Please provide a high-level overview of the blockchain market in your jurisdiction. In what business or public sectors are you seeing blockchain or other distributed ledger technologies being adopted? What are the key applications of these technologies in your jurisdiction, and what is the state of development of the market?
The Commonwealth Government of Australia (Government) has generally been supportive of driving innovation in the technology sector and as part of this, there has been sustained attention on blockchain in Australia with a number of leading blockchain initiatives, including industry-specific trials in financial services, energy, agriculture and the public sector.
In the public sector, the Government has considered blockchain application with the Australian Taxation Office (ATO) using blockchain to validate the dealer history of cars in a hackathon around Luxury Car Tax compliance. The Government’s National Disability Insurance Scheme has also experimented with blockchain and the New Payments Platform to create ‘smart money’ that has the capability of managing insurance payouts, budgeting and trust management.
Fintech businesses have also begun formalising use cases for blockchain such as managing supply chains, making cross-border payments, trading derivatives, managing assets and managing digital currency exchanges. Initial coin offerings (ICOs) have become an alternative method of funding for blockchain or cryptocurrency-related projects.
With respect to platform operation, Australia’s primary securities exchange, the Australian Securities Exchange (ASX), has also proposed a new blockchain-based system covering clearing, settlement, asset registration, and other post trade services. This replacement system represents the first mainstream, scaled use of blockchain by any securities exchange globally and is likely to yield valuable insight as policymakers and regulators consider their approach to blockchain in future.
Although the volume of French ICOs remains limited (see section 15) numerous initiatives to implement the blockchain technology are being developed in France in a wide range of business sectors (banking, insurance, energy, healthcare, logistics, agri-food, advertising, culture, retail etc.). Such developments are strongly supported by the French Government, which has passed recent laws and innovative regulations (such as the “loi PACTE” – see section 3) to implement Bruno le Maire’s (the French Minister of Economy and Finance) stated determination to promote Paris as “the capital of ICOs”.
Due to the large diversity and rapid expansion of use cases, it is difficult to present an overview of the market and to determine precisely its state of development; it is clear however that this technology is developing extensively.
The German federal government passed a comprehensive Blockchain strategy on September 2019, which it hopes will foster the technology and mitigate the risks regarding the implementation of Blockchain technology. Berlin is a hub for startup companies of which around 170 in one way or another look at Blockchain, the distributed ledger technology that underpins the Bitcoin currency. There is great interest from would-be participants and investors across a raft of industries including automotive, pharmaceuticals, energy and public sector administration that hope to transform mass market processes via Blockchain.
However, according to a study report from Bitkom e.V. (Bundesverband Informationswirtschaft, Telekommunikation und neue Medien e.V.) currently almost nine out of ten companies (89%) do not use the Blockchain technology. 86% did not consider possible applications, whereas 3% did consider the use, but rejected it in the end. In companies that use Blockchain, it is mostly used in the fields of accounting/finance/ controlling (56%), logistics/storing/shipment (34%), marketing/customer services/ distribution (26%), purchase (19%), production/manufacturing/project management (18%), human resources (17%), research & development (7%) and legal department and contract administration (3%).
Given its long established track record as a global technology hub, Ireland is now positioning itself as a blockchain development centre of excellence with companies across many industries leveraging blockchain technology. For example, Ireland already hosts many companies involved in blockchain, including Accenture, Arc-Net, Coinbase, ConsenSys, Deloitte Labs, Fidelity Labs, Circle and Infosys.
Blockchain is being adopted in both the finance and fintech industries and it is also being used by public bodies, in supply chain and as part of technology infrastructure. There are various examples of home-grown Irish businesses that are leveraging blockchain to deliver innovative products and services, including major technology companies based in Ireland (such as Microsoft, Amazon, and IBM) are also developing tools and applications which will allow their customers to create and manage scalable blockchain networks using open source technologies.
