Blockchain technology, popularized by the virtual currency, Bitcoin, is being hailed by many as a ground-breaking innovation that will increase efficiencies in the global economy. Its applications could be far reaching, but presently its impact is most evident in the banking sector. Banks view blockchain as a tool to decrease transaction costs, processing times, and fraud. To illustrate the fervor behind blockchain, in September 2015, a consortium of nine banks established R3, a company focused on the research and development of blockchain. Within three months, the number of banks involved with R3 ballooned to 43.
Although, as discussed below, blockchain is praised for its self-regulatory mechanisms, issues with Bitcoin theft, market manipulation, and its use in illegal transactions have forced governments around the world to consider oversight. U.S. federal and state regulatory boards have expressed interest in policing the use of blockchains in financial transactions, and some have already taken action. Most of the current and proposed regulation deals with virtual currency, but these regulations provide insight into how governments will handle all types of blockchain activity.
This article will examine the future intersection of banking law and blockchain technology. First, it will provide a brief explanation of the technology and its potential uses by banks. Then, through an examination of the current regulatory climate of virtual currency, it will discuss legal issues that banks should consider as they implement blockchains into their system. As this technology permeates financial markets, banks should prepare to adapt their practices, both to take advantages of opportunities and to conform to new laws.
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