The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1358-1988.htm

JFRC
25,2
Regulatory issues in
blockchain technology
Peter Yeoh
School of Law, Social Sciences and Communications,
196 University of Wolverhampton, Wolverhampton, UK

Abstract
Purpose – This paper aims to examine the key regulatory challenges impacting blockchains, innovative
distributed technologies, in the European Union (EU) and the USA.
Design/methodology/approach – A qualitative perspective underpins the study. This paper relies on
primary data from applicable statutes and secondary data from the public domain including relevant case
study insights.
Findings – The smart regulatory hands-off approach adopted in the EU and the USA to a large extent bodes
well for future innovative contributions of blockchains in the financial services and related sectors and toward
enhanced financial inclusiveness.
Practical implications – The paper’s findings provide support for blockchain technology to advance
with minimum regulatory brakes for greater value-adding and efficiency advancement, especially for
financial services, thereby expanding accessibility and therefore financial inclusiveness.
Originality/value – This paper helps to draw greater attention to the technology underpinning virtual
currencies. It also highlights other economic potentials flowing from blockchain advancement.
Keywords Bitcoin, Virtual currencies, Blockchain, Disruptors, Distributed ledger technology
Paper type Viewpoint

Journal of Financial Regulation
and Compliance
Vol. 25 No. 2, 2017
pp. 196-208
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-08-2016-0068
Introduction
Banks and other central authorities maintain a single authoritative copy of the ledger to
provide the “trust” element for users relying on ledgers (The Economist, 2015). This is
achieved by allowing each user of the system to maintain their own copy of the ledger and
keeping all copies of the ledger verifiably synchronized through a consensus algorithm
(Morgan, 2016). Blockchains are a software protocol that underlie cryptocurrencies like
bitcoin and, in one sense, are nothing more than a modernizing information technology, but
in another sense, are novel and disruptive. Blockchains might, therefore, usher in a possible
second internet era, allowing the secure exchange of value across networks (Swan, 2015a,
2015b).
The use of blockchain by virtual currencies like bitcoins erases the need for central
authorities as well as the need to trust them (Coin Center, 2016; De Flippin, 2016; De Filippi
and Loveluck, 2016). While blockchain enables bitcoin users to hold, send and receive money
online, these distributed ledgers do more, including clearing and settlement of digital asset
trading and distributed computing without having the need for central intermediaries
(Morgan, 2016). Thus, blockchain technology is emerging as a new type of trust to a wide
range of services globally, in particular, financial services (Trautman, 2016). This could
potentially render the existing banking and related systems obsolete. Indeed, blockchains’
secure value transfer features could enable the information technology revolution to reach
the major sectors of finance, economics and law, which have been updated but not completely
transformed (Swan, 2015a, 2015b).
Currently, blockchain technology is used in two modes: public and private ledgers (Swan,
2015a, 2015b). Various financial institutions are implementing private (permissioned)
ledgers. This is a more circumscribed controlled application of the technology, where user Blockchain
identity is known and confirmed. Therefore, private blockchains are very similar to telco technology
providers. In contrast, public ledgers are permissionless censorship-resistant pseudonymous
ledgers where user name or wallet address is not fully traceable to the real individual
executing the transaction.
Blockchain’s present open data dramatically changes the wider population’s relationship
with the state. It is becoming more than just a disruptive new Information Communication
Technology. It is rather a new institutional technology of governance competing with the 197
other economic institutions of capitalism, namely, firms, markets, networks and even
governments (Davidson et al., 2016b, 2016a). Visibility in this and related technologies is also
pushing the frontiers of supply chains, financial markets, publicly held registers as well as
consumer and business-to-business services (Coin Center, 2016). As blockchains mature and
disrupt how data are conceived and stored, there could arise unintended consequences
prompting regulatory authorities to mull over the need for intervention. This paper examines
whether the current and future disruptions brought about by blockchain technology would
require the watchful eyes of regulatory bodies and, if so, in what manner.

