Apart from China struggling with the coronavirus epidemic, another dominant narrative for the world’s biggest economy coming into the new decade is its central bank-issued digital currency (CBDC). The country is allegedly in its final testing phase and ready for rollout in 2020. Interestingly, China’s digital Yuan and other blockchain innovation projects have sparked endless speculation and excitement from governments throughout the world.
Recently, a Federal Reserve governor highlighted how the U.S. central bank is exploring digital currencies after reports of interest in the sector over the past several months. The European Banks and the Bank for International Settlements have also commented on the subject. They have revealed a warming disposition to a once-shuttered technology.
The announcement by China resulted in undercurrents of competition, with the results seemingly becoming more regulatory-friendly infrastructures globally. However, there is a more subtle narrative currently which supersedes geopolitical boundaries – regulatory regimes that concern blockchain and cryptocurrency industries are fragmented.
Europe’s position as both a multinational entity and a heterogeneous mixture of cultures is a significant factor needed for understanding the global state of blockchain innovation.
Can fragmentation unite standardization?
A 2020 Review report from decentralized think tank dGen explains the state of Blockchain in Europe stating:
“While Europe’s blockchain ecosystem may not be as big as the U.S. or Asia’s, it comes with the potential to collaborate due to greater sharing between countries. And, as each country has unique strengths and cooperation continues to grow, it is a strong environment that promises to push forward even more innovation.”
The blockchain proponents view a changing global dynamic. Blockchain innovations seem less reliant on geopolitical boundaries emphasized by the interconnectivity of the internet. The technology is more focused on building collaborative communities irrespective of location.
Hence, Europe can offer a framework for overcoming all regulatory and conventional work challenges using its unique arrangement.
Looking past geopolitical barriers
Cryptocurrencies and blockchain technology are a shift toward more transparent and open technologies. They cover many areas ranging from finance to privacy technology and the next iteration of the internet. At their core is the ethos of ‘borderless’ developments, which matches with dGen’s vision. The vision advocates for a more united Europe on advancing blockchain technology.
The founder and director of the Department of Decentralization at ETHBerlin, Maria Paula Fernandez, commented:
“I’m excited to stop talking about countries or startups and start talking more about communities and collectives.”
Her sentiment shows a new form of seamless innovation that is yet to encounter much experimentation. For instance, remote work is increasing among small tech startups though many projects in the U.S. and Asia still base their operations in physical hubs like Singapore, New York, San Francisco, and other major cities.
Also, dGen is based in Berlin but wants to enhance collaboration among European countries that have, for years, defined its historical-political landscape. The problem is not necessarily technical, but instead, it is a lack of standardization. In the past, no technology managed to bring together diverse, global teams of remote professionals, but blockchain has become a place for experimenting with remote work.
Is blockchain the solution to eliminating geopolitical barriers?
The founding member of dGen, Nick Dijkstra, wrote a report stating:
“The culture that drives much of contemporary blockchain projects seems very endemic to Europe. Regardless of whether we look at The Enlightenment, the fall of the Berlin Wall or our recent history of fading borders and cross-country collaboration, [he] think[s] it spells out the spirit of Europe.”
Therefore, collaboration and creating standard regulatory processes can go a long way. After surveying experts and personnel in six European countries, dGen got different opinions about the future of blockchain innovation.
A major trend that came up all through the responses was a balance of trade-offs between the countries surveyed. Some countries like Germany have a thriving startup scene, while others like Malta are creating friendly regulations but have fewer startups or funding opportunities.
Overcoming the trade-offs means bypassing geopolitical and regulatory regimes that are divided across countries. However, it may prove harder to implement. As global governments scramble to understand the benefits of CBDCs, a more lenient regulatory framework that enhances collaboration may prevail in Europe.
As the drive for digital currencies builds, regulators will need to act cautiously to ensure that they do not suffocate growth potential in the nascent industry. A commissioner of the Securities and Exchange Commission (SEC) proposed a three-year safe harbor period for token sales. This might be the beginning of blockchain innovation and mass adoption.
Europe’s fragmentation affects blockchain innovation
The dGen team sampled 63 experts in more than 1,200 organizations spread across 16 European countries. But, they chose to focus on France, Germany, Malta, Switzerland, the Netherlands, and the United Kingdom.
Though the report offers a multifaceted rating for every country’s blockchain opportunities, the team managed to soften some “blockchains as a panacea for the world’s ills” talk. Their report reads:
“While blockchain might not be the cure-all some touted it to be, we’re going to keep observing the possibilities that blockchain and other emerging tech present and watch the players in the field, because they will ultimately drive innovation in Europe.”
Europe is neither lacking ambitious startups nor finances and regulatory permissiveness. But the landscape is highly fragmented. The contrasting landscape of regulatory perspectives and funding opportunities may have in the past stagnated blockchain innovation.
But, a strong emphasis on creating ‘borderless communities’ supported by Europe’s desire for collaboration may determine the global trend of fragmentation. If Europe unites to streamline regulations, funding, and fiscal opportunity for blockchain technology, other regions may follow.
Some analysts think that Europe may overtake the U.S. in the industry as financial disruptions arise. The dGen concludes that moving forward; unity will enable the European continent to move ahead the rest of the world as governments look into the potentials of CBDCs and tokenization. If Europe unites, thriving digital ecosystems and communities will arise not bound by any political or geographical lines.