Italy is showing a positive approach towards blockchain technologies and opportunities and investment in the market has increased in recent years. Blockchain implementations are mainly carried out by investors, which are either large-sized companies or start-ups. The most active players are financial companies (48% of projects), public administrations (10%) and logistics operators (8%), whereas the main implementations are payment management (24%), documental management (24%) and supply chain traceability (22%). Although the market is still at an early stage and investment amounts are still low, Italy is now the third country in Europe in terms of the number of blockchain projects developed .
Indeed, a recent analysis of 100 financial institutions revealed that 36% of them increased their investments in digital transformation-related technologies and these changes look set to continue .
As to the use of blockchain by public administrations, the city of Naples (one of the largest in Italy) recently introduced a beta project in which businesses will be able to use a cryptocurrency as a means of payment . Blockchain technology is also being used in Milan for applications to tuition-free nursery schools enrolment .
Japan was the first country to establish a regulatory framework for crypto assets. Perhaps because of this head start, blockchain technology is now being increasingly adopted in the Japanese financial industry. For example, there are 20 licensed crypto asset exchange service providers as of September 2019. Japan Exchange Group, Inc. has also conducted proof of concept (“POC”) testing and research to explore the possibility of applying blockchain or distributed ledger technology to the capital markets infrastructure in Japan . Additionally, in June 2019, Nomura Holdings, Inc. and Nomura Research Institute, Ltd. announced that they have signed a memorandum of understanding for the establishment of a joint venture, which will make use of blockchain technology to develop a platform for the exchange of securities and other rights .
At the same time, blockchain technology is also being applied in non-financial industries, such as P2P electrical power trading platforms, automakers, trade finance, academic degree, gaming and the like although most of them are still in the stage of POC. For instance, in October 2019, it is reported that five major automakers (including one of the biggest automakers in Japan) had begun field tests for a blockchain-based vehicle identification system that would enable drivers to automatically pay parking fees or highway tolls without the use of cash or cards .
As noted under Q15, however, although certain businesses are already applying blockchain technology for practical purposes, such as Blockchain Game (as defined below), most businesses are still at the POC stage.
Many reputable players on the blockchain scene have come to Liechtenstein to start their businesses. For example, Yanislav Malahov (who was closely involved in the creation of Ethereum) has founded Aeternity – the first blockchain-based project in Liechtenstein with a market capitalization of over $1 billion (on May 08, 2018, making it the first Liechtenstein blockchain unicorn). Ultimately, Aeternity is a project focused on smart contracts, allowing for the execution of credible transactions through the use of blockchain technology without the help of third-party intermediaries.
Communications with the local regulator – the Liechtenstein Financial Market Authority (Finanzmarktaufsicht, FMA) – are efficient, as the FMA established its own fintech department (Gruppe Finanzinnovation) in June 2018. Further, a so-called regulation laboratory has been established to further the proliferation of fintech businesses.
In addition to these local projects and advancements in favour of fintech innovation, the so-called Blockchain Act (Token & Trusted Technologies Law, TTTL; Gesetz über Token und VT-Dienstleister; Token- und VT-Dienstleister-Gesetz; TVTG)), which has unanimously passed through the second reading in Parliament is anticipated to come into force in Liechtenstein January 1st of 2020. In general, the government – along with the prime ministers – is open minded to fintech projects. In addition, the Crypto Country Association has been founded, dealing with various topics relating to the Liechtenstein crypto ecosystem.
The success of established and young companies is furthered by general state conditions, which are especially favourable to blockchain-based projects. The Ministry of Presidential and Finance has created innovation clubs, serving as a tool enabling companies to contribute their ideas for improving the framework of conditions in an unbureaucratic manner. Moreover, the Ministry of Presidential and Finance offers all market participants from Liechtenstein and abroad the ability to engage in a transparent process for implementing their ideas to improve the conditions of the local framework. Ultimately, successfully tested ideas are supported in direct contact with the ministry until they are implemented.
