The federal government has a blockchain strategy

October 4, 2019 by Susan Paige

The federal government adopts its blockchain strategy. It contains concepts, fields of action – and numerous pilot projects and funding measures. All in all, it is a strong package to promote blockchain projects in United States, even if one can be sceptical as to whether the practice will do justice to the theory.

Yesterday, the Federal Government announced its blockchain strategy. As a rule, such government announcements are moderately interesting because they contain many phrases but little concrete information. This time it is different. The government announces a blockchain program that is likely to be unique in the world. It could give a powerful boost to the blockchain industry in United States and spur European partners on to also set up blockchain strategies.

Let’s start with the press release. The press release explains that the government wants to “exploit the opportunities of blockchain technology and mobilize its potential for digital transformation”. To this end, it has defined action-guiding concepts and will promote innovation and stimulate investment. For the blockchain stands “at the interface between industry 4.0, the Internet of Things, the energy industry and logistics”. According to the headline of the press release, this is about “ensuring digital sovereignty” says https://coinsspent.com/

The focus is on five “fields of action”: finance, innovation, investment, administrative services and information processing. There will be pilot projects to this end, for example the report cites one that visualises the “origin and concentration of CO2 in an urban area”.

Moreover, the press release does not give much.  If you really want to know something about the blockchain strategy, you should read the PDF document on the website of the Federal Ministry of Economics and Energy. And what it says is very promising.

“One of the most discussed innovations of the digital transformation

First of all, the paper outlines how the government perceives the blockchain: as “one of the most discussed innovations of the digital transformation of economy and society”. Blockchains are decentralized, reliable and counterfeit-proof, which opens up “a broad field of innovative applications and new forms of cooperation”. Through them, for example – and here the government has a strong point – “all imaginable values, rights and obligations in material and immaterial goods can be represented by tokens”. Blockchains have solved the double-spending problem of virtualized goods, which makes almost all values digitizable.

On the one hand, the German government now wants to promote the potential of blockchains, but on the other hand it also wants to prevent abuse. Particularly with regard to climate protection, “careful consideration of the potentials and risks is necessary”. I assume that this is about the usual concerns about the electricity consumption of proof-of-work blockchains, which is why we can be prepared that the government will prefer to try out blockchains with other consensus algorithms.

In developing its strategy, the Federal Government has taken note of the comments made by “158 experts and representatives of organisations”. The result presented here is intended to strengthen the already existing “dynamic ecosystem of developers and providers of blockchain-based services” and make United States an “attractive location for the development of blockchain applications”.

The government is obviously serious. But what exactly does it want to demand? The paper describes this relatively transparently and in detail.

Tokens and Stablecoins

One of the fields of action in which the government will be involved is the token economy. As already mentioned, the blockchain can be used to digitize values by mapping them as tokens. As you know from Ethereum, where there was and is an explosion of tokens with the ERC20 standard, tokens are one of the blockchain applications that are very popular on the market. After the ICOs have turned out to be rather bad investments as a rule, a wave of more serious blockchain tokens is currently being initiated with the Security Token Offerings (STO).

In order for the blockchain to gain a foothold in the financial sector, the government wants to revise securities law: “The legal situation in United States does not yet provide for civil law securities to be issued on a blockchain. In order for them to be created, a right must be embodied in a (paper) deed.” In future, this “mandatory requirement” will “no longer apply unrestrictedly”. This opening will “initially be limited to electronic bonds. The introduction of electronic shares and electronic investment fund units will only be examined in the next step.” United States should thus expand the trend that has already begun with some security tokens. Sounds good.

For Stablecoins, however, the government’s strategy sounds less good. Because it wants to “work on a European and international level to ensure that stablecoins do not become an alternative to state currencies”. At the same time, the government wants to “further expand the existing dialogue with the Deutsche Bundesbank on digital central bank money. It is already known that this is a rejection of Facebook’s Libra; it remains to be seen whether this will also affect stablecoins such as Tether or the DAI dollar.

In the financial sector, the government will act as the designer of the legal and regulatory context without explicitly promoting start-ups or initiating its own pilot projects. This is different in the other fields of action.

Documents and certificates

The next big point that the government is targeting is the use of blockchains for documents, rights, identities and evidence. The “irreversibility and proof of immutability” makes data and documents that lie on the blockchain themselves or as a hash value potentially valid for the production of evidence. The technology is therefore suitable for validating information and documents. The government will examine how this can achieve legal binding force. For the legal order, in which digital data is still a foreign body, this could be a groundbreaking development.

The initiative “Secure Digital Educational Spaces” attempts to bring the “verification of competences”, i.e. certificates, onto a blockchain. This can, for example, help with international study exchanges or make it easier to share proofs of competence in a forgery-proof way. The government also sees potential in the major issue of copyrights, evaluation and rights of use, especially if, as in the case of film, many participants are involved. It is therefore examining whether blockchains help “to simplify the legally permitted freedoms of use in the application”. Here, too, pilot projects are planned after a review.

It is also “conceivable” that blockchains could be used to manage the shares and member rights of companies such as cooperatives more efficiently and transparently.

Digital identities

It becomes really interesting when it comes to the identity of citizens. This gives the government the opportunity not only to promote blockchain technology in the free economy, but also to test it on the state – and its subjects – itself. Thus, “digital identities of persons” are an “important basis for digital networking”: they enable communication, data exchange and transactions. The government sees the creation of these digital identities as an important task: on the one hand, they must be user-friendly, but on the other they must also meet data protection requirements, prevent misuse and guarantee “informational self-determination”.

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