Spanish banking giant Santander is making a bold move in the direction of Ethereum by creating a way to tie bank accounts and fiat currency to tokens on the Turing complete blockchain system.

Demonstrating this innovation was the bank's partner within the Ethereum community, EtherCamp, which has been building out the Ethereum Javascript environment for past couple of years, among other things.

The first use case of the Santander/EtherCamp CashEth project is micropayments, so leveraging the agility of the Ethereum blockchain to pay tiny amounts to read newspaper articles with zero fees, recorded on the blockchain.

Roman Mandeleil lead developer of EtherCamp told IBTimes UK: "It's a way of using a Santander bank account to convert fiat currency into tokens to be used on Ethereum."

Mandeleil showed how a Santander bank account will provide a button which creates an Ethereum account. "In this bank account you are going to have a parallel Ethereum account on Ethereum network. So Santander is going to know about this so it is going to be tied.

"It gives them a very nice way to do features. One of those is going to be to take dollars, put them in frozen account, and give you an amount of tokens that is backed by this reserve.

"So it's not a gold reserve but it's a dollar reserve. So you are going to upload these tokens into the blockchain and you are going to have the stability of real dollars or euros. And you are going to have the agility of Ethereum blockchain," he said.

Anything that comes close to connecting public blockchains with banks is going to face a ton of regulation. Mandeleil explained that Santander had been working with his team for nine months looking at things like regulation.

"Their legal staff was like – this is going to be difficult. But they got excited and actually start to work with the regulators. They are going to start in one country and you are going to see the system live. There are questions for regulators and we solved some of them, not all of them."

Mandeleil said Santander has been opening all the APIs in the bank for his team to ensure regulatory compliance. "It's not easy; it involves IT guys inside banks. They have given us these kind of bridges. We cannot say which country this will be rolled out in. Banco Santander started in Spain but it's much bigger. They have several options.

In terms of timing, Mandeleil said he wants to see it live next year, adding that he is flying to Madrid after DevCon to continue working with Santander. "We were talking about months but with banks it is difficult," he said.

The next step is to open an API for the system, for developers. "Because we don't want to develop all the features, we want them to develop whatever they want."

He added: "I'm a libertarian guy but I see that we really need this. The movement of blockchains is going one way and banks are also moving towards blockchain - these movements are going to meet somewhere. We are working on both because built Ethereum infrastructure and now we are working with banks."

Santander, which is sponsoring DevCon2, is establishing itself as one of the foremost innovators across all areas of blockchain. The bank has been a long time champion of Ripple and the ways it can connect interbank payments across borders.

The CashEth project is being overseen by Julio Faura, head of R&D at the bank and John Whelan director of Santander's Blockchain Lab, so something of a seasoned blockchain team.

More recently, Santander joined UBS as a backer of London-based Clearmatics (which creates a clearing system based on the Ethereum Virtual Machine) and the Utility Settlement Coin project, which is bringing central bank cash a step closer to blockchain.

Faura told IBTimes: "Of course there are regulatory issues, not linked to Ethereum per se, but linked to the idea of using a distributed ledger as a store of record for segregation of accounts, that is one topic. And also about privacy and so on. So these are things that we are working to solve with compliance people."

Faura clarified this has nothing to do with linking bank accounts to a cryptocurrency like Bitcoin. He said it was tokens backed by a Santender bank account. "This could be the bank or it could be some other kind of licence and the idea is this entity would back, would be guaranteeing if you want, those tokens by having a deposit at the bank level.

"There are other approaches. You know that we are present in the Settlement Coin project. It is similar but more serious; it's more up-scale in the sense it is intended to work as a pseudo-central bank. The deposits will be in central bank accounts.

"Here, we are just talking about regular bank account. We are talking about micropayments, small scale. Settlement coin is to settle trades between financial institutions and bigger amounts of money."

So Santander seems to be pivoting in the direction of Ethereum, one way or another. Faura, who holds a PhD in computer science and likes building smart contracts on Ethereum, said: "I think Ethereum is very interesting. It's a very well run project and the possibilities are bigger. Block times, for example, help in many of these projects we want to innovate on. It would be unfeasible if we did it on top of Bitcoin blockchain."