Insights from the St. Gallen Blockchain Roundtable
With Distributed Ledger Technologies (DLT) we are moving from the Internet of Things (IoT) to the Economy of Things (EoT). From a legal perspective, the high number of blockchain patents in China and the strategic focus on DLT initiatives by the Chinese government are remarkable. Through the European Blockchain Partnership, the European Commission is working on a holistic blockchain solution for Europe. As the St. Gallen Blockchain Roundtable shows, European financial and mobility service providers are already one step ahead and have already implemented successful use cases in decentralized blockchain consortia. The following Vlog and article provide an overview of the insights from different areas.
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Legal and Regulatory
The announcement by Facebook to launch a global crypto currency via a foundation in Switzerland has put China on alert (Tang, 2019). The People’s Bank of China alone has filed 68 patents on distributed ledger technologies in recent years (Chong, 2018) and firmly believes that a state-backed digital currency is urgently needed. Meanwhile, Mario Draghi, the former president of the European Central Bank, stressed in September 2018 that no concrete action would be necessary in this respect (Reuters, 2018).
“The ECB and the Eurosystem currently have no plans to issue a central bank digital currency” Mario Draghi, in a letter to a member of the European Parliament (cited in Reuters, 2018)
With the European Blockchain Partnership, which consists of the member states of the EU as well as Norway and Liechtenstein, Europe has been pursuing a holistic approach to the development and promotion of distributed ledger technologies since April 2018 with the goal of launching a European Blockchain Network by 2020 (European Commission, 2019).
In his keynote at the St. Gallen Blockchain Roundtable, Roman Beck (Lead Researcher and Chairman of the European Blockchain Center) emphasizes that there is a need for action in Europe (Beck 2019, St. Gallen Blockchain Roundtable). In addition, Mario Brandenburg of the German Bundestag points out that countries such as Liechtenstein, Singapore or Switzerland in particular are creating regulatory clarity in the area of distributed ledger technologies and are granting the necessary freedom for innovation through close cooperation with Fintech start-ups. Whether a European response from the EU will follow remains to be seen (Brandenburg, 2019, St. Gallen Blockchain Roundtable).
Financial Services
Michael Spitz (Managing Director of Commerzbank Main Incubator) sees significant advantages and disadvantages of Blockchain technology. Advantages include encryption and security through cryptography, the distributed network that reduces the need for central authorities, and the automated execution of business processes in a machine-to-machine (M2M) economy. On the other hand, there is a lack of confidence in new technologies, potential attack vectors, and a lack of understanding and mindset of decentralized business ecosystems. (Spitz, 2019, St. Gallen Blockchain Roundtable)
Commerzbank’s Main Incubator concentrates primarily on four DLT areas:
- Capital markets
- Trade finance
- Identity
- Cash
Just recently, Commerzbank launched HQLAx, a new liquidity and security management solution for institutional clients on the international securities lending and repo markets, based on R3’s Corda technology (Jacobs, 2018).
Start-ups such as Conpend (trade finance), Authdata (identity) or tillhub (cash) are examples of the Main Incubator’s involvement in the other three areas (Spitz, 2019, St. Gallen Blockchain Roundtable). In the area of cash management in particular, Commerzbank is working with Daimler on an M2M payment solution and with Siemens and Continental on an issue of a digital euro (Alexandre, 2019; Zmudzinski, 2019).
The close cooperation with Commerzbank allows Deutsche Börse to focus on similar business areas. Simon Seiter (Head of Digital Assets at Deutsche Börse) emphasizes in his presentation at the Blockchain Roundtable that Blockchain cooperations require both quick wins and long-term strategies. While in the past the tokenisation of securities was quickly successful with low investment volumes and little formalisation, Deutsche Börse positioned itself in the long term as a strategic partner through a majority holding in HQLAx (Jacobs, 2018).
Mobility
In the mobility sector, Deutsche Bahn and Daimler Mobility have the same vision for the future of DLT: a seamless customer experience through automated handling and billing of mobility services in a cross-country and cross-company mobility ecosystem.
