The financial industry has been waiting for a time when the bitcoin protocol will be widely adopted by financial institutions, but that’s about to happen, according to financial industry designators.
The new guidelines were released Thursday as the cryptocurrency was set to be officially accepted by the Federal Reserve Bank of New York, and also as the world’s biggest cryptocurrency exchange was set for a major expansion.
The industry has long argued that bitcoin is the best-known of a growing number of digital currencies that has emerged since the financial crisis, with governments and banks around the world adopting them to process and trade their currencies.
The bitcoin network, a virtual network that enables instant payments to anyone in the world, is currently used by more than 6,000 financial institutions worldwide, and as the currency gains popularity, the number of financial institutions using it will also increase.
For the first time, financial designators will release guidelines that describe how to handle bitcoin transactions, a step many have taken for decades, including banks, insurers and other companies that accept the currency for trade and business purposes.
The rules apply to transactions between businesses, not between individuals, which makes them more stringent than those that have been issued in recent years.
They do not require the companies to hold bitcoin, the digital currency that is often traded for real money, but they do require them to store the digital ledger in a way that makes it easier to trace transactions.
The guidelines also call for financial institutions to be transparent about how the money is used, including what kinds of accounts and where the money goes.
The guidelines call for a two-step approach to handle any bitcoin transactions that might be made.
First, they recommend that all financial institutions consider the need for transparency and consider whether they should be required to hold or share the bitcoin.
Second, they say that financial institutions should avoid using the bitcoin network for transactions that are too complicated, too costly or that require high trust or confidence, or for which the use of the currency is unlikely to occur.
Financial institutions should not accept bitcoins as a method of payment, or to send money overseas.
“This is a big deal, and it’s going to be a huge challenge for the bitcoin industry to adapt to this,” said Chris Ragan, president of the Bitcoin Foundation, which advocates for a free and open online currency.
“These rules, which are being written in a very clear and concise way, will hopefully give financial institutions a lot of flexibility in how they handle transactions in the future, and hopefully provide a bit more certainty to their customers and the world at large.”
In a statement, the New York Fed said the new rules will be published in an advisory titled “The Digital Currency Standard for the Federal Open Market Committee.”
The Federal Reserve does not control bitcoin and has not endorsed it as a legal tender, which means that any new regulations it issues will have to be approved by the U.S. Congress.
But in a statement Thursday, the Fed said it believes the bitcoin standard is a useful starting point for the financial industry.
“The digital currency standard should provide guidance on the appropriate use of digital currency and how that use should be regulated and monitored,” the Fed wrote.