Leading multinational Spanish banking group BBVA has published a new research note that addresses the crucial question currently looming in the financial world ‘Can blockchain be regulated?’

Prepared by BBVA Research Department, the note has been penned by BBVA digital regulation manager Javier Sebastián. He said that while currently there is only one application of the technology – bitcoin, most of the world’s banks are exploring its potential and that for certain banking processes it could be a powerful tool for boosting efficiency.

Sebastián emphasized that blockchain technology’s characteristics of inalterability, transparency and automation by means of smart contracts may form the basis for entirely new digital businesses. However, he also noted that there are numerous factors that will influence its widespread adoption, with ‘regulation’ being one of the most significant factors.

“One of the most significant of these factors is the means whereby it [blockchain] will be regulated, bearing in mind that regulation does not apply to the technology itself but to its various uses. In the case of blockchain, the exploratory phase we are in makes its regulation even more difficult to address”, Sebastián said.

He further said that as bitcoin is the only active use case of the technology in the real world, the regulatory debate so far has been focusing only on this area. Sebastián also pointed out the various efforts in the EU in this regard, including harmonizing the tax treatment of transactions, ruling that bitcoin transactions were exempt from VAT and more recently, the European Commission’s proposal to include virtual currency exchange platforms and wallet providers in the AML Directive to avoid the anonymous exchange of bitcoins.

“Regulation of other uses of blockchain, which will have a greater disruptive impact on financial services, will inevitably have to wait”, Sebastián said.

However, he said that there are some questions that are common to all cases, which should be addressed as soon as possible. Explaining further, he said:

“The global and distributed nature of blockchain makes it necessary to establish a legal framework in which its legal nature is defined, including the applicable jurisdictions and laws, as well as where responsibility lies in the event of error or malfunction. Apart from this, its inalterability opens up a debate on its recognition as an unfalsifiable “single source of truth”, the legal validity of the documents stored as proof of possession or existence, and recognition of smart contracts as enforceable legal agreements.”