Javier Sebastian, principal economist at Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), cited the need to create a legal framework defining the legal nature of blockchain technology in a recent research report. Sebastian, whose main functions are the identification and analysis of trends in the digital economy arena for BBVA, noted blockchain technology could be a powerful tool for improving banking efficiency. Its characteristics of inalterability, transparency and automation by means of smart contracts could establish the basis for entirely new digital businesses.
BBVA has been among of the institutional supporters of both bitcoin and blockchain technology, investing in Coinbase and serving as a founding member of the R3CEV blockchain consortium. It has also hosted financial technology competitions.
One of the most significant factors influencing the widespread adoption of blockchain technology is how its use will be regulated. But because bitcoin is the only case of active blockckchain use in the real world, the regulatory debate has focused on bitcoin.
The first step for the European Union was to harmonize the tax treatment of bitcoin transactions, since bitcoin was considered as digital money in some countries and a commodity in others. Sales were subject to value added tax (VAT). In October 2015, the European Court of Justice exempted bitcoin transactions from VAT.
The next step was to prevent the use of bitcoin for money laundering and the financing of terrorism. In July 2016, the European Commission proposed including digital wallet providers and currency exchange platforms in the Anti-Money Laundering Directive to prevent the anonymous exchange of bitcoins.
This week, the European Parliament and the Council of the European Union proposed amending a directive on preventing money laundering and terrorist financing that will require cryptocurrency exchanges and wallets to identify suspicious activity, a directive that would include identifying bitcoin users, CCN reported.
Regulation of other uses of blockchain technology, which will have a greater disruptive impact on financial services, are at a standstill. However, there are some questions common to all cases based on the unique characteristics of blockchain technology.
For example, the distributed and global nature of blockchain makes it necessary to create a legal framework defining its legal nature, including the applicable laws, as well as where responsibility lies in the event of error.
In addition, the blockchain’s inalterability invites debate on its recognition as an unfalsifiable “single source of truth,” the legal validity of the documents stored as proof of existence, and the recognition of smart contracts as enforceable legal agreements.
The data, opinions and estimations in the report have not been independently verified by BBVA. Estimations have been made based on generally accepted methodologies.
Also read: The future of blockchain regulations
BBVA Research last month released a working paper on blockchain in financial services that addressed the regulatory challenges as well as operational and technological challenges. The paper noted that regulatory issues to date have been ignored due to the impossibility to regulate technologies, but are moving into the spotlight because they must be studied to allow its massive adoption.
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