The ability to build new disruptive business models is crucial to the strategic competence of an economy. At the same time, while financing start-ups always poses great challenges, so does the question of what exactly constitutes an optimal level of support. Through favourable business conditions and state support, the Liechtenstein government has created an incubator in cooperation with private partners, leading to the successful establishment of start-ups in Liechtenstein.
The Netherlands is one of the leading nations in the field of blockchain technology. The Dutch tradition of Public-Private Partnerships ("PPPs"), its technology-neutral legislation and its high-quality digital infrastructure have all contributed to – and continue to sustain – its leading edge in this field.
The Dutch government has budgeted millions for further research into blockchain technology, and a central part of the Digitalisation Strategy – adopted by the Dutch government in June 2018 – has been blockchain technology's practical application.
The Dutch government encourages experimentation, and with this purpose in mind, it has co-founded the Dutch Blockchain Coalition. In 2019, this Coalition was asked to conduct further research into a regulatory governance framework for blockchain and into smart governance for smart contracts (see question 4).
A large number of proofs of concept, across a wide range of sectors and industries, have been touted, and we are now seeing many different blockchain applications "going live", notably in the following:
- Trade finance;
- Real estate;
Examples of blockchain applications include:
- Certification, timestamping and securing digital assets, tickets, diplomas, etc.;
- Security token offerings ("STOs") and crowdfunding; and
- Digital self-sovereign identity.
As a general trend, the use of blockchain and distributed ledger technologies in Russia is especially noticeable in the financial sphere. It is absolutely necessary to point out, that these technologies are rather new for Russian market and they are not widely used yet. At the same time over the last few years several projects involving the use of these technologies were successfully launched.
For example, in the banking sector, a large Russian bank Alfa-Bank as part of the R3 blockchain consortium has tested a practical solution for international banking data exchange on corporate clients. In the beginning of 2019 a big Russian bank VTB has obtained a patent for a multi-issuer payment system based on blockchain technology.
Another example is the project «Vostok» – a project dedicated to the creation of a closed blockchain platform for large businesses and public sector companies. The project was launched on April 12, 2018. Its founder and CEO is an entrepreneur Alexander Ivanov, the creator of the Waves project.
In public sector, Russian Federal Service for State Registration, Cadastre and Cartography (Rosreestr), dealing with the registration of real estate titles, as part of a joint project with Vnesheconombank (VEB), already registered a number of co-investment contracts using blockchain technology in the Leningrad region. It is still a pilot project but the use of blockchain technology in Rosreestr will probably continue.
It is believed that such sectors as healthcare, education, insurance and real estate transactions will be prospective areas for the use of blockchain in Russia in the nearest future.
While some regulations have been introduced to restrict investment in cryptocurrency, the government has recognized the innovative nature of blockchain technology and its importance in Korea’s economic policy goals for the 4th Industrial Revolution. National institutions and local governments have launched blockchain pilot projects including, among others, the Korea Customs Service’s pilot personal customs clearance service for e-commerce products, the National Election Commission’s blockchain-based online voting system, and the Ministry of Foreign Affairs’ blockchain-based overseas diplomatic establishments’ notarization issuance system establishment project. At the same time, the Seoul Metropolitan Government announced a plan to invest around USD 108 million between 2019 and 2023 to promote early stages businesses using blockchain, construct a blockchain complex for several hundred businesses, and introduce educational programs on blockchain.
In the private sector, major blockchain-based companies have launched mobile payment services. Kakao, Korea’s largest online messaging application, introduced a blockchain platform through its blockchain unit, Klaytn, whose mainnet launched in June 2019. Klaytn has partnered with 56 service partners, many of which have already launched blockchain services. Klaytn has recently listed its token, KLAY, with exchanges in Indonesia and Singapore. Another blockchain payment platform, Terra has announced in September 2019 that its mobile payment distributed application CHAI will partner with BC Card, the largest payment processor in Korea, to launch a debit card. Major online merchants including TMON, one of Korea’s largest e-commemrce sites, now accept CHAI as a payment means. In the past four months, CHAI reached 500,000 users, processing $54 million worth of transactions. In December 2019, CU, a Korean convenience store chain, will begin accepting CHAI payment as well in all its 14,000 locations.
