Too often, policymakers, business leaders and the public regard blockchain technology through the lens of cryptocurrencies (such as Bitcoin). Recently when asking a friend what they thought blockchain was, they replied “Isn’t blockchain that new digital currency which changes value every minute?”

Here lies the problem: there is no common understanding of blockchain technology among ordinary people, private sector actors and policymakers.

The reality is that blockchain technology is so much more than a digital currency. It is a set of mechanisms that enable the automation of complex and arduous processes. It can be used to facilitate ‘Smart Contracts’. It can help to exchange or verify asset ownership. An accurate and shared understanding of what blockchain technology enables is essential to understanding the associated opportunities and risks for the economy, and for society.

Blockchain technology is already transforming our economy and will continue to do so. The emergence of the so-called ‘distributed economy’ will reshape socio-economic activity not only in the financial sector but also across many others. That’s why an accurate and shared understanding of blockchain technology is a precondition to appreciate the associated opportunities and risks for our economy and society.

beyond biased criticism and excessive optimism

Staunch blockchain-sceptic Nouriel Roubini recently likened the technology to a “slow energy-inefficient dinosaur” in comparison to an excel spreadsheet, and now has a video (that may offend some) entitled “sh**coin in India” which has become almost viral within the blockchain community, and gives you an idea on how he feels about cryptocurrencies specifically…

His views are based on exaggerated projections that the current technology would overnight completely replace the existing systems in the financial sector. His criticism dwells on the idea that the utility of the technology has peaked and cannot be developed any further. Roubini’s analysis is also biased when he narrowly focuses on the speculative and unpredictable nature of cryptocurrencies and the subsequent risk of a ‘blockchain bubble’. Similarly, he overlooks some nuanced elements of the technology such as ‘permissioned networks’ by only citing ‘trustless’ or ‘permissionless’ networks.

At the other end of the spectrum, the promoters of blockchain can sometimes overstate the maturity of blockchain technology. They often fail to differentiate accurately between today, tomorrow, next week and next year when citing its potential applications which can be confusing for many.

fostering cooperation between the public and private sectors

Both narratives often blur what the technology realistically has to offer. They overlook what the next steps are for fostering innovation and unlocking the real potential of blockchain. There is so much more to blockchain than Bitcoin already today, such as Energy Web Foundation or Ethereum, and even Bitcoin is beginning to evolve beyond initial expectations. The technology is developing at a rapid pace, with a dedicated community of technologists driving it forward. For instance, many of the most viable solutions emerging today are permission-based public or private networks.

Speaking to blockchain technologists and regulators, one realises that there is a higher degree of realism and consensus regarding the technology’s current limitations. They know how difficult it will be to incentivise market operators and stakeholders to cooperate to lay the foundations of a viable distributed economy underpinned by blockchain in Europe.

Building on their experiences and expertise, they understand the importance of maintaining a trial and error, learning-by-doing environment to ensure the sound development of the technology. Appropriate policy actions in this sense include maintaining the current policy environment in a state of observation while offering some financial support to blockchain projects.

That being said, taking action to establish a clear European Blockchain Strategy to guide stakeholders will be essential. Finding the right policy balance for such an impactful innovation will continue to be a challenge. We are observing important contributions towards establishing a common understanding between industry, regulators and society. Continuing this process will be indispensable to a prosperous future for blockchain technology in Europe, and all willing stakeholders should be involved during this important phase.