Blockchain emergence and development

Society is now moving toward the collaborative generation of digital distributed ledgers
possessing properties and capabilities exceeding those in traditional paper-based ledgers.
The algorithms inherent in blockchain produce powerful, disruptive distributed ledgers with
the capacity to transform deliveries of public and private services, thereby enhancing
productivity through a diverse range of applications (Probst et al., 2016).
A distributed ledger is primarily an asset database that could be shared across a network
of multiple sites, geographies or institutions. Within a network, each participant has his or
her own identical copy of the ledger. Changes to the ledger are reflected in almost real-time
dimensions. The assets covered could be electronic, physical, legal or financial. Indeed, in a
negative interest rate environment such as that found in the European Union (EU) and
elsewhere, these open digital assets could provide a good alternative to less transparent
cash-based systems (Cawrey, 2016). Bitcoin comprises some 80 per cent of the total
blockchain asset market capitalization (Sunnarborg, 2016). Fifteen blockchain assets have
market capitalization exceeding US$50 million, while 13 blockchain asset class have market
capitalization exceeding US$10 million. “Ether” now sits in second place of the blockchain
asset position with market capitalization of some US$1 billion (Sunnarborg, 2016).
Assets stored in the ledger are secured and accurate (Bartlam, 2016) as they are managed
cryptographically by keys and signatures to determine who can transact within the shared
ledger. Rules agreed by the network guide the updating of such transactions by any or all of
the participants (Kroll et al., 2013). Specifically, blockchain technology was introduced by
Neal Kin, Vladimir Oksman and Charles Bry in 2008. This paved the way toward the
production of peer-to-peer digital cash or bitcoins (Jessop, 2015). Bitcoins are a form of virtual
currencies where the ledgers of transactions ensure their authenticity in contrast to cash,
which, in the absence of ledgers, encounter forgery issues.
The bitcoin ledger is a distributed and free of permission construction, meaning anyone
with the capacity to solve a new cryptographic puzzle could add a new block while earning
some bitcoins as a reward. Bitcoin mining, nevertheless, is energy intensive, requiring large
computing power (Walport, 2016). It has, however, been argued that blockchain technology
could be used differently from what it does for bitcoin (The Economist, 2015). For instance, a
group of vetted participants within an industry could agree to participate in a private
blockchain needing less security and less computing power.
JFRC Blockchains could also implement business rules, such as transactions which could go on
25,2 only where no less two parties endorse them or where another transaction has been finished
first. As such ideas are being modified and improved, blockchain could discard its dented
reputation by bitcoin’s unintended linkage with shady transactions and sit alongside the
now-revived successful usage of peer-to-peer technology exemplified by the likes of Napster
and Spotify.
198 Algorithmic technologies provide the powers to transform ledgers as instruments to
facilitate and record enormous range of transactions. Satander estimated that the use of
blockchains could save banks as much as US$20 billion annually by 2022 (The Economist,
2015). This implies that the approach could be extended to cover a vast range of new tools
including smart contracts and digital signatures (Probst et al., 2016).
Such distributed ledger technologies could also assist in the efficient running of various
public sector services while ensuring the integrity of the transactions involved. The public
sector is centralized in respect of its responsibility for governance and public service
delivery, yet fragmented, and frequently disconnected in its organizational structure and
ability to share data. Blockchains could be used to address inefficiencies in current systems
and enhance the effectiveness of public service delivery. For instance, a blockchain could
operate as the official registry for government-licensed assets or intellectual properties
owned by citizens and businesses such as houses, vehicles and patents (Shelkovnikov, 2016).
In turn, consumers could enjoy the potential of controlling access to personal records and to
know who have accessed them (Zyskind et al., 2015).
Also, the existing highly centralized systems located in most public sector services could
be at risk to cyber attacks or at times unreliable, whereas distributed ledgers are relatively
less vulnerable as such kinds of attacks would have to be carried out simultaneously for all
copies (Heires, 2016). The manner in which the information is secured and managed further
implies that participants could share data and be assured that all copies of the ledger
matched each other at all points of time. However, there are still cyber-attack risks which
block chains have to be alert to ensure the security of this kind of digital infrastructure
(Hendricks, 2016). For instance, the recent ransomware attacks on New York Times and BBC
attracted the attention of the US Congress on cybersecurity posed by bitcoin and blockchain
technology (Sales, 2016). Currently, five digital economies comprising the UK, Israel, New
Zealand, South Korea and Estonia cooperate in advancing the use of the technology in public
sector services (Walport, 2016).
Where the EU is specifically concerned, the Digital Economy and Society Index (DESI)
summarizes relevant indicators on Europe’s digital performance and tracks the evolution of
EU member states in digital competitiveness (European Commission, 2016). The DESI is
structured around the five dimensions of connectivity, human capital, internet use, digital
technology integration and digital public services. The then November 2016 competing
candidates for the US Presidency had been urged to enhance the use of blockchain in public
sector services to enable citizens to undertake more efficiently conduct transactions with
each other, thereby minimizing the dependence on lawyers, notaries and other middlemen
(Forde, 2016).
The private sector is increasingly appreciative of the new manners of assuring
ownerships and origins for goods and intellectual properties as mapped out by distributed
ledgers. Twenty-five banks are now, for instance, partnering with R3 CEV, a blockchain
startup dedicated to the development of common standards for the industry, while the US
NASDAQ is adapting the technology to record trading in securities of private companies
(Morgan, 2016; The Economist, 2015). Blockchain is also particularly important in markets
attracting high levels of forgeries such as those found in precious commodities and
high-value properties. In such instances, it is crucial to maintain correctness and Blockchain
completeness of information to deter unauthorized fraudulent changes (Mizrahi, 2016). For technology
instance, Everledger shows how the use of a distributed ledger in the diamond trade can
assure the identity of diamonds from being mined and cut to being sold and insured (Caffyn,
2015). This usage has the potential to deter fraud and prevent illegitimate diamonds from
entering the market. Blockchain applications in businesses indeed go beyond this, as well as
its core current employment in banking.
The US Postal Service (2016), for instance, is looking toward its use in financial services, 199
device management, identity services and in its supply management. Indeed, blockchains
are modernizing information technology going beyond digital cryptocurrencies, smart
contracts and automated Dapps and DACs (distributed autonomous applications and
corporations) to usher in a new internet era that currently includes payment and secure value
transfer (Swan, 2015a, 2015b). This implies that many current institutional activities could
be digitized and automated, and with bigger transformations in economic, legal and political
systems.
Broader-based blockchain architectures could also enable a much larger and truly global
scale of activity than has been possible previously with hierarchical models, as exemplified
by million-member genome banks. Of interest to the legal community is its employment in
smart property contracts where in the future nearly all agreements, contractual relationships
and governance could be enacted through code-based smart contracts and where properties
could be registered and transacted through blockchains as smart property. Some 20 big
industries are likely to use blockchain technology (CB Insights, 2016).

