Image for post
Image for post

New Crypto Law in Germany: What Does this Mean for Bitcoin, Ethereum, DeFi, and the Euro as of January 2020?

The newly adopted German crypto law — which focuses on custody of crypto assets — is a step in the right direction. Importantly, the new crypto law is that the new rules provide clarity for companies. Also, it will raise awareness for crypto, blockchain and DLT in general. This will attract financial and human resources. Germany is currently front-running to not lose time. Decision-makers in Germany — both in companies and public administration — should support the following priorities: 1) education, 2) blockchain-based Euro to leverage use cases in Industry 4.0, mobility, logistics, 3) more budget for DLT projects, 4) dematerialization of all types of securities. — Authors: Philipp Sandner, Jonas Gross

Consequence of the new crypto legislation

Weighted by volume, Bitcoin currently has a market share of 85%, Ether further 10%. So, by actual numbers, we can summarize that especially Bitcoin and Ether become institutional-grade as of Q2 2020. For illustrative purposes, one can therefore also talk about the “Bitcoin/Ethereum drivers’ license” all companies, such as startups, banks, crypto exchanges, have to obtain to provide services to German customers. Of course the new license will later in 2020 be also applied to other crypto assets and security tokens. But in early 2020, the license will be mainly used for Bitcoin and Ethereum trading and custody. That’s a fact.

Will Germany become a “blockchain role model”?

Implications for open source projects and DeFi

Illustrating example: Due to the new law, “traditional” crypto assets such as Bitcoin and Ether are properly regulated. But security tokens underly security law, where traditional laws apply. Consequently, we might see promising developments in companies handling Bitcoin and Ether; but the same must not necessarily hold for other crypto assets (e.g., security tokens). The same logic applies to decentralized crypto exchanges (DEX). For these exchanges other regulatory frameworks might apply, e.g., regulation for trading assets, such that they might not develop similarly to “basic” Bitcoin trading.

Nevertheless, also a few traditional exchanges are well positioned in the crypto space. Börse Stuttgart, for example, launched a crypto trading app for retailers and gained more than 50 thousand new clients in half a year. But this was just the beginning: Börse Stuttgart will expand their app to entire Europe soon; they also launched a “crypto segment” for institutional investors. Additionally, we can expect them to launch a “security token segment” in Q3 2020. To summarize, we see a high level of progress on the business model of traditional centralized exchanges.

However, not all types of crypto assets are covered by the new German law. For example, it remains unclear how to classify MakerDAO and the respective DAI token. DAI is a stable coin, but not a tokenized USD. According to rumors, MakerDAO currently considers getting DAI under an E-Money license — which would then be legal according to E-Money regulation.

Short-term: the blockchain-based Euro

Long-term: central bank digital currency

The ECB might also provide a digital euro — but only at a later stage. Furthermore, it is not guaranteed that this central bank-issued euro will be issued on a blockchain system. A quick response of the ECB is not urgently necessary because there are already market-ready solutions with digital commercial bank money.

How could Germany strengthen its role as a blockchain hub?

Secondly, it is necessary that financing for blockchain startups becomes easier. We have great blockchain startups in Berlin, Munich, Frankfurt, and Hamburg. Thanks to the new crypto law, we soon have legal certainty. From a company perspective, technology and regulation are then set up. But one issue remains unsolved: financing. Most startups suffer liquidity shortages since budgets are not provided by larger organizations, such as banks, industrial corporations or even the public administration (including public grants for research and universities). This has to be the next step: Decision-makers need to provide budget. The typical issue apparent in companies is that in companies’ boards there are experienced senior managers who are not digital natives, who are overloaded with regulatory burdens, and who do not have sufficient time to investigate with blockchain technology in detail. As blockchain technology is not easy to understand, this issue becomes a bottleneck. Recall that to understand blockchain, smart contracts, private/public key architecture in-depth, you need multiple weeks (or better months) of research, reflection and understanding. A short presentation in a seminar or some YouTube videos do not suffice. Decision-makers need to educate themselves in order to make decisions on budgets. To do this, the following article might help where we designed a 10-day program to help people onboard to the blockchain ecosystem:

Germany is now front-running with respect to crypto assets and blockchain technology. However, Germany is an EU Member State and needs to comply with EU regulation. Unfortunately, with blockchain, the EU is only moving slowly so that Germany “had to” move forward by introducing their own rules. But there is a risk of disintegration if any EU Member State introduces its own rules. From our perspective, it is desirable to move ahead. Somebody has to take the leadership, having the tremendous benefits of blockchain technology in mind — especially when the environment (i.e., the EU) is moving slowly. The chances of blockchain are there, and we have to act to realize them. We do not have time to lose.

Conclusion

Remarks

Do you want to learn more about how blockchain will change our world?

  • Blockchain knowledge: We wrote a Medium article on how to acquire the necessary blockchain knowledge within a workload of 10 working days.
  • Our two blockchain books: We have edited two books on how blockchain will change our society (Amazon link) in general and the everything related to finance (Amazon link) in particular. Both books are available in print and for Kindle — currently in German and soon in English. The authors have been more than 20 well-known blockchain experts in startups, corporations and the government from Germany, Austria, Switzerland and Liechtenstein — all contributing their expertise to these two books.
Image for post
Image for post
Our two books: the first one on blockchain and the society and the second one on blockchain and finance

Authors

Jonas Gross is a project manager and research assistant at the Frankfurt School Blockchain Center (FSBC). His fields of interest are primarily cryptocurrencies. Besides, in the context of his Ph.D., he analyzes the impact of blockchain technology on monetary policy of worldwide central banks. He mainly studies innovations as central bank digital currencies (CBDC) and other crypto currency projects as “Libra”. You can contact him via mail (jonas.gross@fs-blockchain.de), LinkedIn (https://www.linkedin.com/in/jonasgross94/), Xing (https://www.xing.com/profile/Jonas_Gross4) or follow him on (Twitter Jonas__Gross).

Image for post
Image for post

Written by

Professor | Lecturer | Author | Investor | Frankfurt School Blockchain Center

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store