The EU Blockchain Observatory & Forum (EBOF) launched in February 2018 has published its first thematic report outlining the current state of blockchain in Europe. It’s a pretty broad report, but does provide a helpful overview of progress to date and give some useful insight into the EU’s priorities.
Europe: fertile ground for blockchain growth and innovation?
EBOF views Europe as being in a prime position for blockchain technologies. The report outlines recent and ongoing blockchain initiatives that have been led by European institutions. For example, the European Commission’s Fintech Action Plan that calls for “a comprehensive strategy on distributed ledger technology and blockchain addressing all sectors of the economy“, the European Blockchain Partnership; and blockchain initiatives in various EU member states including Germany, Austria, Estonia, Spain, Lithuania and the Netherlands. The report also highlights significant business interest in the blockchain space in Europe and Europe’s vibrant start-up scene.
However, the EBOF acknowledges that the emergence of blockchain is not without its barriers. In particular, the report identifies fundamental areas where there is no or little legal regulatory clarity.
EBOF believes that Europe has the advantage of an “extremely well-developed legal and regulatory framework in general, and it is used to incorporating new technological developments into this framework as they arise.” In addition, given the principle of EU law that legislation should not be technology specific, the EBOF states that we should not expect any blockchain-specific law at the EU level. Nonetheless, there are areas where legal clarification is required.
In particular, the EBOF suggests that the most pressing need is probably in the area of token classification, but also recognises other thorny issues such as the tax and accounting treatment of cryptoassets and the legal status of smart contracts.
The EBOF also acknowledges that the new EU data protection law, the GDPR, which is based on “an implicit assumption that a database is a centralised mechanism for collecting, storing and processing data“, has been highlighted as one such barrier to blockchain innovation. However, EBOF is optimistic in its outlook, recognising that blockchain is still in its infancy; therefore as it evolves it may be possible to make the technology GDPR compliant.
The report identifies other business challenges, the most acute being the fact that it’s exceedingly difficult for companies that raise funds in cryptoassets to get a traditional bank account. EBOF notes that it appears that many European banks are still influenced by the recommendation issued by the European Banking Authority in 2014 in which “the EBA recommends that national supervisory authorities discourage credit institutions, payment institutions and e-money institutions from buying, holding or selling virtual currencies.”
The EBOF also points to the pressing need for engineers who are competent in using blockchain in order to meet demand. The report highlights that there are only around 2,000 people worldwide who can build a blockchain from scratch. Furthemore, EBOF highlights the image problem which currently shrouds blockchain. Most people still confuse blockchain with bitcoin, and there is still a “wild west” perception that it is used for money laundering and scams.
EBOF sets out five clear priorities that Europe should concentrate on:
1) Clarify the legal and regulatory framework: Top of the list is resolving the tension between GDPR and blockchain. The legal, fiscal and accounting status of tokens and the rules governing exchange of cryptoassets also need to be clarified. Further, making it easier for legitimate projects using blockchain to set up bank accounts should be a high priority.
2) Education and research: Europe’s research ability is a clear advantage. However, the EBOF acknowledges that it will need to compete with and outperform other regions such as North America if it wants to maintain parity and stay competitive on the global blockchain scene. Further, education should be a priority; in particular Europe needs to find a way to tackle the blockchain talent shortage.
3) Adoption in private and public sectors: EBOF notes that “the pursuit of flagship projects that provide real benefits to users and demonstrate the value-add of the technology, will have the dual effect of creating a domestic market for innovative entrepreneurs, and encouraging investors to fund more local projects.”
4) Collaboration: Europe should continue to promote collaboration in the blockchain space, in particular between governments and companies.
5) Understanding: Europe should foster blockchain innovation by continuing to study the ecosystem and providing data on its growth and condition.
Sue McLean, Dan Relton, London