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The Euro­pean Commission’s Blockchain Approach

If you have been fol­low­ing the news late­ly, chances are that you have heard about the accel­er­at­ing changes in the blockchain/crypto world. Many peo­ple are now ask­ing the ques­tion, “What are the EU’s plans in rela­tion to these emerg­ing opportunities?”

 

The EU has already tak­en its first major steps into the right direc­tion with the cre­ation of the Euro­pean Blockchain Part­ner­ship (EBP) and the estab­lish­ment of the Euro­pean Blockchain Ser­vices Infra­struc­ture (EBSI) in 2018.

 

EBSI is a net­work of dis­trib­uted nodes across Europe that will deliv­er cross-bor­der pub­lic ser­vices. It is going to enhance the way cit­i­zens, gov­ern­ments and busi­ness­es inter­act. The devel­op­ment of EBSI 1.0 was com­plet­ed in 2020 and offers first imple­men­ta­tions such as Trust­ed Data Shar­ing for cus­toms and tax author­i­ties in the EU as well as a first draft of a Self-Sov­er­eign Iden­ti­ty mod­el in Europe, allow­ing users to cre­ate and con­trol their own iden­ti­ty across borders.

 

With the reg­u­la­tions of MIFID II, the Euro­pean Com­mis­sion pri­mar­i­ly ensured more legal cer­tain­ty in the area of tok­eniza­tion of assets, which was reward­ed by increased demand and devel­op­ment from the econ­o­my. Through the Mar­kets in Cryp­to-Assets (MICA) pro­pos­al announced in Sep­tem­ber 2020 (secu­ri­ty token offer­ings are exclud­ed from this), the EU wants to reg­u­late the dis­tri­b­u­tion, trad­ing and issu­ing of dig­i­tal cur­ren­cies and cryp­to-assets uni­form­ly in the EU, fol­low­ing the exam­ple of MIFID II. Through uni­form reg­u­la­tions, the EU hopes for more legal cer­tain­ty and thus more innovation.

 

The mem­ber states want­ed to involve com­pa­nies, acad­e­mia and the blockchain com­mu­ni­ty in their deci­sion-mak­ing. The Euro­pean Union Blockchain Obser­va­to­ry and Forum as well as the Inter­na­tion­al Asso­ci­a­tion of Trust­ed Blockchain Appli­ca­tions (INATBA) are the main insti­tu­tions respon­si­ble for this dialogue.

 

It would make sense for the EU to fol­low Esto­ni­a’s exam­ple and shift more and more admin­is­tra­tive activ­i­ties to the blockchain in order to be able to work more cost-effec­tive­ly and to ensure data secu­ri­ty. Esto­nia was the first coun­try to inte­grate blockchain on a nation­al lev­el with its blockchain called KSI. KSI offers a wide range of pos­si­bil­i­ties, such as set­ting up a com­pa­ny in just three hours or vot­ing online, which saved Esto­nia a cumu­la­tive 11,000 work­ing days in the last elections.

 

Due to its decen­tral­ized nature, the blockchain offers more secu­ri­ty against total fail­ures, mis­takes by indi­vid­u­als or abuse by third par­ties. A quote from Nas­sim Nicholas Taleb illus­trates the dan­gers that the cur­rent monop­o­liza­tion with­out the appli­ca­tion of decen­tral­ized sys­tems bears for us “Glob­al­iza­tion cre­ates inter­lock­ing fragili­ty, while reduc­ing volatil­i­ty and giv­ing the appear­ance of sta­bil­i­ty. In oth­er words, it cre­ates dev­as­tat­ing Black Swans. We have nev­er lived before under the threat of a glob­al col­lapse. Finan­cial insti­tu­tions have been merg­ing into a small­er num­ber of very large banks. Almost all banks are inter­re­lat­ed. So the finan­cial ecol­o­gy is swelling into gigan­tic, inces­tu­ous, bureau­crat­ic banks — when one fails, they all fall. The increased con­cen­tra­tion among banks seems to have the effect of mak­ing finan­cial cri­sis less like­ly, but when they hap­pen, they are more glob­al in scale and hit us very hard. We have moved from a diver­si­fied ecol­o­gy of small banks, with var­ied lend­ing poli­cies, to a more homo­ge­neous frame­work of firms that all resem­ble one anoth­er. True, we now have few­er fail­ures, but when they occur… I shiv­er at the thought.”