Germany Passes National Policy to Explore Blockchain But Limit Stablecoins

Germany’s government has passed a new strategy outlining the ways the leading EU state is planning to use blockchains.

Approved by Chancellor Angela Merkel’s cabinet on Wednesday, the strategy sets the government’s priorities in the blockchain space, such as the digital identity, securities and corporate finance. It also sets out that the state won’t tolerate the threat to state money by stablecoins like the Facebook-led Libra.

The strategy came out as a result of the broad consultations with the industry, which started this spring and involved 158 experts and company representatives, who submitted a combined 6,261 responses. The approach embraces open-source software and the government as the ultimate arbiter of tech competition.

Identity exploration

Germany will seriously explore the use of blockchains for digital identity, according to the strategy.

The government itself will launch a pilot project for a blockchain-based digital identity in the near future (though, no particular time frame was provided), aimed to study the tech’s benefits in use cases like maintaining the records of civil status, document registration, passports and ID cards.

“It will examine whether these blockchain-based digital identities provide clear added value compared to existing solutions and whether they can be designed in such a way that they comply with legal data protection requirements,” the document says.

The consultations showed that the German public trusts the government primarily as the guardian of citizens’ personal information. “It has also become clear that the state is seen as the central organizer or regulator of digital personal identities. The state is under an obligation to guarantee data protection and security in regulatory terms,” as per the document.

Enterprises have been working on blockchain identity solutions for years now, with a recent effort using bitcoin’s ledger announced by Microsoft this spring.

However, none of the proposed solutions have yet achieved a dominating role on the market, so the German government aims to test the interoperability of the various systems and have them compete for the right to serve Germans, the strategy says.

Smart machines, smart contracts

The internet of things is another area of future exploration: Germany is planning to tender for research proposals on digital identification and verification for autonomous gadgets.

“In particular, blockchain technology, embedded SIM/embedded Universal Integrated Circuit Card, multi-factor authentication and other hardware and software procedures are to be considered,” the strategy reads.

The use of distributed ledgers and smart contracts for maintaining standards and certification is another planned area of study, with the technology to be applied in such a way so that an ordinary user can understand what’s going on.

The document explains:

“The technical layman cannot comprehend what the Smart Contract actually technically implements. This leads to the demand that Smart Contracts should be combined with an obligation to provide information.”

In addition to that, according to the document, participants in the paper’s consultations have called for such applications to be somehow controlled by the public and “certified by an official institution.”

To enhance the interoperability of the future tech solutions, the strategy encourages the use of open-source software. Moreover, “the Federal Government is committed to ensuring that application solutions for blockchain have interoperable and open interfaces for linking with other (blockchain) applications.”

Faster securities

The strategy restates the nation’s plan to legitimize distributed ledger tech (DLT)-based securities, previously announced by the nation’s Ministry of Finance, in which it committed to allowing the securities to exist in a purely digital form, including on the blockchain.

“If securities were now issued on a blockchain, the execution and settlement of securities transactions could … be carried out more cost-effectively and more quickly than has been the case to date,” the strategy reads.

A draft law on digital securities is scheduled to be introduced by the end of this year, according to the document. The new legislation should be “technology-neutral” and, in its first iteration, only relate to digital bonds. If that goes well, digital shares and investment funds on the blockchain will be considered as a next step.

The first government-approved deal of this kind has already been launched. This summer, Berlin-based startup Fundament issued $280 million-worth of tokenized bonds backed by real estate. It was the first time the Germany’s financial regulator, BaFIN, granted a permission for such an offering.

The government will also explore the ways DLT can be used for corporate governance, serving use cases like share settlement, exercise of share rights, the use of membership rights in cooperatives, and others.

Tough on stablecoins

While no cryptocurrency was named in the document as an object for regulation, the document underscores that Germany doesn’t want any stablecoin to get dominance in the country, as well as in the EU.

The strategy document states:

“In principle, there is a regulatory regime for stablecoins in the European Union. At the European and international level, the Federal Government will work to ensure that stablecoins do not become an alternative to state currencies.”

The government will also work with Germany’s central bank on a form of “digital central bank money,” it adds.

That portion of the strategy appears to have been prompted by the Facebook-led Libra project. On Sept. 1, Germany and France made a joint statement saying that they haven’t been convinced that Libra will prevent money laundering and terrorism financing and protect investors, and further that it poses a threat to “monetary sovereignty.” As a result, they plan to oppose the project in the EU.

Overall, the blockchain strategy in general is expected to keep Germany at the top of the jurisdictions preferred by innovators and investors, the document says.

German parliament member Thomas Heilmann, the main proponent of the new blockchain and cryptocurrency policies in the nation’s senate, told CoinDesk he expects Germany to become a comfortable place to carry out DLT-related business. He said: