By now, few would argue that blockchain, the technology behind bitcoin, has not broken new ground. In fact, the success of blockchain has extended to an array of other fields as companies adapt its use in ways that best suit their individual needs. Whether interfacing with bitcoin or using blockchain technology in the Internet of Things (IoT), blockchain has become a compelling value proposition across many industries. This is due, in large part, to the fact that blockchain can be used to record not just financial transactions but everything of value. The incorruptible digital ledger originally developed to underpin bitcoin is now employed in many other ways. Because digital ledgers are just a method of recording data digitally, they can be applied to anything that needs to be independently recorded and verified as having occurred, such as financial transactions, agreements, contracts and ownership.

At first, blockchain was little more than a tool designed to solve the problem of “double spending” in bitcoin. In 2014, projects began to emerge that used bitcoin blockchain for additional digital assets beyond bitcoin. Just a year later, many banks and financial institutions all over the world were researching possible uses of the distributed ledger both in finance and beyond. Blockchain has several features that financial services companies find particularly attractive. For one thing, it is decentralized. That is, it does not have a single point of failure. As a result, it is more secure because it cannot be hacked at a single access point. In addition, it utilizes cryptography to validate every transaction. The encryption in the software ensures that it cannot be altered, and is essentially tamper-proof. Digital ledgers are efficient because the change of information is quick and easy, and they are transparent in that every transaction is documented.

Rather than having a central record-keeping system, identical records are spread across all users of a connected network. The digital ledger is updated across the network and transactions only go through when enough parties on the network sign off on them. The technology eliminates the need for costly middlemen in financial transactions, and because the digital ledger provides a high level of cryptographic security, financial services companies are able to use blockchain to provide services more effectively while at the same time saving money.

With these built-in advantages, blockchain has the potential to redraw the structure of financial institutions and back-end services. Consumers will pay less for all kinds of financial activity, from international payments to the trading of stocks and bonds. Over the past year, the financial services sector has been actively investing and promoting an array of uses for blockchain. Nine of the world’s largest banks, including Barclays, JPMorgan, Royal Bank of Scotland, UBS, Goldman Sachs, BNP Paribas, ING, Wells Fargo & Co., and Credit Suisse, have formed a partnership with 21 other institutions to draw up industry standards and protocols for using blockchain in banking.

Identified uses of blockchain include peer-to-peer energy trading, where instead of having a central power provider sending electricity to consumers, a distributed network, built on blockchain’s technology, will allow households to sell excess solar-generated electricity to each other without a middleman. A New York-based company has already developed such a platform.

A medical project based on a digital ledger was unveiled in April 2016 to distribute and track pharmaceuticals with an eye toward improving accountability in the pharmaceutical industry. The concept, while not implemented yet, follows one of the more popular uses of blockchain: the tracking of goods. A UK company recently developed a digital ledger that aims to prevent diamond theft and fraud by registering the provenance of the stones in a blockchain. A Los Angeles-based start-up will use blockchain to provide a decentralized online database of art and objects of value, which can then be used by artists, collectors and sellers. An American bitcoin company is working on a blockchain project to track fish, registering when and where and how a fish was caught, checking whether it qualifies as organic and tracking it along distribution lines so that the data could be shown to the final buyer.

While there are a host of other start-ups (companies and organizations that are experimenting with digital ledgers using blockchain technology), the major concern is the lack of a regulatory framework. The current state of the regulatory environment where multiple agencies have their own unique concerns demonstrates the need for a unified approach to coordinate these concerns. The clearing and settlement of financial transactions is an area where blockchain technology could drive enormous efficiencies. Currently, the settlement of securities transactions between buyer and seller takes place three days after the trade is executed. Under a market employing blockchain technology, settlement would be virtually instantaneous. The challenge here, however, comes in how different agencies, namely the Securities Exchange Commission and the Commodity Futures Trading Commission, define the term “settlement.” Each of these regulatory bodies defines the term differently.

With the increased use of blockchain technology expected to only grow in the coming years, more formal regulatory guidance will be needed. Until then, companies contemplating the use of blockchain will need to take appropriate regulatory advice before proceeding.