1. Blockchain and Distributed Ledger Technology: Innovation, Operation, and Legal and Regulatory Implications Consumer Protection on the Blockchain
Emily Goodman Binick Vice President & Senior Counsel American Express Company April 14, 2016

2. Blockchain & Virtual Currency
“A” (versus “the”) blockchain is a ledger of transactions between parties on a network. “The” blockchain is
the public ledger on which bitcoin rides.
Think of distributed ledger technology as a protocol / layer on which applications can be built.
The difference between a blockchain and a traditional database is that the ledger is “distributed.” Each party
on the network maintains a complete copy of the ledger.
The parties all participate collectively in the validation and recordation of transactions via a computerized
consensus protocol.
A value transfer system based on a distributed ledger and cryptographic controls that allows parties to
transact directly without the need for a trusted third party.
There is no clearinghouse or trusted intermediary required to clear and settle those transactions.
Potential applications are – or at least seem, right now – endless. “This is the distributed trust network that
the Internet always needed and never had.” – Marc Andreessen

3. Blockchain & Virtual Currency
A distributed ledger can take over many of the functions performed by central third parties, by enabling the network itself to be the intermediary (see figure 1, above). This attribute is particularly relevant for financial services, a field in which third parties are widely used to create trust and decrease risk.
The trade = the settlement
Source: Tabb Forum

4. Blockchain & Virtual Currency
Source: Dilbert by Scott Adams
“Got a leaky gutter? Put a blockchain on it.” – Michael Casey

5. Blockchain & Virtual Currency
There are many virtual currencies, but the most popular and well-known is a decentralized
currency known as Bitcoin (BTC).
BTC is an open-source peer-to-peer system and is not underwritten by a government or
central authority. Instead, it is based upon a cryptographic scheme that aims to provide
security, privacy, and trust in the currency by recipients.
The Bitcoin Ecosystem originated from software released in January 2009 and is thought to
have been invented by an unknown programmer or group of programmers who go by the
pseudonym “Satoshi Nakamoto.”
The BTC software is now maintained by volunteer open-source community.
Regulation of virtual currency
Within US: NY BitLicense; Uniform Law Commission; State Money Transmitter Law; wait-and-see approach.
Outside of US: Range of approaches from banning virtual currency to wait-and-see approach.

6. Blockchain & Virtual Currency

7. Blockchain - Activity & Asset Focused Regulation
Look to activity and asset that is leveraging blockchain technology
What are consumer protection concerns?
Are those concerns addressed in an existing regulatory regime?
If (maybe) yes, does the activity fit within the scope of that existing regulatory
regime? If (maybe) no, will that scope be re-defined to include that asset /
activity?
E.g., In New York, would the inclusion of virtual currency into money transmitter law re-define “money” in NY?
E.g., In other states, does the inclusion of storage / wallet activity re-define “money transmission activity”?

8. Existing, Regulated FI Perspective
Regulatory uncertainty can lead to a degree of product development paralysis for existing,
regulated FIs… Innovator’s Dilemma
Institutional reluctance to apply consumer protections in a way that could be viewed as
inconsistent
Certain characteristics inherent to public, permissionless blockchain are at odds with
existing regulatory regimes that may apply to blockchain activity
E.g., irreversibility / irrevocability; decentralized; pseudonymous; caveat emptor
Prioritizing offensive and defensive use cases

9. Existing, Regulated FI Perspective
Just a few examples of opportunities…
Benefit of consortiums / industry standards
Consistent user experiences contributes to learnings of what the “reasonable consumer” is in blockchain apps
UDAAP is always top of mind, even if regulatory treatment of underlying activity isn’t settled
Identity as a smart asset  democratization and ownership of customer information
Reimagining customer consents
Multi-signature apps / customer control over accounts
Fraud prevention  one perspective is that it will allow companies to treat legitimate claims
from “good guys” more effectively

10. Thank you! Emily Goodman Binick Vice President & Senior Counsel
Contact Information
Emily Goodman Binick
Vice President & Senior Counsel
American Express Company