Korea’s largest conglomerates have also contributed to blockchain momentum through various private investments. SK Telecom, Korea’s largest wireless carrier, announced its plans to focus on the blockchain business. Specifically, SK Telecom plans to manage subscriptions, payments, and real-name authentication via blockchain. In February 2019, SK Telecom announced its partnership with Deutsche Telekom to develop a blockchain platform for digital identification. The platform would be used for logins, dealings, and contracts and could potentially replace the hard copies of government-issued IDs. Line Corporation, the Tokyo-based subsidiary of Korean internet giant Naver Corporation, created its own cryptocurrency LINK. Line Corporation plans to launch its own wallet “LINK ME” which can be used to manage LINK. Users can use LINK to purchase contents (e.g., music, videos, webtoons), make in-app payments (e.g., games), and make in-app wire transfers to other individuals.
The adoption of blockchain and other distributed ledger technologies in Sweden has not yet fully taken off. A number of initiatives and collaborations have been initiated with the purpose of utilising and commercialising the technology, but the market is still in its very early stages. Our view is that so far, the technology is most commonly seen in the fintech sector, with relatively few other applications.
One of the most noted non-financial applications of blockchain technology in Sweden, however, is a collaboration between the Swedish Mapping, Cadastral and Land Registration Authority (Sw. Lantmäteriet) and a number of companies from the private sector, which used blockchain technology to successfully carry out a real estate transaction (see more below). We are also aware of attempts to create electronic negotiable promissory notes using blockchain solutions (which carries specific legal issues under Swedish law, that technology could potentially resolve). There are also established businesses in Sweden dealing with virtual currencies mining and businesses that offer trading venues for virtual currencies and tokens.
Furthermore, the potential launch of an “e-krona”, a digital version of the Swedish krona which would be issued by the Swedish central bank (Riksbanken), has been discussed for quite some time now. It has not yet been confirmed whether it will be based on blockchain (or any other distributed ledger technology) however, or indeed if it will even become reality at all.
Blockchain technology is seeing increasing – experimental and practical – application in various industry sectors in Switzerland. The financial sector (fintech and insurtech) is at the forefront of blockchain and smart contracts adoption, with various businesses engaging in services relating to crypto currencies and other digital assets. However, there are also significant developments in other areas such as supply chain management (SCM), digital identities, e-governance (e.g. voting systems) and legal services (legaltech).
In the educational and research sector, amongst other efforts, an initiative has been formed at the Swiss Federal Institute of Technology in Zurich (ETH) to coordinate efforts in blockchain research and related topics such as cryptocurrencies.
The public sector in Switzerland closely follows and supports developments in the area of blockchain, and some public institutions have already adopted blockchain-based solutions, in particular with regard to public registries. For instance, in a pilot project in the context of the digitalswitzerland challenge in 2018, the commercial registry of the Canton of Zug managed to complete the entire process of establishing a company limited by shares using smart contracts and digital workflows within a period of three hours. In the Canton of Geneva, the commercial registry has begun issuing company excerpts whose authenticity can be verified using blockchain technology.
While the industry is still considered as infant by many, there are major developments happening in Uganda. The traditional blockchain market products abound in Uganda: hodling, trading, investing and exchange activity is happening. Trading happens in more formal settings with the establishment of exchanges in Uganda, the first of which was Binusu, which was then followed by Binance Uganda, a subsidiary of the larger Binance Exchange.
A lot of the blockchain work in Uganda is being driven by small private sector players, the most active of which is a company called CryptoSavannah. Other active players include: Coinpesa (Blockchain Asset Group); Binance, Bitpesa, Luna, S-Block (who are involved in cryptoasset investing). There are a few products in use and on the market, but there are more products under development and discussion.
The sectors of focus at the moment are: supply chain blockchain, drug tracking, agriculture, simcard registration (Uganda Communications Commission - UCC); banking (the work here is mainly being driven by a collaboration between Stanbic Bank – the largest bank on the market – and CryptoSavannah, and involves building solutions around security of digital assets, particularly land use in agriculture and title securities). The United Nations and other players are also now getting more involved.
