Pub. 9 2014-2015 Issue 1

www.nebankers.org 12 Extraordinary Service for Extraordinary Members. released a report in December that indicated Bitcoin could become a major means of payment for ecommerce and a serious competitor to traditional money transfer providers. 17 Wells Fargo reportedly has launched a group to examine how the bank might safely offer Bitcoin services or bank products to virtual currency entrepreneurs and also has published the excellent “Bitcoin 101: A Primer.” 18 UBS also has studied and released a report on Bitcoin, 19 and BMO is reported to potentially be open to one day being an intermediary for Bitcoin transactions. 20 In December, the Economist reported that Chase had filed a patent application for something that “sounds rather like” Bitcoin. 21 There is already a Sharia-compliant Islamic Bank of Bitcoin (or at least a website for it). 5. The future is coming; Bitcoin or a succeeding technology may well be part of it. If the attention already being paid to Bitcoin and the busi- nesses springing up around it is not enough, the real future of this technology may be in exploitation of the blockchain technology for ancillary or next-generation products such as “colored coins” that carry some secondary value like a record of ownership of a stock or asset, digital (potentially self-executing) contracts, or a notary-like “proof of existence” service to prove a particular document existed at a certain point in time. 22 These sorts of things are clearly further off in the future, but not necessarily the far distant future that today’s bankers will never see.  some degree of the dramatic. For example, in a recent presentation on Bitcoin, a vice president at the Federal Reserve Bank of St. Louis, under the heading “The Evolution of Money,” made the dire prediction that traditional institutions will be forced to “adapt or die.” (And we know something is wrong with that statement since money does not evolve, it is intelligently designed!) 11 This could change to some extent when miners’ rewards are decreased or eliminated and replaced with fees. 12 See “How Big Banks Killed a Plan to Speed up Money Transfers,” American Banker, November 13, 2013 (a revised plan has since been proposed by NACHA), and “Message to Banks: Speed Up Payments or Fed Will Take Charge,” American Banker, November 13, 2013 (another paper on this topic is expected to be released by the Fed in the second half of 2014). 13 See “Bitcoin Companies and Entrepreneurs Can’t Get Bank Accounts,” Forbes.com, November 15, 2013, and “Banks Mostly Avoid Providing Bitcoin Services,” WSJ.com , December 22, 2013. 14 Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies, FIN-2013-G0001 (March 18, 2013). 15 Payment Processor Relationships Revised Guidance, FIL-3-2012 (January 31, 2012) and FDIC Supervisory Approach to Payment Processing Relationships with Merchant Customers that Engage in Higher Risk Activities, FIL-43-2013 (September 27, 2013). 16 “Banks Squander Opportunity in Bitcoin,” American Banker, November 18, 2013; “Big Banks Jumping on Bitcoin Bandwagon,” Marketwatch.com, March 7, 2014; “Bitcoin Will be Part of the Global Banking Order, says Circle CEO,” Gigaom.com, April 7, 2014. 17 “Bitcoin Valued at $1,300 by Bank of America Analysts,” Forbes.com, December 5, 2013 (obviously somewhat dated thinking given the value in the headline). 18 “Wells Fargo Organizes Meet to Discuss Bitcoin Rules: FT,” Reuters.com, January 14, 2014; “Bitcoin 101: A Primer” and “Foreign Exchange Research Special Edition,” Wellsfargomedia.com, March 7, 2014. 19 Bitcoins and Banks: Problematic Currency, Interesting Payment System,” UBS.com , March 28, 2014. 20 “BMO Open to Bitcoin if Virtual Currency Is Regulated, Reliable, says CEO Bill Downe,” Financialpost.com, April 2, 2014. 21 “JPMorgan Jumps in,” Economist.com, December 11, 2013; but see “You Should Probably Ignore That ‘JP Morgan Bitcoin’ Patent – It’s Over a Decade Old,” BusinessInsider.com, December 10, 2013. 22 “Why Bitcoin Matters for Bankers,” American Banker, March 28, 2014. For more information, contact Bryan Handlos at Kutak Rock LLP at (402) 346-6000 or bryan.handlos@kutakrock. com. Handlos is a member of Kutak Rock LLP’s banking practice groupwhere he concentrates on bank regulatory matters.  COUNSELOR’S CORNER — continued from page 11 1 For an alternate view: “The historical track record of old white men crapping on new technology they don’t understand is at, I think, 100%.” Venture capitalist Marc Andreessen, quoted in “Bitcoin Battle: Warren Buffett vs. Marc Andreessen” on Forbes.com, March 26, 2014. For a more neutral take, see “Bitcoin: Both Buffett and Andreessen are Right,” on CNN.com, March 27, 2014. 2 One user is reported to have lost millions of dollars’ worth of bitcoins when he discarded a hard drive containing his key. 3 The blockchain can be viewed at http://blockchain.info/, where a visitor can watch transactions occur, view the transactions in blocks, see the rewards to miners and look at the transaction history for particular addresses (kind of like looking at someone’s wallet or checkbook). 4 For example, Overstock.com, Reddit, Zynga, Wordpress, OKCupid, Tesla, and Virgin Galactic. 5 For example, FinCEN and IRS guidance referenced later in this article. 6 See bitcoincharts.com for more detailed information. It also has been suggested that the fact that bitcoin holdings are concentrated in the hands of a relatively few owners might be reason for concern about market manipulation. 7 Especially our libertarian friends, who may like the fixed money supply aspect of the system. 8 For example, unlike credit card transactions where cardholders have federal protections and card association chargeback machinery at their disposal, Bitcoin transactions are irreversible in the event of unauthorized use. 9 China appears to have solved this problem by banning Bitcoin. 10 Even outside the ardent venture capitalists’ and enthusiastic first-adopters’ ranks lies Reach your target audience a ordably. advertise get results DON BROWN Advertising Sales 855.747.4003 donfbrown@thenewslinkgroup.com