Germany looking at a state-sanctioned blockchain strategy

2 April, 2019

Germany has become the most recent first world country taking a serious look at blockchain and cryptocurrency as it relates to future economic development. As a result, a number of leaders are calling for an official, state-sanctioned blockchain strategy that would address, among other things, token issuance and cryptocurrency trading.

According to a March 11 (2019) article published by Coin Telegraph, a number of German legislators have been pressing recently for a more comprehensive strategy they hope will prevent Germany from being left behind in the race towards blockchain supremacy. Their suggestions were echoed by Union party colleagues Antje Tillmann and Matthias Hauer as they prepared for a public hearing before the country's Finance Committee.

In a nutshell, Germany currently has no viable strategy for addressing all things blockchain. Cryptocurrency enjoys free reign for the most part, and there are no standards for trading, buying and selling, and issuing new coins through public by ICOs. This has some German leaders concerned that they will fall behind other countries actively engaging in developing regulatory frameworks.

A common theme emerging

On its face, calls for a new strategy in Germany seem fairly innocuous. It would appear as though leaders simply want to establish a framework that encourages further development of both blockchain and digital currencies. But as with all things government, one must take the words and actions of German leaders with a grain of salt.

As we have argued in the past, not all government regulation is good regulation. Often times it is outright bad. This reality underscores the very reason cryptocurrency was developed to begin with. If you know anything about Bitcoin and its introduction, you know that developer Satoshi Nakamoto did what he did in order to create a decentralized monetary system completely free of government and central bank interference.

Unfortunately, there is a troubling yet common theme emerging among governments now tackling cryptocurrency legislation: the need for regulations that determine how cryptocurrency can be utilized. Even more troubling is the fact that there is little the average consumer can do to stop regulators intent on getting involved.

Laying the foundation today

In Germany's case, leaders say they simply want to lay the foundation for what they believe will be a digitized future. They recognize that blockchain goes way beyond buying and selling with bitcoins, litecoins, etc. They fully get the fact that it is technology on which all sorts of applications can be built.

As a visitor to the website, you understand the fundamental buying and selling aspect of cryptocurrency. You understand that you can play Mega Moolah online by depositing bitcoins at some of the gambling sites we recommend. That is all well and good, but government leaders are looking well past online gambling.

Government agencies and business entities around the world are starting to tap into blockchain to build applications that have nothing to do with cryptocurrency. In so doing, they are attracting some of the brightest minds in IT and software development. This worries Germany's leaders. They are afraid their country may be subject to a brain drain if they continue to ignore blockchain within their own economy.

Whether or not that brain drain actually occurs is less important now than the fact that German leaders want to develop a strategy for encouraging blockchain development. They want to see German companies creating blockchain apps they can sell domestically and internationally. They want to see new ICO's thrive in Germany. They want to see merchants selling to customers via digital currencies.

In the end, it is all about competition. German leaders see what is happening in other countries and know they have to step up if they expect to compete. Yet therein lies the dichotomy. Is it up to German leaders to make sure the country competes, or should they allow the free market to handle it?

Cryptocurrency in free market principles

A country with completely free markets allows both buyers and sellers to do what they do between themselves without any interference. Unfortunately, there is no country in the world with completely free markets. Every country exercises at least some level of control over commerce. Until recently though, the crypto economy was an exception to this rule.

Back in the early days of Bitcoin, Bitcoin Cash and Ethereum, people freely bought and sold with their digital coins. No one paid them any attention. The crypto economy was as close to completely free as is humanly possible. It was the freedom of crypto that initially attracted so many investors so quickly. Now, that freedom is starting to erode.

Regulation creeping in

Yep, the creeps and coming! Much of what we know about cryptocurrency today is still based on free-market principles. For example, the price of Bitcoin fluctuates daily based on supply and demand. As demand goes up, so does the price. When demand slows, the price falls. That's about as free-market as you can get.

Still, those free-market principles are being tested in some parts of the world. We talk about Venezuela a lot because that is one of the places where we have seen regulation get a foothold.

Venezuelan leaders have recently begun restricting global cryptocurrencies in that country. What is their purpose? To encourage people interested in crypto to invest in Venezuela's state-backed petro instead. Venezuelan leaders are not anti-cryptocurrency; they are actually quite pro-crypto. They just want their citizens using the petro rather than bitcoins or some other coin.

An EU blockchain standard

Germany is an example of a country looking at how cryptocurrency and blockchain can be regulated. Venezuela is an example of a country that has already instituted regulations. But things get even more concerning when you look at the European Union. A recent report from the EU Blockchain Observatory and Forum calls for the development of scalability and interoperability standards for blockchain technology.

According to the report, EU standards are necessary in order to bring an end to the fractured nature of cryptocurrency platforms. Those responsible for writing the report see separate cryptocurrency platforms as being inadequate because they do not share interoperability. In their view, interoperability would make things better. But would it?

As it stands, the system seems to function just fine without interoperability. If you want to convert Bitcoin Cash (BCH) to bitcoins (BTC) because your online casino doesn't accept the former, all you need do is hit your favorite exchange and complete separate sell and buy transactions. If you do not want to go to that much trouble, you can create a free account on Skrill and make the exchange there.

You do not require interoperability. It matters not to you that the Bitcoin Cash network doesn't communicate with the Bitcoin network to automatically convert your coins for you. Cryptocurrency platforms do not need the same kind of interoperability as worldwide banking systems because they are, by nature, decentralized.

Standards and centralization

The danger of developing an EU standard is that it invites centralization. It has to. By the very nature of government getting involved, the government also exercises some measure of control. Something as seemingly harmless as an interoperability standard invites government discretion. Once that door is opened, it is just a short step to regulation that completely destroys the decentralized aspects of cryptocurrency.

In their defense, the EU believes that a European standard for interoperability and scalability will help prevent any one cryptocurrency platform from dominating the others. They are very wary of such domination, after having to deal with Microsoft and Google and what EU leaders perceived as actions taken by both companies to unfairly eliminate competition.

This is nothing new for the EU. Regulators have been very sensitive to business monopolies for years. They do not want to see the cryptocurrency space dominated by one or two big players at the expense of all others. While their intentions are noble, creating an EU standard is not the way to go.

Just leave it alone

A perfect world would include governments willing to just leave cryptocurrency alone. They would step back and let consumers, investors, and merchants handle transactions between themselves through whatever digital currencies they chose to use. But this is not a perfect world. And expecting government to leave cryptocurrency alone is a fanciful dream.

There is no escaping the fact that crypto has transformed itself from a monetary hobby into a legitimate economic force in many parts of the world. Indeed, how many millionaires have been made through cryptocurrency investments? As such, governments recognize the power and potential of crypto to change economics.

As long as crypto continues to exhibit this power, there is zero chance that governments will leave it alone. They want a piece of the pie, and they will get it one way or another. The only questions remaining are how long it will take and how big a slice of the pie they consume.

While German and EU leaders struggle to figure things out, the rest of us can still use bitcoins to play slots online. At least that's good news!