Challenges to wider blockchain adoption

Despite the emergence of such positive uses, the wider applications of block chain technology
is challenged by some misgivings over its close identification to bitcoins amongst
policymakers and regulators. This is because of suspected bitcoins’ associations with money
laundering activities. For instance, the Financial Action Task Force reported in 2015 on how
the founders of Liberty Reserve were able to launder hundreds of millions of US dollars for
six years to criminal organizations (Olson, 2016). This also expanded to the abusive use of
blockchain technology in shadowy trading sites such as the now-defunct Silk Road
(Greenberg, 2015; De Filippi, 2014c). The prosecutor in this interesting case traced hundreds
of thousands of bitcoins from the Silk Road anonymous marketplace for drugs directly to the
personal computer of the 30-year-old accused of running the contraband bazaar.
Blockchains are unfortunately linked to various dramatic bitcoin scandals. These are
exemplified by the failures found in Liberty Reserve, Silk Road and Mt. Gox (De Filippi,
2014c; Trautman, 2014). Such failures have significantly dented its reputation for reliability
and accuracy in wide sections of societies across the world. Costa Rica-based Liberty
Reserve, a provider of anonymous virtual money transfer services was used to launder illegal
activities in some 55 million transactions with an estimated worth of some US$6 billion
(Albergotti, 2013; Cohan, 2013). Criminals allegedly aided included traffickers of stolen credit
card data and personal identity information, peddlers of various kinds of online Ponzi and
get-rich-quick schemes, computer hackers for hire, unregulated gambling enterprises and
underground drug dealing web sites (Albergotti, 2013; Cohan, 2013).
Silk Road is also known in the cyber underworld and the “darknet” as a sophisticated
black market website offering illegal wares and services from heroin to hit man (De Filippi,
2014c; Leger, 2014). It was the cyber-underworld’s largest black market with some US$1.2
billion in sales and a million customers. Illegal drugs aside, the site also operated as a bazaar
for fake passports, driver’s license and other documents including illegal service providers
JFRC like hit men, forgers and computer hackers. It was subsequently shut down by US law
25,2 enforcement agencies.
Mt. Cox was perhaps the most prominent bitcoin exchange operating in Japan when it
collapsed in 2014 due to lax security and/or fraud. It users are still trying to recoup the
millions they lost. New rules were subsequently introduced for virtual currency exchanges in
Japan so as to regain consumers’ trust (Meyer, 2016). More recently, Hong Kong-based
200 exchange Bitfinex halted trading, withdrawals and deposits on 2 August 2016 after
discovering a large security breach, the largest since the Mt. Gox incident, or some US$65
million equivalent. Fortunately, unlike Mt. Gox, the theft impacted only bitcoins and no other
virtual currencies or US dollar deposits (Nakamura and Chen, 2016).
Blockchain’s wider and deeper application applications are potentially constrained by
limitations posed by technical/scalability challenges, business model challenges, scandals
and public perception, government rules and privacy challenges for personal records
(Harwood-Jones, 2016; Swan, 2015a, 2015b). Specifically, for the financial services sector,
blockchain needs to overcome ten key hurdles before becoming a reality in the sector (Steenis
et al., 2016). These include matters to do with its costs and benefits, cost mutualization,
incentives alignment, evolving standards, scalability, governance, legal risks, security,
simplification and regulatory interventions.
Decentralized ledgers and blockchains rely on collaborative governance to provide trust
in the financial markets to ensure that all play by agreed rules. It has been argued that the
primary reason blockchains are associated with cybercrime is the absence of strategic
governance to set up agreed rules and to ensure compliance. The moment such governance
with policies, procedures and mechanisms and enforcement are in place, the real societal
benefits of blockchains could be achieved. Public sectors all over the world are concerned
about the instabilities and vulnerabilities associated with virtual currencies and their trading
exchanges. These have contributed to state cautiousness pertaining to the use of blockchain,
and generally governments prefer industry to lead in the advancement of a better operating
scenario (Walport, 2016). Yet, key enablers like permissioned ledgers, the federation of
blockchains with existing public key infrastructure federations, the new Uniform Economic
Transfer Protocol and smartphones could help to accelerate effective implementation of the
strategic potentials of blockchains (Walport, 2016).

