Executives at Toronto-Dominion Bank say they’re hopeful about the promises of blockchain technology, but they’re not about to dive headfirst into the world of cryptocurrencies such as bitcoin.
TD is interested in how blockchain technology can be used to create digital tokens that represent stocks or bonds or facilitate syndicated loans, Chris Owen, TD’s vice-president of blockchain, said in an interview Wednesday.
It’s also actively involved with the Bank of Canada, the Bank of England and the Monetary Authority of Singapore as they explore the possibility of issuing virtual currencies, he added. But he made a firm distinction between central bank-issued currencies and tokens such as bitcoin, which have gained a reputation as a haven for money laundering.
“We’re interested in central bank digital currencies − the issuance of them, the exchange of them, the exchange between central banks. That’s what we think has got legs, not cryptocurrencies that are that are shrouded in a lot of criminal activity,” Mr. Owen said.
Bitcoin has a number of features that make it unsuitable for regulated financial institutions such as TD to trade, according to Moti Jungreis, TD’s head of global markets.
The main issue relates to anti-money-laundering regulations, which require banks to always know who their clients are.
If TD started trading cryptocurrencies, it would need to know who is on the other side of every trade – something that isn’t possible with bitcoin transactions.
“If I don’t know who the counterparty is, it’s against the law for TD Bank," Mr. Jungreis said. Security is also an issue, given the high-profile hacks that have targeted cryptocurrency exchanges.
Other aspects of bitcoin − written into the code that governs the digital currency − make it unsuitable for banks, Mr. Owen said. For instance, the bitcoin network processes only seven transactions each second.
“The requirements we have for transaction processing are thousands of times higher than seven transactions a second,” Mr. Owen said.
And the process of mining bitcoin, which involves superfast computers performing complex mathematical tasks, would also constitute a privacy breach for the bank, he added.
“Miners pull transactions off of the network and they need to see the data in order to do what they do,” Mr. Owen said. “That, by design, creates a privacy breach for a financial institution that would never get past a regulator.”