Blockchain – Germany
While the German government has shown its keenness to promote blockchain as a technology, the country is not among the leaders that use this technology:
The federal government in Germany has come out with a comprehensive blockchain strategy that it expects will promote the technology, mitigate risks and allow wide use. The government says it expects the new strategy to unleash the potential of the distributed ledger technology and pave the way for mass scale digitization of several sectors, predominantly the financial services sector, even while bringing down the risk involved in the use of data. The strategy is very much in line with that of the EU in order that a single digital market can be established for the whole of EU.
To d a y, b l o c k c h a i n h a s found applications in various fields and sectors like energy, communications, mobility and health although a few years ago, its use was restricted to only for creating cr yptoc urrencies. The new strateg y directly promotes such use as it is aimed at protecting consumers and state sovereignty - two concerns voiced by several authorities regarding the implementation of new virtual currencies in European markets.
IMPACT ON FINANCIAL SERVICES
The new strategy is expected to lead to a legislation that may have far-reaching impact on the financial services system - like for example creation of blockchain-based electronic bonds. The strategy also outlines the government’s priorities in the blockchain space - like digital identity, securities and corporate finance. It also makes it clear that the state will not tolerate any threat to state money by stablecoins like the Facebook-led Libra. The government is expected to launch a pilot project soon for a blockchain-based digital identity to study the technology’s benefits in use cases like maintaining the records of civil status, document registration, passports and ID cards.
This enthusiasm apart, Germany is one country that is just about average in the use of blockchain compared to other technologically developed countries. A study by Bitkom, an association representing the country’s digital economy, showed that 46% of some 1004 companies that are active in the digital space believe German businesses lag behind their international competitors. Nearly 40% think Germany is about average while 10% even say Germany is far behind the international level of blockchain adoption. Not a single survey participant believes German companies are among the worldwide pioneers in the sector. The companies that participated in the survey were from the automobile industry, machinery and engineering, logistics, trade, energy & utilities, banking and insurance, or the public sector. It also showed that while small businesses are not blockchainsavvy, larger corporations have invested in the technology. Only 2% of companies with 50 to 500 employees are using blockchain at any level of their organization.
Germany has an estimated 120 blockchain startups, a majority of these based in Berlin. In comparison, there are more than 750 startups in Liechtenstein and Switzerland’s Crypto Valley. Industry analysts feel part of the reason for this is the regulatory environment. Lack of regulations and legal security are concern for startups. Several entrepreneurs have left the country to set up firms in Liechtenstein or Crypto Valley.
Germany has coined a term, Industry 4.0, which describes the ways by which big data collection and analysis, machine-tomachine communication, and artificial intelligence are making businesses ‘smarter’ across all points of their value chains. Within this framework, industries such as banking, insurance, and energy are increasingly exploring the potential of the blockchain. Many of the businesses not just in Germany but in EU as a whole, have recognized the value of using blockchain for more than just cryptocurrency. For example, German regional bank LBBW and auto maker Daimler executed a debt certificate based on blockchain to reduce administrative costs and duplication of work. Some 15 European insurers and reinsurers have joined forces under the Blockchain Insurance Industry Initiative (B3i) for similar purposes. Many European energy utilities like Enel, RWE, and Vattenfall are backing the Enerchain project to bring peer-to-peer trading to the wholesale energy market.
German technology scene analysts quote process scalability, complexity and testing as hurdles in many blockchain application cases. Yet, it has potential is in cutting out interfaces and departments. In the energy sector, traders are hoping that blockchain technology can reduce transaction complexity and, thereby, reduce the costs of energy settlement, the process of reconciling the energy purchased with the energy sold.
Regulation is also a factor in blockchain’s potential. While the government and ministers in the country may argue for more regulation, startups will feel regulations will stifle the growth potential of the technology. Rather, they would say transparency in the blockchain technology, and its applications should reduce r e g u l a t i o n s . Whil e blockchain technology has a sound footing in Germany and in Europe in general, the advances made by countries like the USA or China in this domain have the potential to change the global financial platforms as a whole and Germany and Europe have to do a lot of catching up.
Blockchain strategy in Germany