Germany has one of the most stable economies, especially if compared to the global average; little by little, it has been adopting blockchain technology to become a leader in its use. When comparing with other European bloc countries, it does not appear as one of the main “crypto-nations” since other countries in Europe have also introduced progressive legislation for the use of cryptocurrencies and their underlying technology. However, the country has witnessed significant growth in the adoption of cryptocurrencies such as Bitcoin and interest in blockchain technology; in this sense, legislators have dedicated themselves to presenting bills to regulate and provide security to the local cryptographic system.
The main German financial authority, the Federal Financial Supervisory Authority of Germany, known as BaFin, gives a rating to digital currencies as financial instruments, in this sense, it released a document in which it expands its point of view on tokens cryptographic, indicates the respect that they are: a digital representation of a security that has not been issued or guaranteed by any Central Bank or public body, that is not necessarily linked to a currency specified by law and that does not have the legal status of a currency or money, but it is accepted as a medium of exchange by natural or legal persons and can be transmitted, stored and traded electronically. The same document cites some guidelines related to the offer of cryptocurrency services. It obliges companies to operate under anti-laundering regulations and requests authorization due to BaFin.
In the German country, there are three regulatory entities in charge of supervising all operations with cryptographic assets, firstly there is BaFin itself, which is in charge of granting licenses and law enforcement measures; secondly, there is the Central Bank, Deutsche Bundesbank, which together with BaFin, supervises activities with cryptographic services and other regulated financial services, and thirdly, the Federal Ministry of Finance, Bundesministerium der Finanzen, the body responsible for legislation related to the crypto world.
Blockchain technology at the German Central Bank
The German Central Bank successfully completed a securities settlement technology test that communicates its traditional system with the blockchain system without requiring a digital currency from that financial institution. This information given by the aforementioned bank on March 24, 2021, indicates that the participants demonstrated that it is possible to establish a technological bridge between blockchain technology and conventional payment systems to settle values in Central Bank money without the need to issue the entity’s digital currency. It consists of a couple of protocols that connect its blockchain with the traditional TARGET2 system, which allows the settlement of securities through distributed ledger technology, known as DLT, and a transaction coordinator.
This project was born in 2016 with Blockbaster (blockchain-based settlement technology research) to investigate this technology, hoping to create a system based on blockchain that would transfer Fiat currencies. In May 2019, the German Central Bank reported that the tests carried out to apply blockchain in settlement of payments turned out to be slower and more expensive than traditional means.
Once these tests were concluded, they showed that even though all the regulatory characteristics of financial transactions were met, blockchain technology was not confirmed as a technology of greater speed and efficiency than the current settlement mechanisms; however, we must take into account The objective of this project was to use a system of blocks for Fiat money, which contradicts itself a bit since in the banking and financial field, Fiat money has serious deficiencies; therefore, the fairest thing would be that this project had included some recognized cryptocurrency instead of Fiat money.
What do you think about this topic? Do you think blockchain technology has a good application in Germany, or should its use be improved?
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