Regulatory implications
In a digital environment, laws in the form of legal codes and software/hardware computer/
technical codes interact to govern activities (Lessig, 2006). Legal code is primarily extrinsic,
meaning that though rules could be breached, consequences flowing from the breach could
ensure compliance. By comparison, technical codes are primarily intrinsic, meaning when
rules are breached, then the errors are returned and no activity occurs such that compliance
is ensured through the employment of the codes. Technical codes by nature also rigidly
follow rules such that these are adhered to even where compliance generates undesirable or
unforeseen outcomes.
The existing modern financial system is governed by a combination of technical and legal
codes, though more so by the latter. In the bitcoin-operating environment, participants
adhere to rules defined and enforced by technical codes. Hence, for blockchain technology as
used in bitcoins and soon many other applications, compliance costs are lower because
participants need only to use compliant software packages (Walport, 2016). Though where
enforcement costs are concerned (Albert, 2016; Taylor, 2015), these could be arguable as the
users of the system have to assume the cost of significant computational resources,
especially where the most popular distributed ledger systems are concerned.
 These developments suggest that the existing financial system relies mainly on legal Blockchain
codes comprising governance or private rule-making such as those located in the Visa Core technology
Rules (Visa, 2016), and public rule-making or regulations as exemplified by the statutory
oversight of Visa’s Europe’s payment system by the Bank of England (UK Treasury, 2015).
Therefore, when designing public legal codes, policymakers would have to deliberate on its
micro-prudential and macro-prudential impacts (Haldane, 2015; Large, 2015).
In contrast, the open source software in bitcoin is governed by an ad hoc process 201
comprising a handful of informal institutions and power holders. With the emergence of
difficult decisions over which stakeholders’ interests to prioritize, the community involved
now has to struggle with how a formal governance mechanism is to be designed especially
when bitcoin was launched on an ethos of anti-institutionalism. This, however, also
demonstrates the merits of legal codes and why technical codes alone might not generate
optimal outcomes (Walport, 2016). By comparison, governance in permissioned distributed
ledger systems is simplified by the presence of a proprietor with clear legal and technical
authority over the code.
Beyond stakeholder’s interests, there might be wider social interests involved in how
distributed legers function, as, for instance, when regulators seek to limit the use of
distributed ledgers for criminal activities or when pondering over tax matters. In other
words, especially for regulators, they could be keen to ensure that the operating system is
resilient against systemic risks and market failures (Financial Stability Oversight Council
(FSOC), 2016; Higgins, 2016).
This further suggests that distributed ledgers could be regulated by legal and technical
codes. For permissioned distributed ledger systems, this might merely involve imposing
legal obligations on its proprietor, whereas regulating un-permissioned systems, such as
bitcoins through legal codes, have proven to be more complicated with current attention now
turning to the regulating of businesses dealing with bitcoin-like exchanges and wallet
providers (Albert, 2016). A good example of the regulating of bitcoin by legal codes is the
BitLicense (Rizzo, 2016; Department for Financial Services New York, 2015) issued for
businesses providing digital currency services. Technical code for distributed ledger
systems such as bitcoin is provided by private participants in an ad hoc process, but
technical codes consisting of software and protocols might emerge from the public sector
(Walport, 2016). The latter directs attention to the possibility of public involvement and
democratic representation in the generation of public regulation by technical codes in
contrast to legal codes.
The further implication is that when used to distributed ledger systems, this could cover
instituting formal multi-stakeholder processes for maintaining the technical codes to the
development of public standards for the code. When such developments enable governments
or the public directly to achieve desired regulatory goals, this could reduce the requirements
for new legal codes to regulate such systems. Alternatively, a permissioned system could be
built by the public sector that enables public regulatory influence to flow through the
combination of legal and technical codes rather than by legal codes alone, as is pursued
currently (Thwaites, 2016; Walport, 2016).
In brief, blockchain technology has expanded from beyond the transfers of digitally
stored values, as found in 702 different cybercurrencies, to applications needing transaction
verifications or a trusted repository of information (Trautman, 2016). Further, increasing
numbers of organizations are beginning to use blockchain to develop infrastructure to
support decentralized applications, as exemplified in the Etherum Foundation, where
decentralized peer-to-peer applications and smart contracts could be built on top of its
JFRC blockchain infrastructure. These applications have legal implications and law enforcement
25,2 concerns.
However, unlike those involving the illicit use of virtual currencies, individuals or
organizations using such applications to violate the law like the marketing of contrabands on
decentralized market places, there is yet no known way for shutting down the system as
would be possible where the market is located on web servers. Hence, such applications in
202 emerging areas like financial transfers, multi-signature transactions, “colored coins”,
property registers, intellectual property, smart contracts, other data stored in the blockchain,
decentralized organizations as well as security and financial products could complicate the
legal landscape (Halberstam and Lumb, 2016; Lee et al., 2015). Cryptocurrencies have
advanced the boundaries of current laws and compelled a changing approach to regulation.
Blockchain-widening applications could continue to require thoughtful employment of
existing legal frameworks combined with new legal solutions. Supporters of decentralized
distributed technology want a future where information and interaction is unconstrained by
any centralized authority. They argue that the regulating of blockchains at this early
innovative cycle could be counterproductive, as the history of peer-to-peer technology
suggests that it is likely to be several years later before their full potential becomes clear.
Going by this, it is further claimed that regulators should not intervene yet, but rather find
ways to accommodate new approaches within existing frameworks than risk the stifling the
innovation with overly prescriptive rules (Byrne, 2016; The Economist, 2015). Others (De
Filippi, 2014a, 2014b) are of the view that excessive reliance on automation of laws, contracts
and information flows could lead to the tyranny of codes (Lee et al., 2015). This poses the
adaptability challenge for legal frameworks.
It is also important to note that regulation differs from governance. The former concerns
laws designed to control behavior, while the latter concerns stewardship, collaboration and
incentives to act on common interests. Past experiences suggest that governments might do
better to regulate technologies cautiously, functioning as a collaborative peer to other
constituents of society rather than as the heavy hand of the law (Tapscott and Tapscott,
2016). It might well be a better option to participate as players in a bottom-up governance
ecosystem instead of as enforcements of top-down regimes of control. Indeed, governments
through a multi-stakeholder approach could improve the behavior of market participants by
boosting transparency and civic engagements as complements to existing systems. This
kind of approach is being enabled by the advent of the internet and the ability of various
non-state stakeholders to participate (Tapscott and Tapscott, 2016).

