The US Commodity Futures Trading Commission (CFTC) held their first Technology Advisory Committee meeting in Washington D.C. on March 22. As part of the scheduled meeting, members from the crypto space gave presentations to the CFTC, providing a DeFi crash course on key issues impacting the space. CFTC commissioner Christy Goldsmith Romero opened the meeting with remarks on the importance of understanding how DeFi works, as policy decisions related to DeFi are currently being made by regulators and lawmakers.
The panel began with an explainer on DeFi and blockchain technology, outlining the claimed benefits of blockchains, namely transparency, immutability, and privacy. Ari Redbord, head of legal and government affairs at blockchain intelligence firm TRM Labs, provided an overview of decentralization, highlighting the total value that entered DeFi in the last two years. Redbord concluded that DeFi is absolutely here to stay, and regulators should lead it in the right direction.
Carole House, executive in residence of venture firm Terranet Ventures, and Jill Gunter, chief strategy officer of blockchain infrastructure company Espresso Systems, then provided an overview of the current solutions for digital identity and noncustodial wallets, using Ethereum Name Service and MetaMask wallet as examples.
Michael Shaulov, founder of Fireblocks, and Dan Guido, founder of Trail of Bits, then presented the exploits and vulnerabilities that have taken place in the market. Throughout 2022, the top 10 exploits in crypto alone saw over $2 billion lost, with DeFi on the receiving end of 113 exploits out of the 167 carried out across the year.
The DeFi portion of the meeting ended with members unanimously voting for creating a Digital Assets and Blockchain Technology Subcommittee, which will focus on the “why of DeFi,” what problems it solves, use cases, vulnerabilities, and proposed legal and policy frameworks.
DeFi, short for decentralized finance, is a financial system built on public blockchains that seeks to disrupt traditional financial systems by enabling peer-to-peer transactions without the need for intermediaries. DeFi platforms provide access to financial services such as lending, borrowing, trading, and investing, with a focus on openness, transparency, and decentralization. The DeFi ecosystem has grown significantly in recent years, with DeFi’s total value locked reaching around $49.1 billion, according to DefiLlama, rising from around $15 billion at the beginning of January 2021.
Blockchain technology, the underlying technology powering DeFi, is a distributed ledger technology that enables decentralized transactions, immutability, and transparency. By removing intermediaries and enabling direct peer-to-peer transactions, blockchain technology provides a more efficient, secure, and transparent way of conducting transactions.
Digital identity is another critical aspect of DeFi, as it enables individuals to participate in the DeFi ecosystem without having to disclose their personal information. Digital identity solutions such as Ethereum Name Service and MetaMask wallet provide users with noncustodial wallets, enabling them to hold their own private keys and manage their own funds.
Exploits and vulnerabilities are an ongoing concern in the DeFi ecosystem, as the space remains largely unregulated. Hacks and exploits can result in significant financial losses for users, highlighting the need for more robust security measures and protocols.
In conclusion, the CFTC’s Technology Advisory Committee meeting highlighted the importance of understanding DeFi and its key issues, including blockchain technology, decentralization, digital identity, and exploits and vulnerabilities. The meeting also emphasized the need for regulators to lead DeFi in the right direction and proposed legal and policy frameworks to address current issues and vulnerabilities.
Polygon, a popular Ethereum scaling solution, has announced a partnership with Unstoppable Domains to enable users to create Web3 .polygon domain names. With this new offering, users will be able to log into Web3 applications, make use of human-readable wallet addresses, and create decentralized websites. The service will be available to an estimated 180 million users and 40,000 services across the Polygon blockchain ecosystem.
Unstoppable Domains, a blockchain domain provider, leverages Polygon to mint decentralized domains with zero gas fees. To date, over 2.7 million domains have been registered on the Polygon blockchain. Users will be able to use .polygon domains to create digital identities that are compatible across 750 applications, games and metaverse platforms. These can be used to login to web apps, as cryptocurrency wallet addresses and decentralized websites.
In addition to providing decentralized domain names, Unstoppable Domains also allows users to create profiles that can be connected to social media channels, acting as a digital identity across Web3 platforms and networks. A statement from Polygon Labs’ Vice President of Business Development, Sanket Shah, highlighted the importance of unlocking user-owned digital identity for Polygon users. He said, “Web3 domains will give our community a digital identity that they fully own, so they can log into dapps without giving away their personal information and transact crypto without lengthy wallet addresses.”