In the donor and NGO space, blockchain has been used to deliver relief to communities that were affected by landslides and is being used to deliver relief towards feeding school going children in various parts of the country. The UN Country office is actively rallying government departments, including office of the Prime Minister to develop more blockchain solutions for the public sector.
Fintech blockchain solutions are now available in Uganda. Products like Binusu Merchant Services are providing settlements both in crypto to crypto and crypto to fiat payments on the blockchain and powered by crypto. These solutions are now being made available to retailers looking for real-time value for their money, thereby resolving the pain point of them having to wait 2 days for cheques, 3 days for mobile money and 3 weeks for visa payments to settle.
Simcard registration and Identity: the Uganda Communications Commission has signed an agreement with CryptoSavannah to blockchainize sim card registration, essentially paving way for the first blockchain Identity project in Uganda.
More public sector projects are expected in the short term, one such project being the ongoing discussion between the Uganda Registration Services Bureau and two private sector players to develop a blockchain for company and other business records, thereby paving way for major blockchain development of document and asset registries, and growing the work in Know Your Customer related projects. Proofs of Concept were built for the Uganda National Roads Authority to track their land ownership on blockchain and for the National Drug Authority to use blockchain in drug tracking and to eliminate fraud. These projects have yet to be built to scale.
Distributed ledger technologies (“DLT”) are emerging in diverse sectors across the United Kingdom (“UK”), from financial technology to security, energy, entertainment, healthcare, cryptocurrency trading, transport and logistics, real estate and the “Internet of Things”. Financial services is a key area of strength and focus, as both financial institutions and government bodies explore the potential efficiencies that blockchain could bring to the clearing process, identity checks, settlement systems and payment systems.
There are currently, however, few applications which are developed beyond a proof-of-concept stage. While there has been a degree of engagement with cryptocurrencies on the retail side—with cryptocurrency trading companies reportedly dominating the UK retail blockchain industry—this uptake is yet to translate into more than a handful of retailers accepting cryptocurrency as a means of payment. On the wholesale side, financial institutions have exhibited a degree of latency, owing perhaps in part to the legacy reputational issues surrounding the Bitcoin blockchain and uncertainty about how legal and regulatory frameworks will apply. Despite this, some financial institutions have begun to take more decisive steps to use the technology—particularly now that the views of the UK’s financial regulators are beginning to crystallise—and we have observed an increasing number of use cases being trialled in the market. Perhaps the most concrete gains to date are to be found outside of financial services in the area of supply chain management, as businesses look to increase transparency, coordination and efficiency across their supply chains, and both businesses and individuals increasingly place a premium on the responsible and ethical resourcing of products and assets.
The blockchain market may evolve now that the UK has left the European Union (the “EU”). The UK Government has emphasised that Britain will be the natural global home of new and innovative financial services after Brexit, and there are many who believe that the UK will be in a unique position to boost its financial services industry by positioning itself as a blockchain jurisdiction. How this might take shape is, however, unclear at this early stage.
