Digital identity: a fundamental pillar for blockchain in the European Union

As a response to significant public attention and interest, policymakers from all member states are racing to ensure blockchain technology is well understood and regulated accordingly. So, what is the current state of affairs regarding blockchain regulation in the European Union?

In short, there are numerous processes ongoing at EU level and Member State level relating to finance, trade, digital identity and public services. Regarding Blockchain specifically, there are several key initiatives now ongoing to which stakeholders should pay great attention.

At EU level, we have the EU Blockchain Observatory and Forum, European Blockchain Partnership, and the recently formed International Association for Trusted Blockchain Applications or IATBA (more information on these initiatives can be found at the foot of this article. In particular the IATBA will bring together multiple industries looking to apply blockchain technology in the near future, with several banks including BBVA and Mobile Network Operator Téléfonica already confirming their enthusiasm at being involved.

all sectors will be impacted

Across the European Union, the finance sector has been an early adopter. With the 2008 financial crisis still at the back of the mind of many, it has also been the focus of much legislative activity. Ever since 2010, the Commission publishes the annual European Financial Stability and Integration Review (EFSIR). In 2017, the European Parliament adopted the FinTech (INI) resolution. In 2019, a possible initiative on Cryptocurrencies, currently being assessed by the European Commission, could be launched.

On 3 October 2018, the European Parliament, led by MEP Eva Kalli, has adopted a wide-ranging resolution looking at many sectors entitled Distributed Ledger Technologies and Blockchains: Building Trust with Disintermediation“. According to the report, blockchain itself is set to become a sizeable industry in Europe. Its implementation will also reshape the value chain in many sectors including finance, manufacturing, energy, and other utilities, such as health, governance, transport, education, and creative industries.

Lastly, the ITRE committee is currently drafting a report on Blockchain: A forward-looking trade policy, demonstrating that trade both within and outside the EU will be impacted in a significant way, and industries with typically global supply chains such as the aerospace or automotive industries should prepare for this through rigorous analysis of their supply chain as things stand, and the measures they could already begin to introduce to avoid extensive overhauls in the future.

in the search for the best regulation approach

Policymakers, blockchain technologists, and industry agree on the need to establish the foundations for a blockchain-based economy without delay, but with some caution. There is also a need to identify the adequate governance and regulation practices that will allow to foster innovation while mitigating risks for citizens and the economy.

Ongoing discussions on these issues in the European Parliament and across the various forums and platforms demonstrate that many regulatory issues remain unresolved. How mature is blockchain technology? Are our expectations of blockchain realistic? How safe and transparent are blockchain platforms? How can the EU best drive the development and govern the implementation of blockchain? What is the right approach to regulate decentralised networks?

All these issues were highlighted in September 2018 with the coming into force of the Electronic Identification, Authentication and Trust Services (eIDAS) regulation in all member states. By boosting the security and guarantees that citizens need to access digitally available public services, this piece of legislation will spur the progress on the Electronic Government Action Plan (eGAP) and the development of decentralised systems such as blockchain. Service providers both public and eventually private can hope to benefit from an extended user base, increased security and substantial cost-savings if implemented appropriately. Incentivising service providers to adopt such systems, through for example clearly outlining the financial and operational benefits, requires further attention.

policymakers from all member states are racing to ensure blockchain technology is well understood and regulated accordingly

identity and infrastructure for the blockchain economy

eIDAS also touches upon other vital pieces of legislation in finance, company law, and personal data, including the Payment Services Directive 2, the Company Law Directive and of course GDPR (see the report of the EU Blockchain and Observatory Forum). As such, eIDAS is an essential piece of legislation to understand.

Although formulated when blockchain was only but a twinkle in the eye of the Internet, eIDAS and eGAP will become critical pieces of legislation for authenticating identification cross-border, enabling many anticipated processes that can be underpinned using blockchain. Moreover, its emerging use in public services based on these pillars will provide a real-world environment in which to evaluate and resolve outstanding technical issues.

In addition to a suitably secure cross-border identification system, the second fundamental pillar for the implementation of blockchain in Europe is a robust network infrastructure. That’s why support for developing European Blockchain Infrastructure has become central to the EU’s policy strategy. Therefore, the European Commission has first commissioned a study looking at the opportunity and feasibility of such an EU blockchain infrastructure, all positive signs for the future of blockchain moving forward.

towards a cooperative partnership for industry

In the current policy environment, industry can feel confident that blockchain innovation is being and will be supported, but industry will also be expected to make substantial investments and not only look to public funding and other support. A cooperative partnership between all stakeholders on the basis of this initial progress will be essential to sustain the current momentum. All parties should thus remain open to the opportunities for cooperation now emerging while policymakers and experts lead the way for now.

The European Commission recognise the disruptive nature of blockchain, and are taking leadership in the application of the technology.

further info on EU blockchain initiatives

In order, the EU Blockchain Observatory and Forum was first created this year and runs until 2020. The platform aims to bring together experts and policy-makers in order to discuss the most challenging topics such as GDPR, scalability, interoperability, sustainability and identity. Needless to stay, EU Policy Makers are alert and keen to make an impression on how blockchain and other Distributed Ledger Technologies (DLTs) could shape the future of Europe’s Digital Single Market.

There has also been the recent establishment of the European Blockchain Partnership involving 27 Member States plus Norway to establish a European Blockchain Services Infrastructure (EBSI) that will support the delivery of cross-border digital public services, with the highest standards of security and privacy. As mentioned in the above article to complement this public sector initiative, the European Commission recently established the International Association for Trusted Blockchain Applications.

European Commission Blockchain Portal:

blockchain insights

We at Logos are therefore hoping to support and contribute to these efforts moving forward. This is the first in an ongoing series of pieces aiming to offer insights into blockchain technology and the related policies at the EU and Member State level. We hope you have enjoyed this Logos Insight on Blockchain, and we welcome further engagement and feedback on the topic.

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