Digital Economy: Myth or Reality?

Is digital economy the future of the world, or just another experiment that will have little influence on the way the financial system works?

Before answering this question, let’s briefly explore the reasons why the token-based digital economy can potentially disrupt the existing order and take the interaction between individuals, authorities and businesses to a completely new level.

Right now the thing that makes this world go round is money, but this important function may soon be taken over by tokens. Basically, tokens are smart contracts that are able to program and represent any asset. Based on an Ethereum-like platform, tokens can help users manage almost anything they possess - from real estate to personal data - in a fast, transparent and secure way, and without using the services of third parties. It means more streamlined processes, fewer frauds and reduced paperwork for everyone. While moving, storing, investing and exchanging traditional money presents certain challenges and risks, the nascent token-powered economy promises flexibility, security, fast speed, and no borders.

At the same time, it eliminates many intermediaries that will have to be retrained, and significantly changes the job market and economic infrastructure we are accustomed to.

Revolutions always face a lot of resistance, especially by those whose prosperity is rooted in the time-honored procedures. But the situation starts changing.

Recently, France, known for its entrepreneurial enthusiasm and interest for innovations, has enacted two progressive regulatory regimes, aimed at encouraging blockchain innovations. It’s a big step forward, as the lack of regulatory clarity has always been a big problem in this sector. The newly adopted bills offer digital assets service providers a well-established legal framework and support. At the same time, this act empowers the AMF (the national Financial Markets Authority), affirming its role as the major crypto industry regulator. While licensing is still optional, all ‘digital assets service providers’ who seek to offer their services to third parties or sell them for legal tender must be registered with AMF.

France is not the first EU nation that encourages fintech innovations - more and more countries are adopting a pro-blockchain stance, and take steps to secure their leading positions in the new market. Security tokens, allowing digitization of investments, are of special interest here, as they are often seen as a more stable alternative to traditional currencies.

Malta, Liechtenstein, Switzerland, Estonia and other crypto regulatory sandboxes are not the biggest countries in Europe, but this very fact makes them more flexible and fast to see the results.

For instance, in 2018 Liechtenstein released a public draft of the so-called National Blockchain Act, officially expressing the desire to promote this innovation. Shortly after the document was published, the Union Bank AG stepped forward as the first regulated bank to issue its own security token intended for interbank activities, like moving big amounts of money.

Malta is another driving force behind crypto & blockchain innovations, being the first country in the world to build a clear legal framework for Initial Coin Offerings (ICO) and cryptocurrency investments. The Maltese government is currently being very supportive of crypto startups and does everything to make them feel at home there. So far, the country has achieved this goal. For example, the biggest crypto exchange Binance announced its partnership with MSX (Maltese Stock Exchange), planning to develop a security token exchange together.

Switzerland, the financial heart of Europe, also seeks to penetrate into the emerging blockchain sector, to extend their power. You have probably heard about the Crypto Valley. This name refers to the ecosystem created in the Swiss canton of Zug, targeted at promoting and developing crypto-related projects. Here, various blockchain startups thrive in a mild taxation climate and enjoy other government-provided benefits. One of these benefits is a very clear crypto regulation, breaking tokens into 4 well-defined categories: asset, payment, utility and hybrid.

Another crypto-friendly country is Estonia, the first EU state to legalize crypto activities. Hundreds of licenses were granted by the local authorities to various crypto businesses, including exchanges and crypto wallet providers. All these measures contribute to the country’s prosperity, making it one of the EU leaders in the blockchain sector. Along with Malta, Estonia is one of the best places for running a Security Coin Offering (STO).

While the above-mentioned countries do everything to propel the change, some others stay neutral, in a good sense. Thus, Germany prefers not to see cryptocurrency as a financial tool, BTC traders having no need for licensing here. Basically, it means that crypto investors do not have to adhere to this country’s securities regulations.

The United Kingdom, too, prefers to refrain from taking hasty regulatory decisions, a report of BBFA (The British Business Federation Authority) saying that no regulation at all may be better than bad regulation, capable of hindering the development of the crypto sector. It should be noted that the UK features a well-developed and numerous crypto community, that may be a driving force for crypto use promotion.

In conclusion, it’s too early to say that the digital economy has already become a reality, though, there have been significant steps taken in this direction so far. The main problem, in my opinion, is that the crypto sector is developing at a really fast pace, and regulators (who keep thinking in more conservative terms) cannot catch up with the challenges it presents almost every year. Therefore, any economy that seeks to place itself in the center of this innovation, should be fast and flexible, in the first place.

Hopefully, more countries will realize the importance of change in the coming decade. The race has already begun, and we are all interested to see who will become the main trendsetter in the digital economy field.