BBVA economist: Blockchain technology urgently needs a legal framework, Bitcoin becomes a point of regulatory debate

According to the Huobi Blockchain Research Center, Javier Sebastian, chief economist of BBVA, pointed out in a recent research report that a legal framework that defines the legal nature of blockchain technology needs to be created. Sebastian, whose main task is to identify and analyze trends in the digital economy for BBVA, said that blockchain technology has the potential to become a powerful tool to improve bank efficiency. Its immutability, transparency and automation achieved through smart contracts can lay the foundation for a new digital business.

BBVA has been one of the most vocal supporters of Bitcoin and blockchain technology. It has invested in Coinbase, is a founding member of the R3CEV blockchain consortium, and has hosted financial technology competitions.

Bitcoin takes center stage

How blockchain use is regulated is one of the most important factors affecting widespread adoption of the technology, but because Bitcoin is the only real-world example of blockchain in action, the debate over its regulation has largely focused on it.

Huobi Blockchain Research Center learned that because Bitcoin is considered a digital currency in some countries and a commodity in others, the first step for the EU to do is to coordinate the tax treatment of Bitcoin transactions. Sales are subject to value-added tax (VAT). In October 2015, the European Court exempted Bitcoin transactions from VAT.

The next step is to prevent the use of Bitcoin for money laundering and terrorist financing. In July 2016, the European Commission recommended that digital wallet providers and currency exchange platforms that jointly follow the Anti-Money Laundering Directive block anonymous Bitcoin exchanges.

This week, the European Parliament and the Council of the European Union proposed amending a directive on the prevention of money laundering and the financing of terrorism that would require e-currency exchanges and wallets to identify suspicious activity, including identifying Bitcoin users, according to CCN.

Blockchain becomes a regulatory focus

Huobi Blockchain Research Center found that regulating other uses of blockchain technology would have a more disruptive impact on financial services, keeping them at a standstill. However, based on the unique characteristics of blockchain technology, different cases have some common problems.

For example, the distributed and global nature of blockchain necessitates the creation of a legal framework that defines its legal nature, including applicable law and liability in the event of errors.

Furthermore, the immutability of blockchain has sparked debates on its role as an unfalsifiable “single source of truth”, the legal validity of documents stored as evidence of existence, and the consideration of smart contracts as valid legal agreements.

The data, opinions and views expressed in this report have not been independently verified by BBVA and are estimated based on generally accepted methodologies.

Regulatory studies continue

The research arm of Spanish bank BBVA released a working paper on the use of blockchain in financial services last month, outlining the regulatory, operational and technical challenges. The paper notes that regulatory issues have so far been ignored due to the inability to regulate technology, but they are gradually gaining attention because research is a necessary condition for its large-scale use.