Regulatory approaches in the European Union and the United States

Legal challenges posed by blockchains should not be underestimated by regulators
(Harwood-Jones, 2016), such as the EU. Massive numbers of legislations would have to be
rewritten or amended when the technology takes off fully as the impact could be global
requiring regulators across jurisdictions to collaborate. The structure of blockchain records
could also generate legal issues where regulators or laws could demand that erroneous or
illegal transactions be unwound. Additionally, regulators are always interested in where
data are held and this also needs to be addressed by blockchains. Also, rules around the legal
definition of settlement finality, for instance, might have to be revised. This implies that
finality in blockchain would have to be aligned with EU’s Finality Directive (Euroclear Bank,
2015).
While the Bank of England and EU regulators such as European Securities and Markets
Authority are aware of blockchain developments, they need to recognize further that the
technology is greatly outpacing the rulebook. They might have to seriously consider whether
to actually require financial transactions to be conducted in line with the requirements of Blockchain
existing legislations such as Mifid II and Emir, and whether this would give sufficient technology
investors and economic stability protection to justify the potential inhibition of the benefits
of blockchain technology. Alternatively, they should consider whether to explore the better
option of developing a bespoke regime designed to facilitate the development of an advanced
blockchain-based financial economy while maintaining their regulatory objectives (Gump
et al., 2016).
The European Parliament voted to adopt a smart regulatory hands-off approach to
203
regulating blockchain technology (Prisco, 2016; European Parliament, 2014). The EU
Parliament’s initiative combines two different initiatives: the creation of a Virtual Currency
Task Force and the inclusion of virtual currency exchanges within the ambit of the European
Anti-Money Laundering Directive. Both do not imply the creation of a new regulator. To
avoid stifling innovation, the EU favors precautionary monitoring to preemptive regulation,
but as information technology innovations could spread very fast to pose systemic risk, the
EU Commission has been urged to set up a task force to actively monitor how the technology
evolves and to offer timely proposals for specific regulation if and when needs arise.
The said EU resolution as a characteristic of many official documents possesses a high
degree of purposeful ambiguity to enable interpretation in different ways. This smart
regulatory approach allows the regulator in such dynamic innovative environments to
develop sufficient capacity including technical expertise. The EU further argued that the
smart regulatory approach based on analytical excellence and proportionality is not to be
confused with light-touch regulation, as rapid and forceful measures are also needed to
address risks before they become problematic. Therefore, for the moment, the EU’s message
is that a permissionless environment is needed to truly innovate and that premature
regulation would only stifle the application of virtual currencies and shared ledgers (Patrick,
2016).
Regulatory thinking on blockchain in the USA is mainly shaped by the Federal Reserve,
the Securities Exchange Commission, the Treasury Department and relevant state
regulators. Generally, they hold the view that market participants have limited experience
working with blockchains, and thus it is possible that operational vulnerabilities linked with
the technology might not become apparent until they are used at scale.
Further, as blockchain applications span regulatory jurisdictions, a considerable amount
of coordination among regulators would be required to effectively identify and address risks
involved. The significant increase in bitcoin transaction failures and trade delays have
prompted regulatory thinking of a 51 per cent attack, where someone controlling a majority
of network has the capacity to revise transaction histories and prevent new transactions
from confirming (Financial Stability Oversight Council (FSOC), 2016).
Even though blockchain systems are designed to prevent reporting errors or fraud by a
single party, some systems could be vulnerable to fraud executed through collision among a
significant number of participants in the system. Practitioners argue, however, that a 51 per
cent attack is exaggerated. Nevertheless, they recognized the risks involved when
blockchains roll-out as replacements to existing forms of financial transactions, and that it is
a reasonable presumption to fear that some people might implement systems incorrectly as
it is a relatively new technology in many industries (Riley, 2016).
For now, the main US regulators have not called for a ban or heavy restrictions on the
development of bitcoin and blockchain technologies, despite a form of selective regulation
from the Financial Crimes Enforcement Network specifying that decentralized currencies
should comply with money laundering regulations (Guadamuz and Marsden, 2015). Some
individual states though, such as California, have released a draft for a new digital currency
JFRC bill with serious implications for blockchain technology, as permission is required to innovate,
25,2 develop, code or network (Valkenburg and Brito, 2016). In the meantime, the Uniform Law
Commission Drafting Committee concluded that the New York BitLicense Regulation (NYBR) for
virtual currencies was generally acceptable and that with some amendments could serve as a
beginning template for a uniform law (Trautman, 2016). The 2016 Annual Meeting Draft follows
closely, though in a different order to many of the NYBR provisions. While many issues, such as
204 the extent to which the proposed uniform law should go beyond the licensing, compliance and
enforcement issues are common to the NYBR and the Conference of State Bank Supervisors
regulatory framework remain; this uniform drafting project provides an excellent opportunity for
reconciling divergent views in this area of law, thereby offering some clarity and uniformity to the
otherwise uncertain legal environment for virtual currencies (Trautman, 2016; Trautman and
Harrell, 2016).
Also, the US Senate Committee on Banking, Housing and Urban Affairs is now requesting
information about the regulation and oversight of virtual currencies and blockchain tech
from the Federal Reserve, Federal Deposit Insurance Corporation, Consumer Financial
Protection Bureau, Office of the Comptroller of the Currency and the National Credit Union
Administration (Higgins, 2016a). Other than these recent developments, there is generally a
positive sign and a recognition from the highest levels of governments that the technology is
here to stay even with some risks involved and this is where the market is heading (Riley,
2016), though at times US regulatory response can be contradictory (Tapscott and Tapscott,
2016).

