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After the election: How will the new German government impact blockchain in Germany and the EU

Introduction

After 16 years of leadership under Angela Merkel, on the 26th of September 2021, Germany voted to elect a new chancellor. With Angela Merkel not running again and also the CDU losing the election, many are hoping for more changes towards a more digital, climate-neutral and forward-thinking economy. Now since the 8th of December 2021, Olaf Scholz, from the social democrats is the new chancellor of Germany, forming a coalition with the liberals and the green party under the slogan “Mehr Fortschritt wagen” (“Dare more progress”). Therefore in the following, we will analyze their coalition paper, to understand what changes they want to implementtowardsblockchain adaptionandhowthiswillshapethefutureofGermanyand maybe also of the blockchain industry.

Initial Analysis of the Coalition Paper

After analyzing the 178 pages of the coalition paper, we are able to find the word “Blockchain'' three times and the word “Crypto” also four times. Blockchain is mentioned in connection with further supporting startups that might also be active in the blockchain industry, and then twice related to topics, where proof of ownership for assets is important, which could potentially be done over the blockchain. Crypto is mentioned rather in the idea of supporting the implementation of a level playing field in the EU for crypto assets, to enable new opportunities for startups and companies. In that aspect, also the introduction of a digital euro is mentioned. In the following, we will discuss each of these points more in-depth, how likely they are to be actually implemented and how this could also affect the blockchain industry as a whole.

Blockchain for the Validation of Ownership

On page 92 of the coalition paper, it is mentioned to initiate a study, how realistic it is to put the land register, that keeps track of the ownership of properties in Germany, on the blockchain. This is a really interesting idea, as in Germany this is currently done by many regional offices, which do these processes often even just in paper form, which means that processes of buying and selling properties are slow and it is hard to to get information from the land register. The implementation of the blockchain could solve these issues, as it would make information directly accessible to authorized people and also changes could be made more easily. It would also provide more transparency, as it is easier to see nationwide ownership of property and it is not required to contact different regional offices.

This can create advantages for German businesses and people, as it can make lending easier, as often banks or lenders need to check the land registry to check if a house, which can be given as a security, is actually owned by the declared person. Therefore they could be provided with an authorized account, that gives them direct access to the land registry and makes it possible to directly check who owns a property. This reduces the time it takes to lend money, which might lead to more lending and slightly easier access to money, which has a positive effect on the

German economy and the citizens.

As such a system seems to make processes much easier and it indeed can make them much faster, also other changes of the law might be necessary in Germany. In Sweden, a digital land registry on the blockchain is already available and banks and real estate agents have access to make changes, as “Trusted Partners” to change entries on the land registry. In Germany however, the process to register property is more difficult, as the German government requires, that a notary and often also lawyers need to be involved, which might make it possible to put such a system on the blockchain, but not necessarily faster, as many different parties are involved in the process. Therefore changes would need to be made, to the process of how ownership is transferred, to make use of the speed of the blockchain. Therefore we can conclude that the transfer of the land registry on the blockchain could be interesting for Germany and even if it might not speed up the process to transfer ownership at the beginning, but it definitely has advantages in terms of transparency, so we can only hope that this shift towards the blockchain can be done fast.

The use of Blockchain against Financial Crimes

Another idea is raised in the coalition paper about the use of the blockchain to determine the ownership of stocks at a specific date and time. This can be used to stop tax-related crime named “Cum-ex” or “Cum Cum” which led to a global damage of over 150 billion euros for governments. The crime is based on the idea that stocks are swapped really fast at the moment when ownerships of stocks are recorded, which are then used to pay dividends. The dividends are then paid out and taxes need to be paid. Under certain conditions, these taxes can be refunded, so tax refunds are issued. However, these tax refunds are then issued twice, to the person holding the stocks, and to the person that the stocks were swapped with. This makes it possible to get a tax refund on taxes that the person didn’t even pay. This scheme lost the German government at least 30 billion euros and now the blockchain can be the solution to this problem.

The blockchain can be used to always exactly record, who owns a stock at which moment, which makes it pretty obvious, who is eligible for tax refunds and who is not. As this data is stored decentralized, it is not possible to manipulate that data and therefore this scheme is no longer possible. This enables the government to reduce manual control of such tax refunds and makes sure this crime is no longer possible. Such a system could also have benefits for smaller investors, as it might enable them to simplify and automize the tax reports they have to file based on their trades. Therefore again the use of the blockchain definitely can lead to huge benefits, the only aspects that could make it fail are the implementation process, as brokers, banks and other entities need to start using it. So we will see if the blockchain will be implemented for that purpose, as it definitely can provide a lot of benefits to the German government.


