While Bitcoin may not replace the U.S. dollar anytime soon, the underlying technology of the blockchain is certainly generating hype among mainstream financial institutions.
Startups experimenting with blockchain technology for financial institutions are already receiving funding from banks like JPMorgan . In fact, in an Emerging Theme Radar note sent to its clients, Goldman Sachs has declared that the technology has the capability of drastic change.
“While the Bitcoin hype cycle has gone quiet, Silicon Valley and Wall Street are betting that the underlying technology behind it, the Blockchain, can change… well everything.” the note reads .
But, amid all the hype and excitement lie several legal and compliance issues that mainstream financial institutions will have to address if they choose to adapt the bitcoin blockchain technology as a replacement for the current financial infrastructure.
In a recent research paper exploring the complications that banks and other financial institutions could face switching to a virtual ledger based on the bitcoin blockchain, Angela Walch, an attorney and assistant professor at St. Mary’s University School of Law, said that while the existing financial system infrastructure is obsolete and needs to be upgraded, any replacements to the existing financial system should be reliable.
“But in all the excitement over this technological boon, we must keep in mind the enormous importance of reliable financial market infrastructure, and ensure that replacements to existing financial market infrastructures can be counted on,” Walch said.
Walch said that since using a single ledger, or blockchain, is not akin to signing a contract with a third party for a service, financial institutions might face complex legal and compliance snags while switching to a virtual ledger like the bitcoin blockchain.
According to Walch, some of the bitcoin blockchain’s basic features, including its status as software, its decentralized structure and its open-source software development process, creates […]