In the United States of America (“US”), Bitcoin is the poster child application of blockchain. Cryptocurrencies generate much of the blockchain-related news in the US, including, amongst others, Ether and more recently, Facebook’s announcement of the Libra stablecoin. Cryptocurrency is so commonplace in the US that certain states have acted to legalize cryptocurrencies as a payment option for paying state taxes. Despite the focus on cryptocurrency, the application of blockchain in the US goes well beyond this and involves a wide cross section of industries in both the private and public sector. On the public front, federal agencies, such as the Food and Drug Administration, the Department of Health and Human Services, the Department of the Treasury and the Department of Defense, have launched various blockchain-based initiatives, which are currently at various states of maturity ranging from proof of concept through pilot all the way to production. One such initiative has been from the Food and Drug Administration in recruiting an expert, Frank Yiannas, in traceability technologies in global food supply chains; Mr. Yiannas is working with the Food and Drug Administration to incorporate blockchain technology to further strengthen the U.S. Food Supply. In the private sector, blockchain is still in its infancy stage but we are seeing attempts to incorporate blockchain applications into various facets of a companies’ operations, from supply chain management and tracking, to making payments through the core corporate governance of a company, and to the extent that companies such as IBM and Microsoft are now starting to offer services that customers can use to build or integrate their own secure blockchain networks. States also have shown an interest in the integration of blockchain by companies. Delaware expressly authorized companies to use blockchain to track corporate shares to help clarify property rights, to automate cap tables and corporate actions such as dividend issuance, to provide transparent and accurate proxy voting and to provide self-executing certificates of good standing. However, the initial enthusiasm has slowed and there is still a search of where blockchain outside of cryptocurrency can find its application.
We see blockchain initiatives and adoption across various business and public sectors.
At the blockchain infrastructure level, there has been engagement in research and development to develop scalable blockchain infrastructure on top of which blockchain applications can be built and use cases can be advanced.
At the application level, public and private enterprises have been utilising mainly the “trust-less” and “immutability” advantages of blockchain to disrupt traditional systems, with applications trending towards solving problems in sectors which are generally documentation-heavy or which deal with international transactions that traditionally require trusted intermediaries. These applications include blockchain-based registers to manage data or ascertain property provenance such as GovTech Singapore’s OpenCerts; digital platforms to facilitate logistics and supply chains and trade such as Singapore’s national trade information platform Networked Trade Platform (“NTP”); and cross-border payment services which seek to enhance settlement speeds and lower cost leakage in fees traditionally paid to trusted intermediaries such as clearing houses.
Many of these blockchain initiatives also feature a digital token proposition, allowing its users or stakeholders to transact or participate in various activities using digital tokens. This has encouraged demand for platforms and providers of token exchange services such as Over-The-Counter (“OTC”) operators and digital token exchanges which provide services to allow sale and purchase or exchange of digital tokens as well as spurred the development of liquidity protocols featuring smart contract deployment to facilitate the exchange of digital assets.
In the area of financial services, businesses are looking to leverage on blockchain in areas such as insurance, lending, asset securitization and commodities trading. There is also increasing interest from investment funds and family offices in digital tokens as an asset class.
Hong Kong has embraced blockchain and distributed ledger technology (“DLT”), reflected in the breadth of industry sectors across which its practical uses can be seen. This is evidenced by the fact that the annual Blockchain Summit Hong Kong (now in its third year) covers 18 industry sectors, namely: banking and finance; supply chain and logistics; insurance; energy; healthcare and pharmaceuticals; government; transport; telecoms; HR; marketing and advertising; retail; entertainment and content; property and construction; regulation and policy; charity; legal; investor and ICO; and developer.
Fintech and Insurtech have been particular areas of focus for the Hong Kong Government and the key Hong Kong financial regulators, the Hong Kong Monetary Authority (“HKMA”), the Securities and Futures Commission (“SFC”) and the Insurance Authority (“IA”), reflecting Hong Kong’s long-held position as one of the world’s leading international financial centres.
As Financial Secretary Paul Chan observed at the FinTech Forum of the Internet Economy Summit held in Hong Kong on 16 April 2019, Fintech companies had raised over US$1.1 billion in the 5 years prior to that date and: “[T]he Hong Kong SAR Government is determined to keep this momentum going and be its staunch backer. Indeed, Fintech is one of our top priorities, and we've rolled out a wealth of Fintech programmes and initiatives.”
Mr Chan observed that Hong Kong was by April 2019 already home to over 550 Fintech companies and start-ups, with celebrated innovation laboratories and accelerator programmes such as Accenture FinTech Innovation Lab, Deloitte Asia Pacific Blockchain Lab and the Floor from Israel also having established a presence in Hong Kong.
Mr Chan also reminded the audience that: “Insurtech is the future as well. And we must all plan for it.”