This article explores key areas where blockchain can address global issues.

I. Unleashing Blockchain’s Real-World Impact by Addressing Global Challenges

“My goal Is to contribute to our collective argument for the impact blockchain is making today, and proving that blockchain’s real world utility, beyond our industry bubble, is crucial. It’s more important than ever to bring this journey to life.” – Denelle Dixon, CEO of Stellar Development Foundation

Blockchain technology, still in its infancy, holds immense promise for widespread adoption. Amid a world grappling with numerous obstacles such as economic downturns, increasing inequality, natural catastrophes, and political turmoil, blockchain has the potential to tackle some of these pressing concerns, showcasing its worth despite skepticism and eroding trust due to a few deceitful players.

Take aid distribution as an example; millions depend on cash-based interventions on a massive scale. This process faces significant hurdles, including delays in mobilizing resources, constraints of cash usage, and difficulties in reporting and monitoring.

To foster a brighter future for blockchain utilization, emphasis should shift from elucidating the technology to making it beneficial for all, centering on the results it can deliver rather than the technology itself. Fundamentally, blockchain solutions can be customized to tackle various issues, including cross-border payroll, public assistance payments, and micro-payments for laborers and creators. These solutions hold the potential to impact millions by offering increased value and utility, whether for routine financial services or essential humanitarian aid.

By providing superior, accessible, and inclusive solutions, the blockchain sector can demonstrate its worth and establish trust with users. Companies ought to collaborate as problem solvers and innovators to materialize these solutions, underlining the resilience and enduring presence of the blockchain industry.

II. Developing Infrastructure and Embracing Opportunities

Coinbase, NASDAQ, and other companies are concentrating on streamlining the on-chain experience to usher new users into the Web3 ecosystem. They’re fostering trust in the blockchain sphere by developing innovative custody solutions, enhancing anti-financial crime capabilities, and ensuring security across processes and technology. Their goal is to facilitate institutional adoption of blockchain by providing a secure environment that anticipates future regulations.

The industry must learn from past mistakes and unfinished efforts to fortify the state of the chain. It bears the responsibility to improve and prevent market corrections while ensuring that bad actors don’t sully the term “blockchain.” The opportunity to strengthen the chain remains immense, with real-world value becoming increasingly evident.

Current stakeholders are focused on constructing dependable, resilient infrastructure to support the Internet’s next evolution, proving value before drawing in the next billion users. They aim to remove barriers for developers, build applications that attract users, and educate policymakers and executives about the value of new technologies.

Terminology is also crucial, with numerous actors at the conference emphasizing the use of appropriate language in the chain industry to avoid negative perceptions and support mutual growth. An overly complicated technical vocabulary used to describe blockchain technology can create a perception of exclusivity and elitism, potentially discouraging those unfamiliar with the technology and hindering widespread adoption. Examples include “consensus mechanism,” “node,” “public/private key encryption,” and so on. Without proper explanation, such jargon can be difficult for beginners to understand, potentially leading to confusion or misunderstanding. It is important for the blockchain industry to make a concerted effort to use clear, accessible language to make the technology more approachable.

Moreover, the industry should avoid replicating the current financial infrastructure’s shortcomings, promoting competition and innovation instead.

Blockchain technology can enhance financial inclusion and eradicate extreme poverty by granting financial access to unbanked and underbanked populations. Crypto’s use in disaster relief, such as in Ukraine, demonstrates the technology’s positive impact in real-world situations, upholding the core values of blockchain as outlined in Satoshi’s White Paper and creating a more inclusive financial system.

Barriers to Web3 entry should be lowered to support the developer community and provide tools to facilitate their growth in the blockchain space. This will help address infrastructure challenges, preventing the concentration of power among well-funded individuals and companies. The industry should promote the availability and sharing of financial data on blockchains to allow more people to engage with and understand the technology.

Education is crucial for better access and understanding of blockchain and cryptocurrency exchanges, which involves proper transaction monitoring to prevent malicious sources from infiltrating the ecosystem. By enhancing trust and comfort within the ecosystem, it becomes easier to attract and onboard institutions like pension funds and large asset managers.

III. Climate and Regenerative Finance in the Blockchain Ecosystem

“Our goal at the H Bar Foundation is to bring the balance sheet of the planet to the public Ledger via open sourcing methodologies. The reason why we’re focusing on this goal is because we believe that we can make climate finance auditable.” – Hania Othman, Director of Sustainable Impact – EU & Africa at HBAR Foundation

Regenerative finance (ReFi) holds the potential to revolutionize climate finance, paving the way for a fairer and more sustainable financial system. ReFi aims to scale and engage enterprises in the consumption of sustainable assets. To achieve this, it must provide a platform for acquiring and utilizing sustainable assets, dismantling barriers to enable widespread adoption of ReFi products. For instance, carbon credits can be rendered more liquid, investable, and profitable via DeFi. Initiatives can also explore green bonds for early-stage financing in carbon projects and manage carbon offsets through DLT to enhance efficiency and scalability.

