Paul Chou, CEO of LedgerX and the bitcoin advisor to the U.S. Commodities and Future Trading Commission (CFTC), says companies trying to use the blockchain without bitcoin are seriously misguided, and so far the concept is unproven, according to New York Business Journal.
Chou says bitcoin and blockchain are inextricably linked and must remain as such for blockchain technology to become widely adopted. Chou’s LegderX is working to establish a regulated bitcoin derivatives market.
Chou and other bitcoin advocates say without an incentive to compensate a wide network, blockchain will lose its effectiveness.
LedgerX is building products for financial institutions using bitcoin. The company has raised about $1.5 million in venture capital and is seeking additional funding.
Chou in September 2014 submitted applications to the CFTC to become a swap execution facility (SEF) and was granted provisional status in 2015. He has also applied to become a derivatives clearing organization (DCO) which would allow investors to hedge against their bitcoin investment risks.
If approved, LedgerX would be the first federally-regulated bitcoin clearing house and options exchange to list and clear fully-collateralized, physically-settled bitcoin options for the institutional market, CCN reported.
On Tuesday Chou, who was appointed a member of the CFTC technical advisory committee, attended a committee meeting along with 100 people including technologists, CFTC staffers and others to discuss the application of distributed ledger technology to derivatives.
Consensys and CME, a futures marketplace, and others shared ideas for how blockchain derivatives could help build a stronger derivatives market.
Chou said after the meeting he hopes staffers and regulators can create regulations with a better understanding of the blockchain and bitcoin.
Without the CFTC’s approval, a legal, U.S.-based derivatives market that could offset risks could not exist, undermining the currency’s growth.
Chou said the CFTC is a proper regulator for bitcoin because it has jurisdiction over derivative trading on any commodity or currency. He said the commission a lot of experience in this area.
Other regulatory avenues have been pursued for bitcoin. itBit, an exchange, received the first charter in May 2015 for a bitcoin company to operate as a trust, allowing the company to operate in all 50 states. Circle Internet Financial in September secured the first New York State BitLicense.
Financial institutions have taken an interest in the blockchain since it provides value for transactions other than bitcoin. Blockchain transactions occur nearly immediately compared to the three-day clearing time for many financial transactions. In addition, the higher transparency of the immutable ledger can make it easier for regulators to track bad actors and enforce legal actions.
Numerous startups have attempted to capitalize on these blockchain capabilities, such as Digital Asset Holdings, JPMorgan Chase, Symbiont, Consensys, Duncan Niederauer, and R3CEV, a conglomerate of 42 global banks.
Chou said these are speculative proposals that take out one element in a complex system and have all the advantages of that system. “I don’t think are really correct,” he said. “I think the second you separate bitcoin from some of the other elements the use-cases of the individual elements are unlikely to be proven, in my view.”
The only thing that’s proven thus far is bitcoin as an asset class, he said. He said it is actively traded, is being used by consumers and merchants, and has a market cap.
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