Unstoppable Domains will also offer access to premium .polygon gaming and digit domains from March 16. Decentralized domain services like Unstoppable Domains and Ethereum Name Service (ENS) have become increasingly popular over the past year, seeing considerable growth in domains registered.
In August 2020, American cryptocurrency exchange Coinbase partnered with Unstoppable Domains to offer payments through domain handles instead of cryptographic addresses. Coinbase then partnered with ENS in September 2022 to provide users with free “name.cb.id” usernames in an effort to replace alpha-numeric wallet addresses with human-readable alternatives.
Overall, the partnership between Polygon and Unstoppable Domains will provide a more user-friendly experience for interacting with Web3 applications, as users will no longer need to rely on lengthy wallet addresses or give away personal information. With digital identity becoming increasingly important in the blockchain space, this offering could be a significant step forward in creating a more accessible and user-owned Web3 ecosystem.
Web3 has opened up new avenues of creative expression and individuality by allowing users to recreate their digital identity. NFTs have become increasingly personalizable and dynamic, making them a popular choice for digital art projects. Snark.art and OG.Art’s Heterosis project has taken advantage of this by launching a collection of dynamic NFT flowers on March 8.
The NFT flowers are breedable and customizable by holders, allowing them to create a hybrid species from the available catalog of flowers. As new flower traits are discovered, they spread across the entire population, creating diversification similar to nature. However, users must pay a fee to the owner of the flower they wish to breed with, creating two virtual flower markets – one for selling rare digital flowers and the other for selling DNA traits.
The collection was created by artists Mat Collishaw and Danil Krivoruchko, who wanted to create art that was unique to the metaverse. The mechanics behind the project are essential to Heterosis and can only be possible in a decentralized space. Krivoruchko stated that creating art for a project that can evolve with different traits was the most complicated digital art collection he has worked on.
The NFT flowers are housed in a metaverse greenhouse created by metaverse developers El-Gabal, modeled after a dystopian version of the National Gallery in London. The greenhouse can be accessed through a computer browser, mobile phone, and virtual reality sets, allowing users to explore the NFT garden through real-time audio-visual renderings in the cloud.
The Heterosis project offers users a unique opportunity to participate in a decentralized digital art project that allows for personalization and creative expression. With the development of new technologies, the possibilities for NFTs and Web3 continue to expand, providing users with even more ways to explore their digital identity.
ShareRing, a blockchain-based ecosystem providing digital identity solutions, has launched Skinny ID, aimed at offering a seamless and frictionless onboarding process.
Per the announcement:
“Introducing Skinny ID, ShareRing’s simplified sign-up process that removes friction on the onboarding journey and allows users to explore the ShareRing ecosystem without having to provide any government IDs.”
Being a user-focused blockchain platform, ShareRing enables the issuance, storage, verification, and sharing of personal information and key documents. The report noted:
“Previously, ShareRing’s initial onboarding journey added friction to users who were stepping into ShareRing for the first time, which went against our mission to enable frictionless access. It was a more extensive sign-up process that asked for at least one piece of government ID followed by a selfie scan using our face match technology.”
ShareRing’s blockchain-powered platform also enables financial institutions to undertake processes more efficiently and faster based on its electronic know-your-customer (eKYC) product, which presents users with the flexibility to give data-sharing consent.
ShareRing recently integrated the eKYC process with near-field communication (NFC) technology to make it more reliable and secure, Blockchain.News reported.
Previously, ShareRing launched a new website with blockchain-enabled digital identities to usher in the Web3 era to tackle the challenge of the loss of autonomy on personal data experienced in Web2.
Given that the lack of the ability to manage digital identity and footprint in Web2 has been one the primary stumbling blocks to safeguarding privacy and ownership of data, ShareRing intended to solve this challenge with the blockchain-enabled website.
ShareRing, a blockchain-based ecosystem providing digital identity solutions, has integrated near-field communication (NFC) technology to make the electronic know your customer (eKYC) process more secure and reliable.
“NFC technology ensures that ShareRing IDs created with an e-passport have a high confidence level of attestation and trustworthiness since these are issued by a government body.”
The report added:
“It also reduces the likelihood of inability to extract the correct information from a document such as a passport since the information extracted from a chip is more reliable and trustworthy.”
