.
“The fact that they ask questions does not mean they are trying to stifle, it means they are trying to wrap their heads around it and I think there has been a lot of good private sector dialogue along those lines,” he said.
“What some companies have failed to realise is by pro-actively educating regulators and law enforcement you are ultimately making your own life a lot easier.”
“Treating them akin to how you are treating the guys who are backing your company is the right way of looking at it as they have a stake in this too, although not monetary it is an investment that can cost you money on the back end.”
He pointed to the emergence of blockchain advocacy and lobby groups seeking to engage.
Three have recently sprung up in Washington, D.C., joining the already well entrenched Electronic Transactions Association.
Their rise to prominence puts the fate of the very first crypto-currency lobbyists, the Bitcoin Foundation, into sharp focus.
The foundation, which was created in 2012, is “effectively bankrupt”, according to one board member, with former vice chairman Charlie Shrem jailed for his part in a major criminal enterprise linked to Bitcoin.
Tannebaum certainly believes so: “For something so new that has that perception in the regulatory community, the banks banding together behind it show they are looking to come up with common ground rules makes a lot of sense, and that is what you need to do to ensure survival.”
About the author
Mark’s regulatory coverage of the payments industry touches on a wide variety of subjects from cryptocurrency, international sanctions and anti-money laundering laws to innovation and emerging markets. He has been part of three award-winning editorial teams in regional newspapers across the UK, holding positions of political, business, transport, crime correspondent and assistant digital editor during that time. He has also reported for the Sun newspaper and the Guardian’s night and breaking news teams. Contact Mark
PaymentsCompliance offers leading commentary from the cutting edge of the global payments industry. Driven by an experienced team of lawyers and journalists, PaymentsCompliance bridges the gap between being aware of regulatory change and developments in payments and accessing the critical information and tools clients need to understand and prepare their businesses to react to these changes.
BlockchainBriefing is the world’s leading information and news portal for ledger technology, delivered straight to your inbox. Our in-depth news and analysis, expert commentary from legal and business minds, and compliance and regulatory updates, provide you with the business intelligence you need to stay abreast of market developments and guide your decision-making process.