Concluding remarks
Blockchain tech can generate various benefits. These have the potential to transform not
only payments but also the securities industry, investment banking, accounting and audit
and so on. It is still a relatively new innovation and needs to hurdle over various obstacles
before blooming to its full potential.
Laws and regulations could impact how far and how fast the technology could develop.
Therefore, regulatory approaches would need to cleverly balance against its innovative
spirits while recognizing the possibility of the technology unintentionally contributing to
systemic risks to the financial system. For now, the EU has opted for a smart regulatory
hands-off approach, and the USA too to a large extent. Future regulatory moves could occur
or might not as a multi-stakeholder governance model might emerge as the better alternative
as it involves the participation of key market participants including those from civil society
organizations, thereby giving better meaning to the notion of financial inclusiveness.

References
Albergotti, R. (2013), “US says firm laundered billions: digital-currency group is accused of moving
illicit cash for hackers, drug dealers and others”, The Wall Street Journal, 28 May, available at:
www.wsj.com/…/SB1000142412788732385580 (accessed 3 August 2016).
Albert, J. (2016), “What’s next for blockchain: technology, economics and regulation”, EU Policy Blog, 20
June, available at: www.bloags.microsoft.com/…/whats-next-for-blockchain-technology-ec…
(accessed 3 August 2016).
Bartlam, M. (2016), “Can blockchain live up to the hype?”, DLA Paper, 28 July, available at: www.
dlapaper.com/…/can-blockchain-live-up-to-the-hype… (accessed 3 August 2016).
Byrne, M. (2016), “Blockchain: from “what” and “why” to regulating “how” ”, Lawyer (Online Edition),
20 May, p. 5, available at: www.thelawyer.com/…/blockchain-from-what-and-why-… (accessed
3 August 2016).
Caffyn, G. (2015), “Everledger brings blockchain tech to fight against diamond theft”, Coin Desk, 1 Blockchain
August, available at: www.coindesk.com/everledger-blockchain-tech-fight-diamond-theft/
(accessed 3 August 2016).
technology
Cawrey (2016), “Why the global economy needs open blockchain assets to fight negative interest rates”,
Bit Coin Magazine, 27 May, available at: www.bitcoinmagazine.com/…/wht-the-global-
economy-needs-open-blockchain-assets… (accessed 3 August 2016).
CB Insights (2016), “Banking is only the start: 20 big industries where blockchain could be used”, CB
Insights, 25 July, available at: www.cbinsights.com/blog/industries-disrupted-blockchain/,
205
(accessed 3 August 2016).
Cohan, P. (2013), “After Liberty Reserve shut down, is bitcoin next?”, Forbes, 29 May, available at:
www.forbes.com/sites/petercohan/2013/05/29/after-liberty-reserve-shut-down-is-… (accessed 3
August 2016).
Coin Center (2016), “Blockchain 101”, available at: www.coincenter.org/…/slides-from-consensus-
workshop-regulating-the-blockchain… (accessed 3 August 2016).
Davidson, S., De Filippi, P. and Potts, J. (2016a), “Disrupting governance: the new institutional
economics of distributed ledger technology”, RMIT/Universite Paris II Joint Working Paper,
available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id⫽2811995, (accessed 21
October 2016).
Davidson, S., De Filippi, P. and Potts, J. (2016b), “Economics of blockchain”, RMIT/Universite Paris II Joint
Working Paper, available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id⫽2744751,
(accessed 21 November 2016).
De Filippi, P. (2014a), “Tomorrow’s Apps will come from brilliant (and risky) bitcoin code”, available at:
www.wired.com/2014/03/decentralized-applications-built-bitcoin-great-except-whos-
reponsible-outcomes/, (accessed 3 August 2016).
De Filippi, P. (2014b), “Ethereum: Freenet or Skynet?”, Berkman Klein Center for Internet & Society at
Harvard University, 15 April, available at: www.cyberlaw.harvard.ed… (accessed 3 August
2016).
De Filippi, P. (2014c), “Bitcoin: a regulatory nightmare to a Libertarian dream”, Internet Policy Review,
Vol. 3 No. 2, doi: 10.14763/2014.2.286.
De Flippin, P. (2016), “The interplay between decentralization and privacy: the case of blockchain
technologies”, Journal of Peer Production, Vol. 9, pp. 18-19.
De Filippi, P. and Loveluck, B. (2016), “The invisible politics of bitcoin: governance crisis of a
decentralized infrastructure”, Internet Policy Review, Vol. 5 No. 4.
Department for Financial Services New York (2015), “Title 23 Department of Financial Services:
Chapter 1, Regulations of the superintendent of financial services part 200, virtual currencies”,
available at: www.dfs.ny.gov/…/dfs… (accessed 3 August 2016).
Euroclear Bank (2015), “Disclosure framework: observance by Euroclear bank of the CPMI-IOSCO
principles for financial market infrastructures”, Euroclear Bank Paper, 30 October, available at:
https://wwweuroclear.com/…/MA3022-Euroclear-Bank-Disclo… (accessed 3 August 2016).
European Commission (EC) (2016), “The digital economy & society index (DESI)”, available at: www.
ec.europa.eu/digital-single-market/en/desi (accessed 3 August 2016).
