• J McGlynn and M Bacina

Texan State Banks given the green light to custody digital assets

The Texas Department of Banking has released a notice that “Texas state-chartered banks may provide customers with virtual currency custody services”. In a nutshell, the notice gives state banks the green light to add custody services to their repertoire as long as they introduce adequate protocols which allow them to offer custody services while operating within existing legal frameworks.

While the term "virtual currencies" sounds rather vague, the industry announcement affirms that the Texas Department is referring to decentralized blockchain based digital currencies like Bitcoin and Ethereum. It defines virtual currency as "an electronic representation of value intended to be used as a medium of exchange, unit of account, or store of value" and continues:

Virtual currencies do not exist in a physical form... they are intangible and exist only on the blockchain or distributed ledger associated with that virtual currency.

How individual state banks choose to operate in harmony with Texan law is up to them, but the Department presents some high-level options concerning how the institutions should consider managing their customers private keys (Private keys are roughly tantamount to passcodes for digital wallets) :

The bank may choose to allow the customer to retain direct control over their own virtual currency and merely store copies of the customer’s private keys associated with that virtual currency.

It continues:

Alternatively, the bank may cause the customer to transfer their virtual currency directly to the control of the bank, creating new private keys that are then held by the bank on behalf of the customer.

One of the greatest barriers to the widespread adoption of digital currency continues to be the complexity of digital wallets and transactions and the lack of convenience and public understanding that follows this complexity. Whichever way a Texan state bank may select to provide a custody service, this decision to open digital currencies to banks secondarily opens the space up to a wider market of people who require the greater confidence and convenience that a bank backed service can provide (like the average person and the elderly). Certainly a positive sign of the Texan general public's growing acceptance of digital currencies.