At the “ReFi-ning the Future of Climate Finance on Chain” conference, panelists shared their insights on the financial landscape.

Krasina Mileva, COO at DOVU, underscored the significance of adopting a long-term, regenerative approach to farming and how ReFi can apply similar principles to financial systems.

Alexey Shadrin, CEO at Evercity, stressed the importance of technology and financing in addressing climate change, viewing blockchain as a catalyst for making green finance more accessible.

Nicola Attico, Blockchain/DLT Solution Engineer at ServiceNow, offered an enterprise perspective on ReFi, highlighting the potential for collaboration between large organizations and distributed ledger technologies.

Panelists agreed that blockchain technology can tackle climate crises through tokenization and traceability while sidestepping common pitfalls in climate finance like double counting and greenwashing. The objective is to decentralize the process and minimize dependency on intermediaries.

However, trust in the underlying infrastructure requires that the blockchain industry become greener and align with the Paris Agreement goals.

An actionable ReFi space should also prioritize proper management, reporting, and data verification. This demands greater integration between IoT and climate finance to supply verifiable data for sustainable assets, alongside open-source tools that facilitate collaboration and contribution within the ReFi ecosystem, fostering shared goals. Stakeholders should collaborate with organizations like the United Nations or the European Commission to strike the right balance between pursuing climate objectives and avoiding greenwashing and hype.

Conclusion

Blockchain technology has great potential to address pressing global challenges, foster financial inclusion, and contribute to a more sustainable future. By focusing on real-world impact, developing robust infrastructure, and promoting regenerative finance, the blockchain industry can demonstrate its value and establish trust with users. As we move forward, stakeholders must collaborate with policymakers to ensure a balanced approach that prioritizes both climate goals and the avoidance of greenwashing and hype. With continued innovation and collaboration, blockchain can play a vital role in shaping a more equitable and sustainable world.

During my time at the event, I was lucky enough to glean valuable insights from an array of keynote speakers and panel discussions, delving into hot topics such as the Metaverse, DeFi, cryptocurrencies, Web3, and the ever-evolving regulatory landscape of the blockchain ecosystem. As we continue to witness rapid advancements in the world of fintech, the wisdom I gleaned at Paris Blockchain Week will undoubtedly play a critical role in shaping the industry’s future.

In my quest to provide the most comprehensive coverage, I have divided my research into four main topics: Metaverse, Web3, Cryptocurrencies, and DLT/Blockchain.

These themes lie at the heart of the LHoFT’s mission of exploration, as the knowledge hub of the Luxembourg FinTech industry. Come with me now and let us embark on a journey to unravel finance’s future.

Episode 1 – Web3 – Through the Looking Glass

During the 2023 Paris Blockchain Week, industry leaders discussed the evolving landscape of Web3 and its implications for businesses, users, and society at large. Panelists delved into the differences between Web2 and Web3, the challenges of mass adoption, and the importance of ethics in this new digital era.

This article provides a comprehensive overview of their insights, highlighting the potential of Web3 to transform industries and reshape the way we interact with technology, while emphasizing the need for education, user experience, and inclusivity to drive successful adoption and create a more equitable digital future.

I. Paradigm Shift: The Web 3.0 Engineering of Decentralization, Commerce, and Trust

“The Renaissance and Enlightenment established many of the Western world’s political, monetary, and scientific institutions. Renaissance embraced and extended valuable elements from classical times that were lost in the Dark Ages and the Enlightenment marked the rapid development of modern scientific, political, and philosophical purpose. We’re living at the onset of another paradigm shift, one that will drive a transformation of how trust and authority operate on the planet.”  – Joseph Lubin, CEO at Ethereum – ConsenSys

In today’s world, we face a variety of challenges, including climate change, economic inequality, and political instability. While blockchain technology and decentralized applications may offer some solutions, we must not forget the limitations of these tools in addressing the underlying problems such as the rising greenhouse gas emissions from human activity, disparities in access to resources and governance issues.

The current financial system, while flawed, has proven to be resilient in the face of this kind of adversity. While some may argue that a new monetary system is necessary, it is important to carefully consider the potential risks and drawbacks before embracing such a change. Ultimately, we need to approach these issues with a level-headed and pragmatic mindset, rather than seeking a quick fix that may create more problems than it solves.

The brainchild of Satoshi Nakamoto, blockchain technology and decentralized trust, possesses the power to potentially reshape societal trust, grounding it in a fresh, decentralized foundation. This potential can be fully realized provided it is guided by innovators, educators, and guardians who actively seek new coordination methods to overcome these obstacles. The Paris Blockchain Week taught us that it is essential to encourage and empower the creator within each of us if we want to forge the world of Web 3.0, a domain that demands a diverse spectrum of abilities, expertise, and experiences.