Since ShareRing is a user-focused blockchain platform, it permits sharing, verifying, storing, and issuing personal information and key documents. Therefore, the NFC technology will come in handy for verification purposes. As a result, ShareRing will have more robust eKYC solutions. Per the report:
“NFC will be the future standard for ID cards for some time and therefore is supremely convenient for customers who already have NFC readers in their pockets. It, therefore, provides an excellent method for customers to process their ID documents during eKYC.”
As one of ShareRing’s main products, eKYC enables financial institutions to handle KYC processes faster and more efficiently. This allows users to flexibly give and take consent for data sharing, supported by the blockchain on a decentralized platform.
Meanwhile, the blockchain platform has updated the FaceMatch feature to enhance the face detection success rate. ShareRing pointed out:
“When new users sign up for a ShareRing ID, an official government ID must be provided in addition to a live selfie feature using our own technology called FaceMatch. This feature detects the face from the document and compares it to the user’s live selfie.”
Earlier this year, ShareRing integrated its native ShareToken (SHR) into the Ethereum and Binance networks through Multichain swap for enhanced digital identity solutions, Blockchain.News reported.
The Hero’s Journey: Creating Authentic Digital IDs And Personalized Engagement For Bitcoin Decentralized/Distributed Systems
Numerous Bitcoin podcast discussions have led to the inevitable “wall,” a wall which, to date, has not been penetrated and its adjacent territory explored. I’m referring to the existential question of how “Bitcoinization” actually manifests for each individual, while legacy monetary infrastructure and social structures disintegrate. It’s one thing to romanticize how our new society will somehow magically crawl out of the ashes like some unburned, proud and polished phoenix and quite another to face the real-life, ugly hurdles facing us.
The deeply embedded detritus of legacy fiat thinking and behaviors do not simply disappear. In fact, as we transition to the bitcoin standard and the working people of highly developed, industrialized countries become squeezed and further impoverished during the deflationary depression (see Jeff Booth, “The Price of Tomorrow”), social unrest will erupt, and inevitably, Bitcoin itself could be blamed and viewed by many as the culprit of the collective pain. It doesn’t take profound foresight to predict that many such people, seeking blame and simple solutions, could demand even more centralization and control through the perceived safety net of an increasingly powerful authoritarian state.
Will growth in Bitcoin infrastructure adoption magically and quickly transform the superstructure of human organizational design and engagement in some novel corresponding way à la “fix the money, fix the world”? Or are we doomed to simply “pretend and extend” by overlaying old fiat social engagement design on top of this new monetary foundation and naively hope it all smooths out somehow? How can we better attune the adoption of Bitcoin’s decentralized/distributed monetary infrastructure with an empowered, Bitcoin-defined social superstructure? Will our digital ID continue to be composed of only objective data (cold data), while our subjective experiences (warm data) remain devalued? How can we support and expand individual self-sovereignty through Bitcoin engagement design?
While the Bitcoin meme “fix the money, fix the world” offers a simplified solution, this paper and its described superstructure applications seek to penetrate the territory where contemporary Bitcoin “thought leaders” and developers have yet to explore. Hopefully, we can help avoid a misguided but possibly very real collective public response for a stronger totalitarian centralization of power. We do this by empowering the individual with the narrative, mentors and experiences of personal responsibility and self-sovereignty, which support and lead to developing individual tools to authentically recreate a peer-to-peer creator economy. We must become self-empowered entrepreneurs and creators. Think “decentralized, designer craftsmanship.”
For this to emerge, we must move toward a novel disintermediated, hyper-personalized engagement design which begins and ends with each unique individual.
However, before we get to where we are going, we need to know where we’ve been and what we are currently facing. Using seductive carrot-stick reward systems and enticements, people have long been objectified and manipulated by legacy engagement systems. Such “addictive design” strategies can certainly drive behaviors — through advertising, gaming, social media and more — but at a great cost to the individual. Unfortunately, such concentrated behaviorism and operant conditioning, now combined with emergent tech, have contributed to disabling and disempowering our youth. Judgmental, performance-based exogenous validation systems and its mindless FOMO (fear of missing out) have helped create an anxiety-ridden, dependent and emotionally fragile generation. These young adults suffer from unprecedented levels of crippling psychological/emotional disease in crisis proportions, now exacerbated by recent COVID-19 lock downs. Anxiety and depression, obsessive-compulsive disorders, self-harm, addiction disorders, violence and suicide levels are off the charts. We are in the midst of an unprecedented crisis in mental illness, and it is currently underpinned and reinforced by exploitive, centralized engagement design. As Nora Bateson has said, “We need to de-industrialize and re-animate.”
