Luxembourg well placed and not in such a hurry

“If I had really understood the potential, today I would be a millionaire!” Among the first in Luxembourg to perceive the interest of the blockchain with Jean-Louis Schiltz in 2014, Marco Houwen laughs. The price of bitcoin having gone from 660 euros in June of that year to 67,000 euros in September 2021, the serial entrepreneur, now at the head of Zentrapreneur, should have bought them for more than 10,000 euros and sold them at the right time to get there… His quip-like reflection perfectly underlines how bitcoin is both the best friend and the best enemy of the blockchain.

The story begins one Halloween night, Saturday 1er November 2008. A month and a half after the resounding bankruptcy of the bank Lehman Brothers, which marked the beginning of the economic and financial crisis, Satoshi, then still unknown, published in an email addressed to a few subscribers to a technological forum a paper of nine pages, based on theories that are up to half a century old. It is the first real-world application of blockchain described in 1991 by Stuart Haber and W. Scott Stornetta, two American researchers who wanted to implement a system where document timestamps could not be tampered with.

“I worked on a new electronic payment system entirely from person to person, without trusted third parties”, writes the computer scientist or the collective who hides behind the pseudonym. “Key properties are: double-spending is avoided through a peer-to-peer network, no mints or other trusted parties, participants can be anonymous, new coins are minted from proof of hashcash-style work and proof-of-work for the new generation of coins also powers the network to prevent double-spending.” This gibberish describing bitcoin finds an audience with crisis-washed geeks and financiers who wondered how to avoid a central authority failing in its mission to protect investors by running its printing press, thus making the system so rigid.

Many of the discussions that are taking place remind me of the beginnings of the internet 25 years ago.

Tom Kettels ,&nbsp Project lead,&nbsp Infrachain

Today capitalized at more than 600 billion dollars, bitcoin has attracted the curious to the blockchain, but is also the tree that hides the forest of tens of thousands of projects that rely on this technology. “It’s a bit of a shame”, recognizes the future director of the Luxembourg Blockchain Lab, Emilie Allaert, “that we stop at bitcoin and cryptocurrencies when the potential is much greater.” As usual, criminals were the first to take an interest in it, like Ross Ulbricht who used it to launch Silk Road in 2011, “the Amazon of illegal activities” until the FBI put an end to it in 2013. Or like Mt. Gox, an image exchange put online by Mark Karpelès, which became the world’s bitcoin exchange node (70% in 2013) until a hacker Russian, Alexander Vinnik, robs Internet users of 850,000 bitcoins (28 billion euros at the value of bitcoin at the beginning of June). Regardless, until mid-2014, the more people searched for the word “bitcoin” on Google, the more its value rose. 1% research boosts its value by 0.5%.

Opportunities to seize

When Luxembourgers understand the interest of the blockchain, this kind of information register which would be reproduced identically on thousands of computers at the same time, making the data unfalsifiable and incorruptible, a second blockchain has already emerged , ethereum, which allows the generation of smart contracts defined by its creator, Vitalik Buterin, as “cryptographic boxes that contain value and only unlock it if certain conditions are met”. For example, the contract can say “please give X a euro each time Y walks a kilometer”, and at each geolocation of Y that can attest to this, X will receive a euro without further human intervention.

Everything becomes possible for those who have enough imagination. Need to guarantee the authenticity of a diploma, an invoice, a contract, a certificate, show tickets, medical prescriptions: the blockchain. Need to guarantee the traceability of food goods or a supply chain: the blockchain. Need to ensure access to an online identity or online banking services in developing countries: the blockchain. According to the strategic intelligence department of the World Economic Forum, block chaining technology via lines of computer code has an interest in around sixty verticals sometimes as generalist as sustainable development or law.

It’s a bit of a shame that we stop at bitcoin and cryptocurrencies when the potential is much larger.