Web2 is the version of the internet we all know, characterized by centralized platforms and services that rely on a few companies – the famous “tech giants” –  to manage search engines, social media, online shopping, operating systems etc., with control over user privacy and data security. In contrast, Web3 is a new paradigm for the internet that uses blockchain technology to create decentralized applications operating on a peer-to-peer network, providing greater user control over data and online interactions, as well as enhanced security and privacy.

Fundamentally, Web 3.0 seeks to remove or diminish intermediaries who leverage their positions for excessive market share and is already shaking the foundations of conventional business models. Today’s ecosystem encompasses thousands of Decentralized Autonomous Organizations (DAOs), with maturing tools such as decentralized identifiers (DID), badges, NFTs, and governance tokens that streamline community development and management. This framework fosters widespread engagement in governance and equitable distribution of value.

Armed with an updated form of system integrity, Web 3 infrastructure is poised to accommodate an array of applications in areas such as identity, self-custody, reputation, and professional networking.

II. Mysterious Landscape: Overcoming Challenges to enable Mass Adoption

During his keynote, Tim Draper, Managing Partner at Draper Associates, DFJ and Draper Venture Network, affirmed that the erosion of trust in the conventional banking system, exacerbated by recent crises such as the bankruptcy of Silicon Valley Bank and lackluster leadership, may result in a – although turbulent – transition toward decentralized frameworks.

While they may be part of the solution, the transition to such systems may itself be fraught with uncertainty. A cautious approach is therefore needed to ensure that the benefits outweigh the potential risks. It is crucial to recognize that not all decentralized systems are created equal, and that to be truly efficient, decentralization should be integrated into countries’ existing financial system.

Societal shifts are often accompanied by technological breakthroughs, which can bring both opportunities and challenges. While developing countries may see, for example, cryptocurrencies as a mean to leapfrog more established nations and attract entrepreneurial talent, a cautious approach is needed to ensure that the benefits outweigh negative outcomes. Ultimately, the goal should be to foster a favorable environment for the growth and development of decentralized systems projects, while also recognizing the limitations and potential risks involved, such as scalability, user-friendliness, and security risks including hacking. Furthermore, the regulatory and legal landscape for decentralized systems remains uncertain, and governance challenges can make decision-making difficult.

It is likely, however, that these constraints will be addressed as the technology evolves, Meanwhile, regulatory frameworks are likely to be developed over time to provide greater clarity and legal protections for businesses and investors operating in the space.

Providing Balance, Opportunities and Ethical Practices

During the panel “Web2 and Web3: Do We Have to Choose?”, Dirk Lueth, co-CEO of Uplandme, Inc.; Iri Zohar, CEO at Bring; Thijs Maas, CEO of Onramper; Robert McCracken, ecosystem lead at Alchemy Pay; and Nicolas Joly, Head of M&A at Group Casino, shared their insights on the significance of the new Web iteration.

In essence, Web3 differs from Web2 in terms of decentralization, immediacy, heightened security, and user ownership. It engages audiences more deeply, emphasizing community-driven development and collaboration, and enables greater personal sovereignty and borderless community-based networks.

Web3 also has the potential to facilitate a more equitable distribution of profits, as users can directly benefit from staking tokens and participating in various aspects of the ecosystem. Considering this, Web2 giants may need to adjust their business models to incorporate Web3, recognizing that collaboration and symbiosis between Web2 and Web3 can benefit both sides. Bridging the gap between Web2 and Web3 for mass adoption is crucial, with user experience (UX) playing a critical role. Integration within existing systems is essential for a seamless experience, which hinges on the willingness of established companies to educate their employees and customers about Web3, blockchain, and related concepts to ensure successful adoption. The shift and related training may be challenging for employees accustomed to legacy systems, but it is necessary to embrace the Web3 era.

In detail, infrastructure such as wallets and payment systems must be developed for both B2B and B2C applications. Not everything needs to be decentralized though; average users often prefer ease of use and customer support. Business model adaptations may include both crypto adoption and the continued use of fiat currencies to reach a wider audience by connecting cryptos to real-world value.

Additionally, offering low-cost entry points to Web3 platforms can make them more inclusive. There is also a need to focus on removing obstacles and meeting users where they are while supporting various payment methods.

There are at least three crucial factors to consider for mass adoption:

• Supporting the Web3 community with three key pillars: infrastructure, go-to-market, and storytelling.
• Educating prospective clients and users to understand the benefits of Web3, relating to their needs.
• Addressing the high failure rate in onboarding users to crypto platforms.