Insular, rigid groupthink communities can provide a perceived “safe haven” with like-minded people, but they also demand their own narrow conformity. Groupthink can detract us from coming to know our unique selves and building upon our innate talents. It can preclude us from building vibrant communities richly thriving in diversity and bold creativity. Ultimately, there is nothing more emotionally affirming than being seen by another for who we truly are — our authentic, essential selves. We do not easily forget such profoundly meaningful experiences of being authentically seen and validated.
Companies which refuse to further exploit the vulnerabilities of our youth, and instead empower them with authentic engagement to find and grow their unique talents, and be authentically seen for their unique selves, can bring fresh, high value. Hedonic escapism may provide temporary relief but fixes nothing. We live in highly extenuating times necessitating inner resources and skills to resiliently adapt and recreate our way out of difficulty.
Media and its content distribution have historically focused on how to manipulate and incentivize people to think a certain way or desire, buy and use things they perhaps would otherwise not be interested in. All sorts of consumer manipulation strategies have been used over the years, now resulting in a consumer hardened by fake news, fake engagement, fake relationships, fake moral correctness and more. People feel worse than weary or angry. We’re numb.
Centrally sourced content messaging is suspect. It cannot be trusted. It’s inauthentic. We are objectified and hustled. Young people today don’t simply want more stuff. They want experiences.
What people want now more than anything are the experiences of authentic engagement, meaning, purpose and expression. These sought-after feelings of self-determinism and authentic engagement are currently not inspired or supported by exogenous marketing sources. In truth, such feelings can only be self-generated and cultivated from within each person. Those who wish to reach a more self-empowered state can assume personal responsibility to cultivate such tools to help them get there. Why shouldn’t social, gaming and marketing identify, address and expand upon what is most desired intrinsically by the customer and provide the methodologies for getting there? In so doing, is this not providing authentic and timely “value” to the customer?
James Andrews is head of product at Genies, and author of “Self-Expression, Spirituality and Gen Z.” He expresses well the mandate for the new, self-sovereign digital identity, its demand for empowered self-knowing and authentic engagement. He asks, “What happens though when you have an entire generation chasing their authentic selves?”
“The Fix”: Marketing For Decentralized/Distributed Bitcoin Technologies
So, how does the new Bitcoin marketplace of engagement attune to each unique individual, while also delivering highly curated and personalized, authentic and meaningful engagement experiences to that individual? What is relevant or inspirational for one person may not be for another. Not everyone engages the same way. “The fix” is not found in using some new technology overlayed with same-old legacy design methodologies only to produce similarly poor outcomes. “The fix” is using Bitcoin technologies integrating biomimetic engagement design focusing on the unique individual and not compelling the individual to contort to a standardized platform.
Today’s design “meta trend” is quickly moving from industrial-era centralization to digital-era decentralized and distributed systems. The public, open-source foundational settlement layer, Bitcoin, is seeing rapid adoption globally and is experiencing a mass migration from centralized internet sites to a decentralized/distributed and disintermediated internet layer where all engagement can be monetized, streaming to the seconds. There is a rapid birthing of Layer 2 and 3 peer-to-peer engagement systems built on top of, pegged to or side-chained that disintermediate legacy third parties while empowering the unique individual. And unlike legacy/centralized sites (“the Boomer’s internet”), this distributed design has capacities to now curate and hyper-personalize products, services and experiences to the unique individual in a dynamic inspirational and aspirational manner.
So, how do we do this? How do we move from top-down, standardized, industrial-era design to focusing on the digital personalization of the unique, highly nuanced individual in a meaningful, personalized way? What novel matrix biomimetic to our own human biologic design can be used for such individuation going forward?
First, we reject our overdependency upon centralized behaviorist/operant conditioning engagement design.
Secondly, we value, support, facilitate and celebrate the strong sense of self-determinism by the individual. The focus and commitment are on authentically engaging with the individual on their terms. A healthy inner locus of control is developed by identifying and scaffolding upon the individual’s unique intrinsic motivators. If we know what play is, and is not, we can identify intrinsic motivators and authentic engagement patterns and patterns within patterns. This then becomes the matrix for authentic personalized engagement design and provides user-generated data to fine-tune identity and focus personalized content distribution.
