BBVA: Blockchain regulation shouldn’t stop at Bitcoin

Translator's note: The author of this article, Javier Sebastián, is the Digital Regulation Manager of BBVA. In this article, Sebastián expresses his views on the current regulatory status of the blockchain industry.

If we have to pick a trendsetter in the digital banking space, blockchain is the clear winner. Most banks around the world are investigating potential use cases for this secure, distributed database that aims to eliminate intermediaries. Although Bitcoin is the only technology currently available for blockchain, its advantages in improving the efficiency of banking operations are unquestionable. In addition, immutability and transparency are the special properties of blockchain technology itself, and coupled with the automated operation of smart contracts, the two are likely to become the foundation for the development of the entire digital business.

However, the popularization of any new technology faces multiple obstacles.

Regulation is one of the many factors that affect the popularization of technology. But first of all, we must understand that government regulation does not involve a technology itself, but its derived use cases. The blockchain, which is in the experimental stage, has brought multiple obstacles to the implementation of regulatory policies.

Bitcoin is the only real-world use case for blockchain technology, so almost all regulatory discussions focus on it.

Take the European Union (EU) for example. The first step of regulation is to coordinate the taxation of transactions. Since some countries define Bitcoin as a digital currency or commodity, the purchase and sale of Bitcoin is subject to value-added tax (VAT). In October 2015, the European Court of Justice (ECJ) officially announced the exemption of VAT on Bitcoin transactions and considered Bitcoin to be a digital currency.

The next step is to prevent and combat illegal activities involving Bitcoin, including money laundering and terrorist financing. To achieve this goal, the European Commission (EC) launched a proposal in July last year to include digital wallet providers and virtual currency trading platforms in the Anti-Money Laundering Directive, requiring the recording of user information, aiming to end anonymous Bitcoin transactions.

However, other use cases of blockchain are expected to have a disruptive impact in the financial services sector, and their regulatory directives may not be perfected in the short term. However, since all use cases are derivatives of the unique properties of blockchain, unified regulation of blockchain use cases is urgent, and the global and distributed nature of blockchain necessitates the need for a legal framework. Such a legal framework must be universal, including definitions of the legal nature of the technology, applicable regions and laws, and accountability for major failures.

Beyond that, the immutability of blockchain has sparked debate on topics such as unfalsifiable, the legal validity of document ownership and authenticity, and the legal enforceability of smart contracts.