European Parliament (2014), “Texts adopted: EU regulatory fitness and subsidiarity and
proportionality-better lawmaking”, A7-0056/2014, 4 February, Strasbourg, available at: www.
europarl.europa.eu/…/getDoc.do?…⫽//EP//… (accessed 3 August 2016).
Financial Stability Oversight Council (FSOC) (2016), “FSOC 2016 annual report”, available at: www.
treasury.gov/…/fso (accessed 3 August 2016).
Forde, B. (2016), “Hilary Clinton and the blockchain”, Tech Crunch, 7 July, available at: www.
techcrunch.com/…/hilary-clinton-and-the-blockchain… (accessed 3 August 2016).
JFRC Greenberg, A. (2015), “Prosecutors trace $13.4M in bitcoins from the Silk Road to Ulbricht’s laptop”,
Wired, available at: www.wired.com/2015/01/prosecutors-trace-13-4million-bitcoins-silk-road-
25,2 ulbr (accessed 3 August 2016).
Guadamuz, A. and Marsden, A. (2015), “Blockchains and bitcoin: regulatory response to
cryptocurrencies”, First Monday, December, available at: www.firstmonday.org/ojs/index.php/
fm/article/view/6198/5163 (accessed 3 August 2016).
206 Gump, A., Hauer, S. and Leonard, C. (2016), “Blockchain: regulating the future of finance”, International
Financial Law Review, 21 March, available at: www.iflr.com/Article/…/Blockchain-regulating-
the-future-of-finance.html (accessed 3 August 2016).
Halberstam, S. and Lumb, R. (2016), “Blockchain-The concept and the law”, available at: www.weblaw.
co.uk/…/eGuide_BlockchainTheConceptandtheLaw.pdf (accessed 3 August 2016).
Haldane, A. (2015), “How long can you go?”, Speech by Andrew Hayne Delivered at the Portadown
Chamber of Commerce Northern Ireland, 18 September, available at: www.bankofengland.co.
uk⬎Home⬎Publications (accessed 3 August 2016).
Harwood-Jones, M. (2016), “Blockchain and T2S: a potential disruptor”, available at: www.sc.com/…/
2016/…/2016-06-16-BeyondBorders-Report-SCB… (accessed 3 August 2016).
Heires, K. (2016), “The risks and rewards of blockchain technology”, Risk Management, 1 March,
available at: www.rmmagazine.com/…/the-risks-and-rewards-of-blockchain-technology
(accessed 3 August 2016).
Hendricks, D. (2016), “Bitcoin and blockchain technology use raise cybersecurity questions”, Tech
Target, available at: www.searhcompliance.techtarget.com/…/Bitcoin-and-blockchain-
technology… (accessed 3 August 2016).
Higgins, S. (2016), “US regulators recommend oversights for bitcoin and distributed ledgers”, Coin Desk,
22 June, available at: www.coindesk.com/us-regulators-recommends-oversight-bitcoin-
distributed (accessed 3 August 2016).
Higgins, S. (2016a), “US Senators seek blockchain guidance from CFPB, Federal Reserve”, Coin Desk, 29
July, available at: www.coindesk.com/22-us-senators-policy-blockchain-tech/ (accessed 3
August 2016).
Jessop, N. (2015), “A brief history of bitcoin- and where it’s going next”, available at: www.thenextweb.
com⬎Insider (accessed 3 August 2016).
Kroll, J.A., Davey, I.C. and Felten, E.W. (2013), “The economics of bitcoin mining or bitcoin in the
presence of adversaries”, Paper Presented at the Twelfth Workshop on the Economics of
Information Security (WEIS 2013), Washington, DC, 11-12 June, available at: www.weis2013.
econinfosec.org/papers/KrollDaveyFeltenWEIS2013.pdf (accessed 3 August 2016).
Large, A. (2015), “Financial stability governance today: a job half done: ongoing questions for
policymakers”, Group of Thirty Paper Occasional Paper, 92.
Lee, J.A., Long, A., Steiner, S., Handler, S.G. and Wood, Z. (2015), “Blockchain technology and legal
implications of ‘crypto 2.0=”, Bloomberg BNA Banking Report, 31 March, available at: www.
gibsondum.com/…/Lee-Long-Blockchain (accessed 3 August 2016).
Leger, D.L. (2014), “How FBI brought down cyber-underworld site silk road: silk road 101: how the
‘darknet’ works”, USA Today, 15 May, available at: www.usatoday.com/story/news/nation/
…silk-road/2984921/ (accessed 3 August 2016).
Lessig, L. (2006), Code: and Other Laws of Cyberspace, Version 2.0, Basic Books, New York, NY.
Meyer, D. (2016), “Burned by bitcoin scandal, Japan is introducing controls”, Fortune, 26 May, available
at: www.fortune.com/2016/05/26/japan-bitcoin-exchanges/ (accessed 3 August 2016).
Mizrahi, A. (2016), “A blockchain-based property ownership recording system”, available at: www.
chromaway.com/papers/A-blockchain-based-property-registry.pdf (accessed 3 August 2016).
Morgan, R. (2016), “It’s all about the blockchain: Amid the hoopla over bitcoin and other virtual
currencies, it’s the underlying documentation platform that’s revolutionizing transactions”, ABA
 Banking Journal, p. 51, available at: www.bankingjournal.aba.com/2016/03/its-all-about-the- Blockchain
blockchain (accessed 3 August 2016).
technology
Nakamura, Y. and Chen, L.Y. (2016), “Bitcoin plunges, rebounds after hackers steal $65 million”,
Bloomberg, 3 August, available at: www.bloomberg.com/…/2016…/bitcoin-plunges-after-
hackers (accessed 5 2016).
Olson, C. (2016), “Money laundering, bitcoin and blockchain: anonymity, transparency and privacy are
not incompatible”, Finextra, 27 May, available at: www.finextra.com/…/money-laundering-
bitcoin-and-blockchain… (accessed 3 August 2016).
207
Patrick, G. (2016), “Europe’s regulatory blockchain shift on display at private parliament event”, Coin