Support for the Digital Euro

The new coalition also showed support in favour of a digital euro and wants to be a constructive part in the development of the digital euro. As the euro is not issued by the German government, but rather by the European Central Bank, it can’t just decide to introduce it, however, it can assist the ECB and also support it on regulatory aspects, as a digital euro also requires certain legal steps for a successful implementation.

A digital euro can have benefits and disadvantages, so it is important to evaluate both to understand, whether its implementation would make sense. A digital euro could achieve the Eurosystem’s goal to give its citizens access to a fast and safe payment method that exceeds the current solution. Especially when cash payments decrease and more and more payments are done digitally, it makes sense to introduce a digital euro, as it can make transfers faster, more transparent and easier to fulfill. It also opens new possibilities for the private sector for new companies and solutions that could make payment processes easier and better. It would also be in the interest of the ECB to develop a digital euro, to reduce the use of other cryptocurrencies, as especially for payments, the ECB wants that their currency is used so that they can keep control over the monetary policy in the Eurozone.

However, a digital euro also comes with certain downsides, as new technology needs a certain time and cost for development and also might be malfunctioning at the beginning. It is also important to design it in such a way that it is not vulnerable to cyberattacks, as certain hackers will attempt to break the digital euro, as it could break down a large part of the European economy. Therefore the digital euro must be developed safely, making it hard to hack. For the implementation, it is also crucial that the digital euro would not be used as a vehicle for investment, as this could lead to unnatural fluctuations and make the payment process less stable. We can see that a digital euro has advantages and disadvantages for the ECB and also for the citizens of the Eurozone, so it will be interesting if the ECB will implement such a digital euro. A prototype is planned for 2023 and the cooperation of the ECB with governments is definitely necessary for its implementation, so it is crucial that Germany, having the biggest economy in the Eurozone and also being the location of the ECB, is willing to assist with the implementation of the digital euro.

Fight against crimes paid with cryptocurrencies

One of the best features of cryptocurrencies is that it enables decentralized and anonymous payments and transactions. This gives everyone the possibility to transfer money, without the government being able to track, who the recipient or even the initiator is. Especially with cryptocurrencies such as Monero, which use ring-signatures to make transactions not trackable, it is possible to transfer money completely anonymously. This has many advantages, however, it can also be used for a lot of illegal activities, as it makes it possible to transfer and launder money and also finance illegal associations and terrorist groups with cryptocurrencies. The EU still struggles to fight against that and the German government, therefore, wants to set up a new EU money laundering office, that can fight against these issues with more presence. It will be interesting to see, which measures will be taken to reduce these crimes, but especially better and more mandatory KYC (Know Your Customer) processes are likely. The blockchain community as a whole would probably benefit from such measures, as usually regulations always go against the idea of decentralized currencies, however, they also open new possibilities for businesses and governments, leading to more use cases and an appreciation in cryptocurrencies prices. Such measures would also benefit all citizens in the EU, as reduced money laundering, will decrease illegal activities and increase tax payments. Also, it is harder for terrorist associations or scammers to collect money from EU citizens, which is also in the favour of everyone. Therefore we can conclude that even that measure, which will probably lead to more regulation in the crypto space, is beneficial for the industry and the citizens of the EU.

Summary and Conclusion

Looking at most of the blockchain-related measures and ideas that the new German government wants to introduce, we can definitely say that it will benefit the blockchain and crypto industry. The German government seems open to new technological development and with different ideas on how to implement the blockchain even in public projects, the german government definitely shows support towards the technology. The support for the introduction of a digital euro might be disappointing for some, as they hope for the use of cryptocurrencies such as Bitcoin, as a legal payment solution in the EU, however it is pretty obvious, that the ECB will not support this, as controlling the supply of the payment method of the people is the only solution to use monetary policy. Therefore it makes sense for the ECB to develop a digital Euro, which will also have different benefits for EU citizens. Overall the different ideas for the use of the blockchain that is described seem promising and provide a good start for more use and blockchain development in the public sector. We can already imagine that these new solutions will bring benefits to all citizens in the EU and are therefore hopefully only the start towards a more blockchain-based society.


written by Moritz Gebhardt


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