Thirdly, monetization opportunities emerge. Through authentic engagement and developing an inner locus of control and self-determinism, opportunities to capitalize on one’s growth and creativity ensue, as the engagement matrix and identity fabric contribute to the development of an authentic digital ID. All engagement, from gaming to social to enterprise and beyond, becomes streaming monetization on top of decentralized/distributed bitcoin. A robust peer-to-peer creator economy emerges. People create and pursue what they love and are literally paid to play.
How are these three goals accomplished? What are the myriad cross-sector applications? Here is but a brief synopsis.
Nature’s hard-wired engagement design in all animals is not gamemechanics but play. Play is the first principle of self-generated, self-motivated and self-sustaining engagement design, whereas gaming and behaviorist design are not. These centralized and manipulative designs objectify the user and are based solely on objective data, neglecting the user’s subjective, warm data. Play is a fundamental survival drive; the exogenous reward systems and enticements underpinning behaviorist design and game mechanics are not. While gaming is a small aspect or subset of play, it is not the whole of play. And not everyone likes games. Conversely, we are all subcortically hardwired to play, and everyone plays differently. The cosmic joke, the playful paradox, is that despite our differences and the fact we all play differently, we can meet and engage through the languages of play.
Authentic play is authentic engagement: It is self-generated, self-motivated and self-sustained and disintermediated. Once someone tries to intermediate or control the engagement, it is no longer play, and the many beneficial outcomes of authentic engagement are lost. If we know what play is, and what it is not, we can identify within individuals their authentic engagement patterns and patterns within patterns. This then becomes the matrix for authentic personalized engagement design. Authentic play engagement is how we identify and develop what we love to do, what we like, what we aspire to, and it identifies and develops our intrinsic motivators, drive and grit (all “warm data”).
By suppressing or hijacking access to authentic play, a person’s sense of self and inner locus of control eventually become stunted. They eventually suffer from any one or a few of the panoply of negative consequences associated with play deprivation, including the plague of mental illness. They either isolate into hedonic escapist behaviors or become mindlessly dependent, anxiously chasing extrinsic rewards and exogenous validation. This stunts their moxie, their internal drive, inner locus of control, healthy sense of self, creativity and adaptability. These degraded human potentials are the attributes needed in robust fashion to forge the unique being, one’s authentic expression, while increasing self-esteem, meaning and purpose and adaptability in a world in great transition. Play foments creativity and evolutionary adaptation.
As an older woman who grew up playing on the streets of Rio de Janeiro, Brazil in the 60’s and 70’s, I feel the loss of free, authentic play in our culture. Play has been hi-jacked and sublimated by intermediaries, leading to a great loss in authentic engagement, meaning and purpose, social skills, creativity and problem-solving, and community-building. Thanks to standardized performance testing, centralized media, extrinsic reward systems and other exogenous measurements, our children grew up valued for their conformist performance, and not who they were intrinsically meant to become. We can fix this through recreating a disintermediated global engagement design on Bitcoin.
An older, pre-retirement, long-distance truck driver who lost his job to FSD semi-trucks is not the same as the low self-esteem young woman who anxiously seeks exogenous validation through objectifying herself. Yet each can potentially recreate their selves in a way that works for them. However, this is tough to accomplish when we lack the tools, insights, methodologies and supportive community to do so, particularly when we’ve been dependent, uncritical, fiat-thinking conformists all our lives, and software is eating legacy jobs. With warm data integrated into decentralized and personalized authentic engagement design, “Bitcoin can fix this,” too.
The value and invention here involve the system, methodologies, designs and myriad applications for identifying and scaffolding upon a unique individual’s intrinsic motivators as a matrix for personalized, intrinsically motivated, authentic engagement design and a self-sovereign identity adaptable to emergent decentralized/distributed systems. The engagement profile/play personality is a dynamic composition of play behavior patterns which can be collated from IRL and online through many means, depending upon its subject. No two people are the same or engage the same way. The composition and weight of engagement patterns are endless, so each profile/play personality is unique. One is not inherently better than the other. It’s just different, as nature intended. Nature loves diversity.
