Monday, November 2, 2015
For those who are unfamiliar with digital currencies, a blockchain is a distributed database that maintains a continuously growing list of data records (blocks) that are hardened against tampering and revision. The bitcoin blockchain is a constantly growing, public ledger of all executed bitcoin transactions. Blocks are added in a linear, chronological order. Other cryptocurrencies use blockchains, and the financial industry is exploring additional uses for the technology.
"The companies participating in this initiative are not only good companies, but they are also good corporate citizens," said Jason Weinstein, Director of the Blockchain Alliance, who is a Partner with Steptoe & Johnson LLP and the former Deputy Assistant Attorney General in charge of cybercrime investigations for the U.S. Department of Justice. Industry participants include BitFury, BitGo, Bitnet, BitPay, Circle, Coinbase, Xapo and others.
"For the blockchain to thrive, the industry must work together to correct the misperception of bitcoin as the 'currency of criminals,'" Weinstein said. "The biggest challenge for law enforcement is the perceived anonymity associated with bitcoin. But that's not unique to bitcoin – it's a concern for any investigation of crime facilitated over the Internet."
Regulators have voiced concerns stemming from high-profile criminal cases involving Silk Road, Mount Gox and Liberty Reserve, which used bitcoin as a means of exchange. "By helping law enforcement learn more about how the technology works, the Blockchain Alliance can help reduce that anxiety on the part of law enforcement and promote an approach that doesn't stifle innovation," Weinstein said.
Looking at blockchain technology in a broader sense, most still consider it to be nascent, as opposed to fully developed, and its applications are expected to reach far beyond just payments.
"That's where we're seeing the tech giants, including Microsoft, Samsung, and IBM and financial services firms, such as UBS, Citibank, BBVA, and many others creating focused working groups – some are even investing – in blockchain-based technologies and not necessarily bitcoin currency applications," said Perianne Boring, founder and President of the Chamber of Digital Commerce, which launched in July 2014.
Boring believes digital currencies stand to disrupt global payments, especially in the remittance market. "In some countries the remittance inflow is greater than the GDP of the actual country," she said, noting that fees to transmit those funds can run as high as 9 to 13 percent. "Blockchain-based remittance service providers can bring those fees down significantly with increased transparency, which can have huge impact on the families who rely on those funds," she added.
Industry insiders have voiced real concern that over-regulation of bitcoin and blockchain technology could stymie progress in areas where considerable investment and infrastructure development are well under way.
"When we look at regulating blockchain technology, we want it done from a more sophisticated policy perspective," Boring said. She noted that in dealing with federal agencies and departments, regulators have made it clear that a set of best practices and industry standards are needed. The chamber is working on a draft set of standards due for review in the coming months.
"No one wants to see the government take an approach to enforcement or regulation that inhibits the lawful activities of the many when it's really concerned about criminal activities by a few," Weinstein said. "The Blockchain Alliance can make a significant contribution in the effort to promote an approach to regulation and enforcement that strikes that balance.
"I think that all parts of the ecosystem have a shared interest in addressing the reputational issues surrounding bitcoin and make sure that those reputational issues don't interfere with the growth of this industry and the development of new and exciting applications for the blockchain," Weinstein stated.
Most parties involved in the advancement of bitcoin and blockchain technology agree that now is the time to act collaboratively with law enforcement to eliminate rogue elements in an industry that otherwise is poised to replace legacy systems within a framework that adheres to strict standards governing regulated entity clients.
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