Cryptocurrency eventually becoming a dominant monetary force in Europe requires three countries to get on board: the United Kingdom, Switzerland, and Germany. These three make up the economic engine that runs most of Europe from the farthest reaches of the British Isles to Europe's border with Asia. The UK and Switzerland are already crypto-friendly; Germany, not so much.
Germany's political leaders, business leaders, and consumers are not necessarily averse to the cryptocurrency concept. One would think the government is staunchly pro-crypto given their official stand against allowing Facebook's Libra to gain a foothold in Europe. And yet, the country seems to only dabble in the crypto space. Why? And more importantly, is there a future for cryptocurrency in Germany?
It is the belief among many in the cryptocurrency community that digital tokens replacing minted coins and printed bills is inevitable. What is less clear is how the digital economy will look once it all becomes reality. We may end up with a private enterprise like Bitcoin being the dominant monetary system. On the other hand, we could eventually find ourselves in a situation in which every country with its own sovereign currency simply replaces it with a digital equivalent.
Germany offers an interesting case study for figuring out where things might go. We start with the premise that cryptocurrency is completely legal in Germany for all intents and purposes. Only now is the government beginning to work on a regulatory framework for keeping things in check as crypto expands there.
Limited adoption thus far
Understanding the cryptocurrency environment in Germany requires understanding the people who live there. By and large, German consumers tend to be very practical about everything from personal economics to technology. Some might even say pragmatic. German culture is not as quick to latch onto the latest trends simply for the sake of doing so.
When it comes to technology, Facebook adoption actually says a lot. The most recent statistics show that just over 31.6 million Germans were active Facebook users in early 2019. Contrast that to India, where there are 270 million Facebook users according to Statista. There are 190 million in the U.S., 130 million in Indonesia, and 120 million in Brazil.
You could make the case that cryptocurrency is to monetary systems what social media is to personal communication. The fact that the Germans only dabble in cryptocurrency aligns nicely with the reality that just over one-third of all German adults use social media. It is also no surprise that the biggest demographic for German social media use are younger adults between 25 and 34 years of age.
The number of cryptocurrency users is even less, with just 800,000 people on board. That represents 1% of the total adult population. But again, that younger adult demographic is where the strength lies. As many as 10% of all 20 to 45-year-olds - particularly tech-minded males - own cryptocurrency.
Data clearly shows that crypto adoption in Germany is more limited than it is in other places. There are a number of reasons for this, some of which will be explained as this post continues. One thing is for certain: cryptocurrency needs to become a bit more entrenched in Germany for it to have any real influence on European economics.
Financial institution aversion
An important key in making any monetary system work is the involvement of financial institutions. A majority of consumers could own cryptocurrency, but merchants will not accept it if the banking system isn't on board. That is exactly what is going on in Germany right now.
Germany's financial institutions have long been averse to cryptocurrency because of its inherent instability. No one can blame them. Banks cannot afford to gamble on crypto without any means of protecting themselves. As such, there really is no interest among said institutions to bring cryptocurrency to the masses. That would probably change if German regulators came up with a framework that would protect both bank and consumer interests.
Such a framework may be on the horizon. According to a recent Crypto News report, new rules will be in effect at the start of 2020. The German financial supervisory authority, BaFin, has come up with a regulatory regime that, among other things, allows financial institutions to hold and trade cryptocurrency assets as long as they are licensed to do so.
Regulators believe that issuing such licenses will encourage financial institutions to get involved with digital assets. Should they do so successfully, the hope is that they will then begin rolling out cryptocurrency options to retail customers. That would be huge.
Educating customers about Bitcoin
While Germany's financial institutions are awaiting the new regulations, one particular bank has taken on the task of educating its customers about Bitcoin. Bayern LB has apparently received a lot of interest among its customers as of late. Those customers appear to want to know more about Bitcoin and how it works. The bank has responded by creating a training seminar that customers can take at their leisure.
There are a number of fascinating aspects to this seminar, beginning with the fact that it addresses only Bitcoin. According to the bank, customers do not want to know about cryptocurrency in general. They are not interested in learning about alt coins, stablecoins, etc. They only want to know about Bitcoin.
Equally fascinating is how this seminar is conducted. One would think presenters would rely on a whole host of technologies to explain Bitcoin and its inner workings. But they don't. The entire seminar is conducted with paper and pen.
Attendees are educated through a series of discussions and hands-on exercises. The exercises involve things like monetary transactions, block building, and maintaining a secure environment - all while using nothing more than pieces of paper that represent transactions and blocks. Attendees go through the process of trading digital assets and building a blockchain using a combination of their paper representations and the mathematical exercise of factorization.
What is behind this interest in Bitcoin? It is apparently a desire among Bayern LB customers to diversify via digital assets. Simply put, people want to invest in Bitcoin but are afraid to do so because they do not understand it. They want to learn more about it so that they can make wise financial decisions.
More emphasis on blockchain
Finally, Germany's slow adoption of cryptocurrency maybe partly due to its equally slow adoption of blockchain. As a technology, blockchain has proven itself more than capable of practical applications that go well beyond mere financial transactions. And yet, the financial sector is where most blockchain development seems to be taking place.
The Merkel government introduced a national blockchain strategy earlier in 2019 in hopes of facilitating development that will ultimately lead to a tokenized monetary system there, according to Crypto News. The thinking is that developing blockchain on a national level will give financial institutions a reason to build digital asset capabilities.
Developing blockchain should also have a positive impact on consumer acceptance. As blockchain becomes more prolific within Germany's technology sector, greater numbers of people will be more comfortable with it. Greater comfort should ultimately lead to adoption of more cryptocurrency facilities covering everything from retail purchases to institutional investing.
All eyes on Germany
With the German government officially backing blockchain development in hopes of tokenizing its economy, they have made a statement about the future cryptocurrency within their borders. Now we wait to see if what many believe is possible actually comes to fruition. All eyes are now on Germany to see if it will translate its current economic power to the digital economy.
What happens moving forward will have a profound impact on the European Union and its influence in world economics. Assuming Brexit eventually occurs at some point in the near future, Germany will be left as the sole economic powerhouse in the EU bloc. Any move by German regulators to tokenize would force every other EU nation to follow suit. You would see the proverbial dominoes fall one by one.
On the other hand, a failed cryptocurrency experiment in Germany could hand the ball to Switzerland. Whether it did or not, failure in Germany would slow the adoption of cryptocurrency Europe-wide. This could very well be the prime motivation behind Germany's hard line stand against Libra.
In the meantime, Germany's 800,000 cryptocurrency owners can take comfort in the fact that they enjoy all the benefits of cryptocurrency even if the rest of the country doesn't get it. Some are undoubtedly investors using their digital assets as a store of value. Others are people who use cryptocurrency for day-to-day retail transactions.
At the end of the day, it is all good. The reality is that cryptocurrency is here to stay. It's not going anywhere, and Germany's government has finally figured that out. The introduction of cryptocurrency just over a decade ago has unleashed a new kind of economic power that resides in the hands of individual asset owners. No matter how much regulation is put in place, those owners are not about to give up their assets. That means government needs to either get on board or get out of the way.