In this context, Matthias Felder (Portfolio Manager Blockchain & DLT at Deutsche Bahn) shows how Smart Contracts can be used to combine ticket bookings from different mobility service providers in a single ticket while simultaneously billing revenues in the back-end (Felder, 2019, St. Gallen Blockchain Roundtable). With the Mobility Blockchain Platform, Daimler Mobility is already working on such a solution, as Harry Behrens (Head of Blockchain Factory at Daimler Mobility) explains. In cooperation with Blockchain Helix, Riddle&Code, 51 nodes and the evan network, the company has launched a blockchain-based open source platform on which mobility providers can offer competing services. In contrast to proprietary platforms, the open network aims to enable cooperation between different mobility service providers without favouring a particular party. In this context, the governance of such an industry consortium is crucial (Behrens, 2019, St. Gallen Blockchain Roundtable).
Bosch, Siemens and EnBW demonstrated live at the event in Zurich that smart contract-based processing of payments between different mobility providers is already feasible, by demonstrating the charging and billing process of an electric car. The proof-of-concept of the cooperation partners was jointly implemented on the Ethereum blockchain in just three months.
Academia
The main finding from the roundtable event of the Institute of Technology Management of the University of St. Gallen is that the Economy of Things needs digital marketplaces based on decentralized networks to reduce information asymmetries. In this respect, the University of St. Gallen is investigating the governance aspect in blockchain consortia. By designing incentives, DLT systems enable democratic decision-making in decentralized ecosystems. In order to establish trust between the participants, formalized decision-making structures and processes are needed.
Currently, we have already passed the proof-of-concept phase. Nevertheless, many blockchain initiatives still fail due to a lack of willingness to cooperate with competitors in open networks due to unclear governance conditions. (Schmück, 2019, St. Gallen Blockchain Roundtable)
Sources
Alexandre, A. (2019, February 21). Commerzbank, Siemens and Continental Complete Blockchain Money Market Pilot. Retrieved December 3, 2019, from https://cointelegraph.com/news/commerzbank-siemens-and-continental-complete-blockchain-money-market-pilot
Chong, N. (2018, September 4). China Goes All Out On Blockchain Patents Amid Crypto Ban. Retrieved December 3, 2019, from https://ethereumworldnews.com/china-blockchain-patent-amid-crypto-ban/
European Commission. (2019, November 8). Blockchain Technologies — Digital Single Market — European Commission. Retrieved December 3, 2019, from https://ec.europa.eu/digital-single-market/en/blockchain-technologies
Jacobs, L. (2018, November 4). Deutsche Börse investiert in Blockchain und beteiligt sich an HQLAx. Retrieved December 3, 2019, from https://cryptomonday.de/deutsche-boerse-blockchain-beteiligung-an-hqlax/
Reuters. (2018, September 14). ECB has no plan to issue digital currency — Draghi. Retrieved December 3, 2019, from https://uk.reuters.com/article/uk-ecb-bitcoin/ecb-has-no-plan-to-issue-digital-currency-draghi-idUKKCN1LU1J0?rpc=401&
Tang, F. (2019, July 8). Facebook’s Libra forcing China to step up plans for its own cryptocurrency, says central bank official. Retrieved December 3, 2019, from https://www.scmp.com/economy/china-economy/article/3017716/facebooks-libra-forcing-china-step-plans-its-own?utm_campaign=chain_letter.unp
Zmudzinski, A. (2019, August 8). Commerzbank und Daimler testen Blockchain-Zahlungen zwischen Maschinen. Retrieved December 3, 2019, from https://de.cointelegraph.com/news/commerzbank-tests-blockchain-machine-to-machine-payments-with-daimler
About the author
Severin Kranz has worked for several years as a consultant in the Fintech sector and in asset management. Since 2015 he has also been intensively involved with crypto currencies and distributed ledger technologies. Through his Master in Business Innovation at the University of St. Gallen, he researches on governance mechanisms of distributed ledger technologies has specialized in business model innovations as well as human-centered innovations through design thinking.
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