Emilie Allaert

Emilie Allaert,&nbsp future director,&nbsp Luxembourg Blockchain Lab

The University of Luxembourg is at the crossroads of most early initiatives: with the ancestor of Infrachain, the Fundchain Consortium (BNP Paribas, Caceis, European Fund Administration, HSBC, ING Luxembourg, Société Générale, PwC) and Scorechain, the SnT organizes a first hackathon at the end of 2016, announces its partnership with Hyperledger in 2017, the launch of a course on blockchain for the start of the 2018 school year, the signature of a partnership with Spuerkeess and the participation in a global university of blockchain, partly funded by Ripple, which also sets up shop in the country, such as the Bitflyer and Bitstamp exchanges.

France already drew its “minibons” ordinance in 2016 and its “blockchain” decree at the end of 2018, when the Minister of Finance, Pierre Gramegna (DP), gave Luxembourg a little head start with the law of March 2019, including a article dedicates the arrival of the blockchain in the financial world. “It was an important signal”, recontextualizes Tom Kettels, project lead of Infrachain, a non-profit organization set up to federate energies. “We were fairly well positioned, especially since the Ministry of Digitalization and the Intermunicipal IT Management Syndicate have launched projects, and start-ups like Tokeny and Stokr have marketed products. Others, such as BlocHome and Digibrixx, have arrived more recently to respond to difficulties in the housing market.

Violins to tune

Infrachain keeps an eye on Europe and contributes to operational projects. Like the European initiative Ebsilux, whose blockchain should make it possible to build cross-border services, to digitize and to issue or certify documents which constitute the standard means of verifying information on people, legal entities and goods. The project begins with a use case on university degrees.

The ecosystem is impatiently awaiting the European directive on cryptocurrencies, digital assets (MiCA) and the texts which regulate the possibility of testing blockchain projects without having to respect all the rules of the game. , advances Mr. Kettels, I do not have the impression that there is a great interest. Before recognizing that all the actors do not have the same interest in this decentralization imagined by the most progressive. This is one of the core problems that technology encounters: the open and transparent blockchain has been succeeded by public blockchains, but also private blockchains and permissioned blockchains.

“Many of the discussions that are taking place remind me of the beginnings of the internet 25 years ago. At first the subject was confined to universities, then the general public discovered the promises that were not always kept. The freedom to say everything on the Internet has been overtaken by constraints that were initially light and increasingly important. Look at hate discussions online, it’s the same. The blockchain world is quite similar. A project remains 80% dominated by business compared to 20% technology. Both parties must tune their violins. If a private actor wants to use a private blockchain and does business anywhere in the world, what is the competent jurisdiction in the event of a problem? Who settles disputes? There are a whole series of questions still open.”

In the discussions, they replaced concerns about the opposition between dogmatic blockchain, considered transparent with data, including personal data, and European data protection regulations. “The industry admits one big rule: no personal data on the blockchain. Or on a private sidechain or encrypted data, impossible to read for those who do not have the keys.

The loss of some of the keys is one of the problems highlighted by the CSSF at the end of January. The Luxembourg regulator certainly recognizes the interest of the blockchain for KYC, to avoid having to start proving your identity again and again, to reduce the intermediaries involved in cross-border payments or even for the distribution of funds, where the Luxembourg fintech FundsDLT, brought to the baptismal font by the Luxembourg Stock Exchange, Clearstream, Credit Suisse Asset Management and Natixis Investment Managers, is in the starting blocks. At the beginning of June, the European Parliament and the European Council finalized a pilot project for three years which will start on March 23rd. But the CSSF also points to five major risks: blockchain design, node management, smart contracts, key management and confidentiality issues. Blockchains are experiencing this bitterly this spring.

From ethereum, which seems to have further delayed the transition to its version 2.0 from August to 2023 – at best –, to Solana, which recorded its seventh bug since September 2021, passing by Corda which would deserve some modifications, assure the analysts . Not to mention the size of these “decentralized databases”. Imagine a registry that has become a library that gets bigger and bigger, making it heavier and less efficient. Solutions already exist, which will create other problems.

This article was written for the magazine edition of
Paperjam of the month July 2022
released June 22, 2022. Magazine content is produced exclusively for the magazine. It is posted on the site to contribute to the complete Paperjam archive.

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Luxembourg well placed and not in such a hurry

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