The digital cryptocurrency Bitcoin is attracting massive interest from both business and regulators. At the start of the year, a single Bitcoin was valued at $1000; by October its value had shot up to $5000, and is expected to continue to increase in the foreseeable future.
Bitcoin, along with other virtual currencies, is based on the digital innovation of blockchain technology, which is now capturing the interest of many MEPs.
Eva Kaili, Chair of Parliament’s science and technology panel (STOA), said, “Blockchain is more than a technology; it is an infrastructure upon which we can build wider applications such as the Internet of Things, smart cities and infrastructures.”
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Hosting a parliamentary event with the Global Blockchain Business Council in October, where technological innovators, start-up entrepreneurs and MEPs exchanged views, the Greek S&D group MEP highlighted the potential of this new digital technology.
The European Fund for Strategic Investments (EFSI) and the Juncker investment plan are currently funding research into how this technology can be used.
Blockchain is a transparent and decentralised way of indelibly recording a list of transactions. It is best known for creating new cryptocurrencies such as Bitcoin. In spite of not being backed by a central bank, users trust cryptocurrencies because they offer fast, cheap and secure public records.
The technology can also be used in non-financial applications such as elections, or where it is important to know ownership histories, trading property/land, or managing supply chains such as ethically-mined diamonds.
Other uses could include enabling of trade in digital media or even in the provision of public services such as health and welfare payments.
Recognising the “disruptive potential” of this technology, Kaili told attendees, “We need to identify how we will optimise what we already have and how to manage this new technology. This entails two practical aspects; interoperability and institutional certainty.
“Interoperability requires standardisation, and institutional certainty requires legality and security that reduces the exposure of people to fraudulent behaviour.”
For Kaili, standardisation is critical. Pointing out how the use of ‘www’ was the basis for the development and expansion of the internet, similar standards were also needed for blockchain.
Another weakness the Greek deputy identified was “scalability”.
At the moment, blockchains were limited to one megabyte in size, to reduce the threat of spam. Blocks larger than one megabyte were automatically rejected, with only three transactions allowed per second. Given the massive popularity of Bitcoin, this has created bottlenecks in the currency trade, resulting in increasing transaction fees.
Kaili wanted to see the EU create a ‘passport’ for blockchain products, similar to the one created for the trade in financial products, so as to “avoid regulatory fragmentation between EU member states.”
She also wanted the Commission to create regulatory ‘sandboxes’, similar to the ones the Bank of England created for British FinTech companies.
There, new products were tested and traded for three to six months with real consumers under loosened regulations, rather than introducing new regulations
German S&D group MEP Jakob von Weizsäcker, Parliament’s rapporteur on virtual currencies, backed Kaili, saying, “We should not regulate too early, so as to avoid stifling innovation.
“Nor should we delay regulation until some applications have become systemic.
“Therefore, the right approach is not wait and see but wait and monitor closely and then regulate promptly and forcefully if and when the need arises.”
As part of his report, Weizsäcker proposed a special task force, which is now being created by the European Commission.
The German deputy also stressed “the EU’s role should not be limited to supervision and regulation. We should also attempt to pioneer innovative blockchain applications on the part of government.”
His fellow EPP group member, Antanas Guoga went as far as calling blockchain technology a ‘revolution’.
“The application of this technology can empower citizens to enjoy transparent, secure, smart and faster governance because of technology’s properties like decentralisation, consensus without any central authorities and third parties. Blockchain is changing the core of the coding, storing data and financial systems.”
However, the Lithuanian MEP admits that, “the technology challenges some of the modern state’s main functions, offering new ways for person’s identification and issuing of money.”
He wanted the Commission to address both these challenges and threats.
“I support the Commission’s intention not to stop the development of these innovations by over-regulating it and focusing on enablement of the technology by supporting distributed ledger-based projects, setting up cooperation frameworks, piloting initiatives, and education.”
Guoga also called on member states to take advantage of and foster the technology more quickly in other sectors including as healthcare, transport and even agriculture, with the aim of decreasing food waste.
“Currently, the biggest value I see in applying blockchain is in traditional banking services. It’s a huge leap forward and a huge opportunity.”
ECR group MEP Ashley Fox admitted blockchain had a negative reputation because of the early use of Bitcoin in the dark web to purchase illegal goods.
“However, he stressed “the potential of blockchain, or more broadly distributed ledger technology (DLT), is great. We need to take a progressive approach to DLT. We cannot apply existing regulation and modify it to fit.
“Gibraltar, which is part of my constituency, is doing exactly that with their DLT regulatory framework. They are opting for a principles based approach, which I think the EU would be wise to implement.”
The new technology is also backed by Swedish Green MEP Jakop Dalunde. “Blockchain is an interesting new technology that enables decentralised management of important and sensitive information.”
He added that blockchain “will lower the thresholds for new solutions and business models in various fields such as the finance, real-estate and renewable energy. It is crucial that EU develops a forward looking set of rules that promotes new ideas and innovation.”
One of Europe’s biggest competitors, Japan has already announced new rules to allow people to pay for goods and services by Bitcoin.