Desk, 29 April, available at: www.coindesk.com/the-eu-regulatory-blockchain-shift/ (accessed 3
August 2016).
Prisco, G. (2016), “EU Parliament votes for smart regulation of blockchain technology”, Bitcoin
Magazine, 3 June, available at: www.bitocinmagazine.com/…/eu-parliament-votes-for-light-
handed-reg… (accessed 3 August 2016).
Probst, L., Frideres, L., Cambier, B. and Martinez-Diaz, C. (2016), “Blockchain: blockchain applications
& services”, European Commission (EC), Business Innovation Observatory, Contract No. 190/
ENT/CIP/12/C/N03C01, April.
Riley, D. (2016), “US regulators warn that bitcoin and blockchain tech is a threat to financial stability”,
Silicon Angle, 23 June, available at: www.siliconangle.com/…/us-regulators-warn-that-bitcoin-
and-blockchain-tech… (accessed 3 August 2016).
Rizzo, P. (2016), “New York regulators grant second BitLicense to Ripple”, Coin Desk, 13 June, available
at: www.coindesk.com/new-york-bitlense-ripple/ (accessed 3 August 2016).
Sales, F. (2016), “Congress questions blockchain security amid ransomware news”, Tech Target,
available at: www.searchcio.techtarget.com/…/Congress-questions-blockchain-security-
amid… (accessed 3 August 2016).
Shelkovnikov, A. (2016), “Blockchain applications in the public sector”, Deloitte, available at: https://
www2.deloitte.com/…/ch-en-innovation-deloitte-blockchain (accessed 3 August 2016).
Steenis, H., Graseck, B.L., Simpson, F. and Faucette, J.E. (2016), “Global insight: blockchain in banking:
disruptive threat or tool?”, Morgan Stanley Research Report, 20 April, available at: www.the-
blockchin.com/docs/Morgan-Stanley-blockchain-report.pdf (accessed 3 August 2016).
Sunnarborg, A. (2016), “The rise of the blockchain asset class”, Venture Beat, 3 April, available at:
www.venturebeat.com/2016/04/03/the-rise-of-the-blockchain-asset-class (accessed 3 August
2016).
Swan, M. (2015a), “Blockchains may replace the institutions that safeguard commercial activities”,
London School of Economics (LSE) Business Review, available at: www.blogs.lse.ac.uk/
businessreview/2016/03/31/blockchains-may-replace-the-institutions-that-safeguard-
commercial-activities (accessed 3 August 2016).
Swan, M. (2015b), Blockchain: Blueprint for A New Economy, O’Reilly Media, Sebastopol.
Tapscott, D. and Tapscott, A. (2016), Blockchain Revolution: How The Technology Behind Bitcoin is
Changing Money, Business, and the World, Penguin Random House, New York, NY.
Taylor, S. (2015), “Blockchain: understanding the potential”, available at: www.barclayscorporate.com/
…/blockchain_understanding_the_po… (accessed 3 August 2016).
The Economist (2015), “The promise of the blockchain: the trust machine: the technology behind bitcoin
could transform how the economy works”, The Economist, 31 October, available at: www.
economist.com/…/21677198-technology-behind-bit… (accessed 3 August 2016).
Thwaites, T. (2016), “The challenge of regulating blockchain”, CBA/ABC National, 20 May, available at:
www.nationalmagazine.ca/…/the-challenge-of-regulating-blockchain.as… (accessed 3 August
2016).
JFRC Trautman, L.J. (2014), “Virtual currencies: Bitcoin & what now after Liberty Reserve, Silk Road, and Mt.
Cox”, Richmond Journal of Law & Technology, Vol. 20 No. 4, pp. 1-108.
25,2
Trautman, L.J. (2016), “Is disruptive blockchain technology the future of financial services?”, The
Consumer Finance Law Quarterly Report, Vol. 69, pp. 232-242.
Trautman, L.J. and Harrell, A.C. (2016), “Bitcoin versus regulated payment systems: what gives?”, Case
Legal Studies Research Paper No. 2016-34, Cardozo Law Review.
208 UK Treasury (2015), “Digital currencies: response to the call for information”, UK Treasury, March,
available at: www.gov.uk/…/digital_currencies_response_to_c… (accessed 3 August 2016).
US Postal Service (2016), “Blockchain technology: possibilities for the US postal service”, RARC Report
Number RARC-WP-16-011, 23 May.
Valkenburg, P. and Brito, J. (2016), “New California digital currency bill is a step backwards”, Coin
Center, 9 August, available at: www.coincenter.org/entry/new-california-digital-currency-bill-is-
a-step-backwards (accessed 10 August 2016).
Visa (2016), “Visa core rules and visa product and service rules”, Visa, April, available at: www.usa.
visa.com/dam/VCOM/…/about-visa/visa-rules-public.pdf (accessed 3 August 2016).
Walport, M. (2016), Distributed Ledger Technology: Beyond Block Chain, Government Office for Science,
London.
Zyskind, G., Nathan, O. and Pentland, A.S. (2015), “Decentralizing privacy: using blockchain to protect
personal data”, Paper Delivered in Security and Privacy Workshops (SPW), IEEE, San Jose, CA,
21-22 May, available at: www.media.mit.edu/⬃guyzys/data/ZNP15.pdf (accessed 3 August
2016).

About the author

Peter Yeoh is a Law Research fellow and lecturer, University of Wolverhampton, UK. He has completed
B.ECONS, CIM, MBA, LLB, LLM, PhD and PG certification degrees. He has published two book
chapters and in several refereed journals.

For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
Or contact us for further details: permissions@emeraldinsight.com
Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.