The European Commission (EC) needs to move quickly and get to grips with understanding blockchain innovation, EU lobbyist Patrick Gibbels has said in an exclusive interview with Coin Rivet.
In a damning verdict, the EU public affairs expert told us the technology’s potential can’t be fully realised until more people within the commission embrace blockchain.
Gibbels says some government officials are failing to see beyond negative stories associating cryptocurrency with crimes such as money laundering.
“There aren’t many voices – at least organised ones – in Brussels representing blockchain and cryptocurrencies as a wider concept,” he says.
“But on the other hand, there’s a ton of opposition: the banks are levying heavily against blockchain, which they see as very threatening.”
Gibbels concedes some banks are adopting elements of blockchain, but he points out that in general, financial institutions “have an interest in maintaining the status quo”. Therefore, he says, a big anti-lobby is taking place in Europe and in Brussels, with no strong voice pushing the benefits of blockchain technology.
This is not helped by the fact that European officials appear unable to make up their minds about how they view blockchain and cryptocurrency. Historically, the EC’s regulatory approach has been “hands-off” to allow the new technology to thrive, says Gibbels.
But in December last year, and seemingly out of nowhere, EC vice president Valdis Dombrovskis made a public statement outlining the risks of cryptocurrency. The unprecedented outburst came as Bitcoin’s value surged.
The dramatic intervention saw Dombrovskis write an open letter to member state financial watchdogs strongly dissuading them from allowing consumers to invest in cryptocurrency.
“The wording was very aggressive,” Gibbels says. “It said, ‘do not invest or advise consumers to invest’ and ‘it’s not that they might lose their money; they will lose their money’.”
Gibbels thinks the outburst was fuelled by negative press around Bitcoin and, to a lesser extent, some other cryptocurrencies. “But it was baffling to me,” he says.
Following Dombrovskis’ negative public message, things went very quiet. But then something strange happened. A contradicting message came out: three European Commissioners overseeing blockchain said in a statement that they were in favour of the technology.
At first, it was confusing. “After the negative message from the other commissioner, there was now a shower of love from the European Commission,” Gibbels recalls.
Then in April this year, the European Commission announced 23 countries had signed a declaration establishing a blockchain partnership. This will be a vehicle for cooperation among member states to exchange experience and expertise while they prepare for the launch of EU-wide blockchain applications across the digital single market.
The EC has already spent EUR 80 million on blockchain projects and announced another EUR 300 million more would be allocated to the technology by 2020. Gibbels concedes this is “a small budget” but one that will still benefit projects using blockchain technology.
Indeed, the EC has even adopted some blockchain of its own, integrated within the European funding infrastructure, Gibbels points out.
It has been misunderstood in the past. But does this indicate the movers and shakers in Brussels now understand the gravity of blockchain technology? Gibbels thinks overall, technology is “moving much faster than institutions”.
But he says recent events do show that commissioners are now starting to understand the difference between blockchain and cryptocurrency.
“They have realised cryptocurrency is just a small application of the larger blockchain,” says Gibbels. “This is now understood at European level, or at least at cabinet level.”
However, due to the risks associated with the technology, there is of course a need for regulation. Because blockchain is complex and often misunderstood, this poses a challenge.
“Criminal networks are using blockchain because it is, to some extent, under the radar,” says Gibbels.
“This is well known and it is frightening to the institutions because they would like to stay in the driving seat – and most people in favour of blockchain are against the established way of governing things. Some argue it might make governmental structures invalid in the future and this is a threatening message to institutions.”
So, there is no easy solution that will suit the myriad competing groups and voices: current financial services regulation does not fit the blockchain world either.
“Those regulations aren’t built for that purpose; they are suitable for regulating banks and financial services institutions,” Gibbels says.
“They don’t take into account the transcending nature of blockchain; that it doesn’t just stop at European borders.”
Yet at the same time, Europe is lagging behind other countries in terms of encouraging investment. Indeed, lots of successful European companies end up relocating to the US where the environment is more hospitable, Gibbels explains.
But the potential is great: if it is done right, regulation will make things easier for innovation, but under the current structure, it can currently take several years for a proposal to become law.
“Technology doesn’t wait for that,” he says.
Things are starting to happen to change this. Before the Lisbon Treaty, there were sometimes three readings in European parliament and trajectories of six years for proposals to become law, Gibbels says. “We have been lobbying very hard to shorten this to two years.”
“In a way even this is too long, as technology moves more rapidly than that, but you don’t want to risk regulating too quickly as the quality can go down.”
Meanwhile, it is also important to consider that over-regulation could be detrimental.
“As is frequently the case with new technologies the EC knows nothing about, they panic, because existing regulation doesn’t fit,” he explains.
“So, the Commission sometimes gets almost frantic and asks, ‘what can we do to regulate? What rules can we put into place?’ That’s basically where we are now.”
He also doesn’t know to what extent blockchain should be regulated but emphasises the need for balance: “It’s important the EC finds the balance while being properly educated, not just listening to fears and lobbies by the banking institutions.”
At the same time, in Gibbels’ experience, the EC is also very open to finding out more about new technologies.
“They are technocrats and pragmatics at least at an operational level,” he says.
“But the technology is very new and is therefore at an early stage within the EC. They are clearly figuring out what blockchain is and what it means – and what it could mean.”
Taking this into account, it’s clear there’s work to be done at European level. This is made more complex by the fact that the EC’s resources are sparse.
“I think it is important they are given good information,” Gibbels adds.
“The EC are doing their best, but they are grossly understaffed. They have very few people who can become experts and they don’t have the resources to hire, so they rely on external expertise.”
Even so, there’s no doubt that momentum is gathering. Gibbels himself is involved in several expert groups at European level.
“These are very much in their infancy,” he says, adding that the European Commission is organising round table debates and expert groups with up to 100 people discussing blockchain.
Since December last year, Gibbels has been in touch with the blockchain community to bring together organisations and people. Their aim? “To tell the blockchain story in a coherent way,” he quips.
Following the group discussions, Gibbels points to numerous emerging applications. For example, one of his South African contacts says blockchain can help displaced migrants to find work and get paid without revealing their location. “There were people fleeing to South Africa from Northern African regimes. They did not want to be found, but they also could not have a place in society and did not want to become criminals,” says Gibbels.
“So, they are given the ability to gain a wallet and be in the blockchain community. They can provide services, get paid and be legal without having to give away their whereabouts. It is a way to be part of, and to aid, society. I found this an interesting approach and something that needs to be heard.”
And as the European Commission starts to accept the benefits of blockchain, the cogs are turning, albeit slowly. Gibbels says there are more potential proposals in the pipeline. “There’s technically not too much going on, but people are finally mobilising.”
This is despite multiple external sources trying to tell the EC why blockchain is “an evil thing”, says Gibbels. “That is why it’s equally important there is a voice, or a set of voices, advocating blockchain technology.”
It is a major challenge, but once the issues are ironed out and more people start to realise the value of blockchain technology, Gibbels is adamant that the opportunities are infinite.
“Potentially, blockchain offers infinite possibilities and applications so I think it’s something we can’t get around,” he concludes.
“It’s there, and it’s happening whether we like it or not, so we need to make sure that it is used in the best possible way. There is definitely a role for the EU and institutions to guide developments in blockchain technology.”
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.