The unique intrinsic engagement profile/play personality can be collated for each unique individual dynamically, from birth to old age, and used as their avatars and/or dopplegangers. An instantly recognizable and decipherable graphic icon can represent the composition of play personality/engagement profile for each unique individual so another person instantly knows how to attune and uniquely engage with increasing nuance, empathy and respect. Each of us can represent our own brand and wear and express it proudly. Products, services and experiences can be curated to the unique individual so that marketing and advertisement do not manipulate users by asking them to contort themselves but instead attune with their innate proclivities to authentically engage. Legacy marketing protocols are flipped, validating the unique person on their terms, and providing added value in an authentic manner. We deindustrialize our schooling systems, and our children become blessed with personalized learning opportunities identified, driven and scaffolded by their own intrinsic interests and authentic engagement.
Of particular note: Because play states, like sleep states (both play and sleep are fundamental survival drives), can now be biometrically identified, optimal authentic engagement opportunities can be personalized and designed to each unique user derived by their biometric data (e.g., non-addictive gaming personalized for optimal play states with countless health and performance-related outcomes).
The myriad applications of this novel engagement design are directly aligned with emergent identity in the decentralized/distributed metaverse and have broad cross-sector applications, including hyper-personalization in advertising and content delivery, ML/AI, AR/VR, IoT, gaming, social media, preventive medicine, education and so much more. Truly this can be a design that easily migrates across all sectors.
When the measurement of performance goals (cold extrinsic data) become more important than the inherent joy and attunement found in an activity (warm intrinsic data), we have lost authentic engagement and the transformational recreative power of play. The activity becomes work. Creativity is lost. Self-sustainability, personal agency and ownership/responsibility are diminished.
By integrating personalized authentic engagement design into Bitcoin’s superstructure/social protocols, the benefits and goals we aspire to can become the unintended outcomes. It’s a playful paradox. However, this is nature’s design. If humans are to live sustainably and joyfully, it needs to be ours as well.
“All bear the inherent right to become sovereign of the self — not only in body and mind, but in soul, for any authority that is allowed to rule over you, does so by taking a piece of who you really are.” — Dan Thomas
This is a guest post by Kristen Cozad. Opinions expressed are entirely their own and do not necessarily reflect those of BTC, Inc. or Bitcoin Magazine.
Speaking during Wednesday’s annual Digital Africa conference, Isa Pantami, Nigeria’s Minister of Communications and Digital Economy, identified blockchain as part of the government’s focus on emerging technologies, according to a report by Voice of Nigeria.
Highlighting the conference theme — “Building a New Africa with AI and Blockchain” — Pantami stated that the government was working towards establishing innovation centers.
According to Pantami, these innovation centers will explore capacity-building protocols for artificial intelligence, internet of things, robotics, cloud computing, and blockchain technology, among other fields.
As part of his address, the communications minister said the move was part of efforts to promote an innovation-driven culture in Nigeria, adding:
“We are also actively preparing to take advantage of Blockchain technologies for our digital economy, and we recently developed a National Blockchain Adoption Strategy.”
Back in October 2020, Nigeria’s National Information Technology Development Agency (NITDA) issued a draft strategy framework for blockchain. The document included a six-point agenda for utilizing the novel technology including national digital identity and regulatory sandboxes for pilot implementations.
Addressing the conference, NITDA director-general Kashifu Inuwa stated that Nigeria can be a growth driver for AI and blockchain in Africa. In November 2020, Inuwa remarked that the country could generate up to $10 billion in revenue from blockchain by 2030.
Pantami’s ministry has been spearheading a mandatory national identity program in the country, a move that has generated significant controversy over the compulsory linkage of phone numbers to national ID data.
Related:Nigeria hopes blockchain will generate $10B revenue by 2030
While addressing privacy and data security concerns, the minister’s address did not include any mention of possible blockchain adoption in the area of safely storing national ID records.
Back in February, Nigeria’s vice president Yemi Osinbajo stated that crypto and blockchain will revamp Nigeria’s financial landscape. The vice president’s comments followed on the heels of a ban imposed by the central bank, prohibiting financial institutions from servicing cryptocurrency exchanges.
Germany has a very diverse, active blockchain ecosystem of companies and enthusiasts, especially in the city of Berlin. And an important step in the development of this ecosystem has been taken by the federal government itself, which tries to preserve and promote the vibrant blockchain ecosystem to continue its growth and make Germany an attractive opportunity for investment in this field.
Comprehensive, sound regulation
To further this goal, the German government adopted a national blockchain strategy back in September 2019 to support its commitment to the use of the technology. The 44 individual measures contained therein are to be realized by the end of 2021 by a total of 10 federal ministries. Exactly one year later, in September 2020, 17 measures were already very far advanced, 20 were still in progress and nothing had happened yet with seven measures — according to an evaluation published by Bitkom, Germany’s federal association for information technology.
