EU hasn’t been quiet about the blockchain technology. Just around a month ago, European Union Blockchain Observatory & Forum shared a report focusing on interoperability and sustainability of the technology. While it seems like EU has been very much in support of blockchain and the way it will affect the future of possibly every sector, Europe’s regulations governing the technology have been a hot debate since the GDPR.
Earlier this week, Austria’s Minister for Digital and Economic Affairs, Margarete Schramboeck, said that Europe may be overregulating blockchain, and that may be the reason there isn’t a single European firm in the world’s top ten blockchain company. What is interesting about Schramboeck’s statement is that she is a strong advocate or cryptocurrency regulations in Australia. However, as a former CEO of Australia’s leading telecom company, she seems to have a clear understanding of the differences between crypto and blockchain, and the importance of the latter.
Back to the Europe, it is understood that the EU Blockchain Observatory and Forum must have members with an equal or more technical understanding of blockchain. It would be interesting to investigate why they are still unable to realize the downside of regulating this technology. However, what is more important is to verify whether the EU is actually over-regulating or people are still upset about the GDPR.
For the sake of understanding, let’s start with the GDPR and see it really has as big of an impact on blockchain as the rest of the world claims.
Did GDPR Has Any Impact on Blockchain?
When GDPR was introduced last year, many thought it would be the end of the internet as they know it (at least in Europe). While it is just a consumer protection policy, there are a few regulations that directly impact the crypto world. Right after GDPR, PICOPS announced they won’t be able to continue their Ethereum based project due to GDPR restrictions.
One year later, many are calling it an uncalled for martyrdom because Europe seems to be willing to bet on the blockchain, or at least that is what they keep saying. Nearly 80 million Euros already spent and 340 million more will be spent on this technology by 2020. EU Blockchain Observatory and Forum even released a report addressing this topic in detail. The report identifies the point of conflicts between GDPR and blockchain and also proposes a solution to keep things more transparent.
Now, according to blockchain experts, the recommendations brought forward in that report are quite restrictive. The clash between GDPR and blockchain is not just functional but also ideological. The reason could be the fact that they have more similarities than differences. Thomas Powers, a board member of the Blockchain Industry Compliance and Regulation Association (BICRA), even goes on to call them frenemies and expect both technologies to soon harmonize.
The result of the world has it eyebrow raised. In order to exist while respecting the GDPR as expected by the EU, blockchain will move towards a more centralized structure, which kills the concept of decentralization it is actually based on.
Is EU Really Moving Towards Harmony?
While we were waiting to see how GDPR and blockchain will finally work through their differences, European Banking Authority and the European Securities and Markets Authority (ESMA) made another call for crypto rules that will ultimately impact blockchain.
However, it is apparent that the regulations made in regards to crypto and blockchain do not have a global impact. Different nations in Europe are working towards their regulations to promote blockchain led innovation in their own country. Both Malta and Switzerland have blockchain friendly regulations in place. While Malta is called the Crypto Island of Europe, Switzerland is home to the world’s first Crypto Valley. While there are effective regulations in both the countries, there is more focus in encouraging the technology than restricting it.
Austria may become the very first European country with no regulations for blockchain. However, GDPR will continue to impact the growth of this technology in the region, unless adjusted to better accommodate it.
Is Regulation Really About Restrictions?
While half the world is waiting for the EU to ease into the blockchain, others believe that the EU has taken a more sensible approach and other countries will soon follow suit. EU Blockchain Observatory and Forum want to form scalability and interoperability standards to make blockchain more sustainable. In simpler words, they do not want to rush and regret later.
EU’s approach seems to be more strategic than other countries such as the US or China. The way they are working on regulating the technology and the industries that will utilize the technology is an indication of how seriously they are about it. The regulations are not geared towards resisting it’s growth but towards a risk-free growth. It is a different approach from the US who always seems to take regulations as and an afterthought when it comes to technology.
While it may be a mature approach on EU’s part, too many regulations in infancy can impact the way a technology fosters innovation. For the EU to become a leader in blockchain technology as envisioned, they will have to think more quickly and open-mindedly.
A positive step in this direction is the proposed resolution on the distributed ledger technology in the European Parliament. The resolution proposes the removal of any barrier that is currently blocking the way for blockchain innovation in the region.
While it doesn’t call for a zero regulation policy, it does ask for analysis to ensure that regulation in place are innovation friendly, and are guided by principles of technology and business-model neutrality. The resolution also calls for the development of a framework that would overlook the matters of blockchain frauds.
Moreover, the whole regulation vs. overregulation dilemma because of clearer when one takes a look at a sector-wise breakdown of blockchain implementation and regulations. In this regard, the health sector is the first one to embrace the distributed ledger technology. The government encourages the use of blockchain for storing and transmitting medical data over the internet. There is an EU funded program called My health My Data MHMD to encourage effective implementation and usage of the technology in this sector.
Moving on to the financial sector, while the EU may not be in favor of unregulated cryptocurrencies, it is supporting the use of blockchain technology to ensure more transparency across this industry. They are also looking into ways to reduce transaction costs with the help of blockchain.
The relationship between the EU’s general regulations and how they clash with blockchain led innovation is complicated, to say the least. GDPR, the actual bone of contention, seems to have goals similar to that of blockchain technology and it seems that EU is just taking its time to deliberate a way to make both technologies work together. The only problem is that perhaps they are expecting technology to bow down to regulations when it should be the other way around.
That said, it is too early to say whether EU’s mature and systematic approach is safer, if not better, than that of the US or other countries where regulation on technologies are more of an afterthought. To say that the EU has over-regulation issue, at this point, would be an overstatement.