The first industrial revolution (the transition to new manufacturing processes) and the second industrial revolution (the technological revolution) both started in Great Britain and then spread through Europe before reaching the United States and beyond. Both changed the world deeply, at its roots. The next industrial revolution is happening now, in the cradle of Europe, and it will change our world more than we can imagine.
The world of financial technology is changing. The world itself is changing. The unnatural centralisation of technological knowledge and capital in limited geographic areas is coming to an end. Knowledge, technology, and money are being decentralised. The crypto-economy is allowing for the emergence of new, decentralised business models, and Europe is poised to take a leading role in the emerging distributed revolution. European companies like ICONOMI have become creators of this exciting new era of the crypto-economy, the first organisations building bridges between the old and new economies.
The European regulatory framework, a pillar of the Old World, is fertile and ideal for fostering this new paradigm of distributed innovation. The EU's passporting system allows international cooperation and trade between EU financial companies with a minimum of regulatory burden. This is especially important for the growth of a technology in its infancy, where the key formula for success is "innovate first, regulate second".
Within Europe, there are stand-out examples of governments actively supporting and accelerating the use of blockchain technology. Estonia, for example, is using blockchain to secure its citizens' medical records, create an e-residency program and implement an e-voting system. Switzerland is firmly establishing itself as a major blockchain hub, with four of the five largest token sales having taken place there. Slovenia also stands out in the EU blockchain world, hosting successful blockchain companies such as Cofound.it and Viberate, which are working closely with the Slovenian government to develop a sound regulatory framework.
For several reasons, the US is noticeably lagging behind the EU in the blockchain space. SEC regulation is outdated and overly broad. Unlike the EU passporting system, US fintech companies have the added compliance burden of being forced to apply for licenses in every state in which they plan to conduct business. Local legislation also stifles innovation and blocks new companies from entering the space. In 2015 — when the blockchain industry was much smaller — at least ten Bitcoin companies stopped conducting business in New York State when regulators introduced the costly and restrictive "BitLicense". These models are outdated; a new system of rules and legislation is needed for the digital age.
The traditional venture capital (VC) funding structure has never worked well in the EU. Because blockchain companies in the EU do not have the VC world as competition, the path is clear for a new, distributed form of funding to take root. Smart, responsible legislation that increases investor confidence will only strengthen Europe's blockchain industry, but care must be taken not to stifle innovation or create unnecessarily high barriers to entry for new blockchain companies to emerge.
The blockchain industry is young, but a robust framework for the self-regulation of serious blockchain businesses is already being cemented. Best practices are being standardised. KYC/AML compliance is a major hurdle for decentralised technology, but identification and compliance technology is improving at a rapid pace. Blockchain analysis tools such as Chainalysis are maturing, allowing companies and regulators to more easily monitor token value sources and flows. Most serious blockchain companies are already using these tools to go above and beyond the standard KYC/AML legislation already in place in most jurisdictions.
Thanks to policy foresight and initial regulatory restraint, the internet has revolutionised nearly every aspect of human life. Policymakers today must show that same wisdom. Governments and regulators should avoid undue restrictions, support a predictable, consistent and simple legal environment and respect the "bottom-up" nature of the technology and its development in a global marketplace.
As the US led the internet revolution, Europe will lead the blockchain revolution. The EU will recognise the unique potential of blockchain technology. The internet enabled the near-instant transmission of digital copies; Bitcoin demonstrated that unique representations of value—not digital copies, but digital originals—could be transferred quickly and cheaply around the world. The ability to create and transfer digital originals (not just currency, but anything that can be represented digitally) is the true value of blockchain technology.
The first step toward effective regulation will be identifying new token-based asset classes. Once these new asset classes are underway and defined, regulation will follow, but it must be designed in a way that does not kill innovation. Models for responsible regulation include capped ICOs and regulatory sandboxes, which are already in place in some jurisdictions.
With sensible regulations and oversight, Europe's blockchain industry will only continue to grow. Focusing on innovation first will be key to avoiding the stifling of innovation that can accompany the regulation of a burgeoning field. With its passporting system and vibrant blockchain community, the EU is uniquely positioned to spearhead—and profit from—the decentralisation movement. And as David Suzuki said: "Powerful technologies have grave consequences that we may not know about, until later. Always surprises."