Germany’s implementation of this blockchain strategy during 2020, in addition its implementation of the European Union’s 4th Anti-Money Laundering Directive, has had far-reaching consequences for blockchain startups, fintech firms, banks, crypto exchanges and industrial companies. As of Jan. 1, 2020, the custody of crypto assets — and thus, also their trading — requires a license from the nation’s Federal Financial Supervisory Authority, known as BaFin. This license applies to all companies that hold or trade crypto assets such as Bitcoin (BTC) and Ether (ETH), from crypto custody providers to crypto exchanges. Thus, from 2020 onward, the handling of crypto assets in Germany is subject to high regulatory requirements and standards that have already been in place for decades in traditional capital markets.
One of the most important regulatory measures in 2020 was the law on the issuance of electronic securities, which was passed by the Federal Cabinet in December. According to this law, securities can also be issued purely electronically in Germany in the future.
Another important step in the direction of regulation was when the European Commission presented legislative proposals on crypto securities in September 2020. Its Regulation on Markets in Crypto Assets, known as MiCA, is expected to come into force in 2022 and create legal clarity and certainty for issuers and providers of crypto assets throughout the European Union.
Currently — and until the MiCA regulation is made effective — companies often have to adapt their international business model for each EU member state individually, which can lead to high costs. A uniform, pan-European regulation such as the MiCA regulation can reduce complexity and uncertainty for crypto service providers and improves conditions for market participants.
Such extensive regulation can be a major challenge for startups, but it also offers opportunities in terms of professionalizing the entire crypto ecosystem. Those who believe that regulation is a kind of “stop sign” for cryptocurrencies, stablecoins and crypto exchanges are mistaken. Instead, the regulatory structure in Germany is designed to place crypto assets on an equal footing with existing financial products. Unprofessional startups and dubious providers could be pushed out of the German market as a result. Well-positioned startups could find solutions and continue to develop.
The rise of financial services in the crypto sector
Above all, the new rules make it easier to invest in crypto assets, which led to a boom year for financial services. Several companies and banks built the relevant technological infrastructure for professional trading in Bitcoin and other crypto assets.
This led to increased, more varied offerings around digital assets in 2020. Financial services in the crypto segment include, for example, instruments that track Bitcoin’s price or marketplaces for retail investors. Now, fully regulated trading venues for professional investors are emerging, such as Boerse Stuttgart Digital Exchange and Bankhaus Scheich. Some banks are also establishing themselves as back-end-as-a-service platforms. Solarisbank and Bankhaus von der Heydt, for example, provide other financial institutions with the regulatory and technological infrastructure to enable their clients to access crypto assets.
Ten31 Bank, a subsidiary of the fully regulated German WEG Bank, has been working on payments processing between digital currencies and the euro since May 2020.
At the end of 2020, the bank Hauck & Aufhauser also launched its service as a custodian for crypto assets and digital assets.
Some fintech projects such as Bison and the startup Bitwala are aimed at private investors and enable trading in cryptocurrencies around the clock.
All of these companies offer a good entry point for professional and private investors who may want to invest in Bitcoin and other crypto assets. With a solid regulatory foundation and more players, we can expect 2021 to be an interesting year for the young crypto industry.
Little acceptance among the population and investors still
Although the current regulation ensures more legal certainty, a diverse range of offers is emerging on the part of financial service providers, and because Bitcoin’s price changes rapidly, still too few Germans are interested in the cryptocurrency. According to a survey conducted by Bitkom in December 2020, only 2% of Germans over the age of 16 have invested in Bitcoin or other cryptocurrencies. However, almost one-fifth of respondents (18%) can imagine making such an investment in the future.
The majority of respondents are skeptical about Bitcoin and other cryptocurrencies. For two-thirds of respondents (66%), cryptocurrencies still sound too technical and complicated. Almost as many (65%) think cryptocurrencies are too speculative. However, three out of 10 respondents (30%) say that cryptocurrencies can be a safe alternative to the established monetary system. Among younger respondents between the ages of 16 and 29, it’s 43%. And around one out of four respondents (28%) believe cryptocurrencies are worthwhile as a long-term investment.
Not only private investors but also investment specialists are cautious when it comes to cryptocurrencies. Security concerns, a lack of control by central banks and high volatility are the main reasons why professional investors in Germany tend to be skeptical. This is the conclusion of the DVFA, an association of investment professionals in Germany, which surveyed 1,400 members in October 2020.
Apparently, there are major differences in the acceptance of digital assets between generations: Young Germans are more open to cryptocurrencies. It is precisely this target group that still provides huge potential for the German crypto market. The growing regulation and professionalization of the local crypto scene as well as the support of large companies such as PayPal and both central and commercial banks worldwide will also drive the acceptance of cryptocurrencies among German investors and the rest of the population.
Energy and digital identity: Fields of national importance
Blockchain startups in Germany span a spectrum of use cases and fields. However, the majority of startups are focused on the financial sector (those have already been mentioned above), followed by industries such as entertainment, digital identity, the Internet of Things and energy.
The energy sector was of particular interest within the German blockchain ecosystem in 2020. There, the practical research and development of blockchain technology was driven forward, including with a dedicated pilot lab called the “Future Energy Lab.” The use cases range from blockchain-based virtual large-scale storage for the operators of photovoltaic systems, such as the Smart Service World II project, to energy trading via blockchain technology.
The website for the Future Energy Lab — which is operated by the German Energy Agency, known as Dena — was launched at the end of August 2020. The project is a virtual umbrella for all energy projects that are a part of the blockchain strategy and serves as a point of contact and information and networking center. Startups and corporations can actively participate in the lab and its various pilot projects by becoming members.
Another area of national importance in 2020 and 2021 is digital identity. So-called self-sovereign identities, or decentralized identities based on the blockchain, promise an alternative that brings users control over their data and the data economy in the digital age. Numerous German companies, such as Spherity, and initiatives such as Lissi are actively working on the concept. The German government is also funding individual pilot initiatives as part of its “Digital Identities Showcase” project, which is one of many measures in the national blockchain strategy.
Education and networking, even in the times of COVID-19
However, it’s not only the government that is active — the local blockchain community is also paving the way for development in Germany. The community consists of experts and enthusiasts as well as associations, such as Blockchain Bundesverband, the European Blockchain Association and BerChain. All of them aim to promote blockchain solutions and projects in an organized, systematic way.
The German blockchain community is big and consists of about 150,000 participants. There are more than 180 blockchain startups that were either founded in Germany or have a branch there, with most based in Berlin.
Together with the German government, the community promotes application-oriented research in the field of blockchain. This includes work carried out among the scientific community, such as the international Bloxberg initiative led by the Max Planck Society, and done in collaboration with the private sector, such as the Fraunhofer Blockchain Lab. The Frankfurt School of Finance & Management has a Blockchain Center where academic training is offered. This is one of the most important research centers in Germany. In addition to education and research, the Blockchain Center offers a platform for managers, startups, and technology and industry experts to exchange knowledge and best practices.
A master’s degree in the field of blockchain can be obtained through the Blockchain Competence Center, or BCCM, of the Mittweida University of Applied Sciences. Moreover, the BCCM regularly offers blockchain-focused courses.
In addition to academic training, the community also organizes conferences, hackathons and meetups — both offline and online — such as Blockchain Week Berlin, the Crypto Assets Conference held in Frankfurt and organized by the Frankfurt School Blockchain Center, and diverse online meetups advertised on Eventbrite — for example, by Disrupt Network and CryptoMonday.
Good opportunity for Germany to be a blockchain hotspot
To sum it all up, the current crypto-friendly policies, extensive regulation and slow but ever-increasing acceptance of blockchain technology and cryptocurrencies can make Germany one of the most important blockchain hotspots in Europe and even worldwide.
In 2021, the German startup ecosystem will especially benefit from the current blockchain strategy, as it aims to foster innovation, spread blockchain knowledge and contribute to the country’s goal of becoming a global leader in the blockchain field. Toward this goal, several government-funded projects were implemented in 2020, such as a blockchain-based energy database to track electricity consumption, an education certificate verification system and a smart contract registry with Dena. And the most important initiative in the country was a nationwide digital identity system with a focus on keeping personal data secure and ensuring data integrity.
2021 will be exciting: New blockchain projects from the government and large companies are planned and more reliable financial service providers and banks will get their crypto license from Bafin and, thus, have access to the German crypto market. As a result, more Germans, especially small and large investors, will finally take the crypto market seriously.