The second panel on “The Ethics of Web3”, featuring Moojan Asghari, co-founder of Thousand Faces; Oscar Wendel, senior manager at the Dubai World Trade Centre; Alison Alexander, COO and director of ethics & social policy at Metacampus; Margaux Frisque, co-founder of D&A Partners; and Loic Brotons, CEO at Galeon, provided their individual definitions of ethics in the context of Web3. Ethics are a fluid concept that evolves alongside human and technological developments. They involve defining values and principles to protect society and the environment from harm and creating new habits for businesses, making the industry more reliable for consumers and investors. Ethics in Web3 should also consider the underlying benefits of new technologies and the negative potential for scams and hype; ultimately, it is a concept that changes over time, influenced by the current stage of society and technology.

Defining an ethical framework for new technologies like Web3 is challenging, as technological advancements often outpace ethical considerations. The fall of Celsius Network, FTX, and Luna in the past raise questions about the lack of accountability and the role of decentralization. Anonymity has also proven to be a double-edged sword, as it can provide security and privacy while also enabling unethical behavior and making it harder to hold bad actors accountable.

Regulations have evolved in response to unethical events and collapses in the crypto industry, such as the implementation of the MiCA Regulation to protect consumers and harmonize frameworks across EU member states, making it easier for businesses to operate across different jurisdictions.

Conclusion

The transition to Web3 presents both challenges and opportunities for businesses and individuals. While decentralization and community-driven development may offer certain benefits, it is important to approach these changes with a level-headed and pragmatic mindset, to ensure that the benefits outweigh the potential risks.

While some may see Web3 as a solution to current societal problems, it is important to recognize that the technology alone is not enough to create meaningful change. The focus must be placed on user experience and accessibility, while also prioritizing ethics, transparency, and education. All this is critical to ensure that Web3 is widely adopted and benefits all members of society.

How do cryptocurrencies fit into the larger conversation about sustainability? By addressing the matter of consensus mechanisms.

Let us look at this topic from an evolutionary perspective. In September 2022, a significant event altered the landscape of the crypto market – yes, even before the notorious bankruptcy of FTX. Ethereum, one of the largest cryptocurrencies networks, transitioned from proof-of-work (PoW) consensus mechanisms to proof-of-stake (PoS). This historical move was dubbed “The Merge” and, according to Ethereum.org, it reduced Ethereum’s energy consumption by ~99.95%.

Understanding consensus mechanisms

Proof-of-work (PoW) and proof-of-stake (PoS) are two of the most widely used consensus mechanisms in the blockchain industry.

PoW is the original consensus method used by the first cryptocurrency, Bitcoin, and requires miners to solve complex mathematical equations to validate and add new blocks to the blockchain. PoS is a newer consensus method that requires users to stake their coins to validate transactions and add blocks to the blockchain.

The main difference between PoW and PoS is that PoS does not require miners to use their computing power to solve complex mathematical problems, which helps to reduce energy consumption. Both PoW and PoS have their advantages and disadvantages, but both are important components of a secure and reliable blockchain.

A real-world analogy for the difference between PoW and PoS is the difference between a gold rush and a shareholder vote. Just as gold miners use their resources (mining equipment, electricity) to search for and extract gold, nodes in a PoW system use their computational power to solve complex mathematical problems and validate transactions. The first miner to find a solution is rewarded with the right to add the next block to the blockchain, much like finding a gold nugget.

In contrast, in a PoS system, validating transactions and adding new blocks to the blockchain is akin to a shareholder vote. Just as shareholders vote for the leadership and direction of a company, validator nodes in a PoS system “vote” on the validity of transactions and the addition of new blocks by staking their cryptocurrency holdings. The more stake a validator holds, the more “votes” they have and the more likely they are to be selected to add the next block to the blockchain, like having more shares in a company.

The Merge of Ethereum

Ethereum utilised two engines of block addition. The original one, the “Mainnet”, was secured by PoW; the second one, the “Beacon Chain”, ran on PoS. Both algorithms exist as consensus mechanisms, to keep the blockchain secure for users: by verifying transactions on computers, they provide means for participants to “prove they have supplied a resource […] such as energy, computing power, and money” to it.

On September 15, 2022, the two blockchain algorithms of Ethereum were merged, replacing one system, the Mainnet with the other, Beacon Chain, permanently.

The Merge marked the end of proof-of-work for Ethereum and started the era of a more sustainable, eco-friendly Ethereum. Ethereum’s energy consumption dropped by an estimated 99.95%, making Ethereum a green blockchain. – Ethereum.org

Cryptocurrencies and Sustainability

Quoted by James Eagle, Founder of EEAGLI on LinkedIn

In my previous article about the Crypto Winter, I mentioned the report on the Global Impact of Crypto Trading by Forex Suggest. In a global context of climate change and energy high prices, policies and priorities are being re-evaluated. The International Energy Agency pictures the global energy crisis concluding last year as follows:

High fossil fuel prices are stoking inflationary pressures; the combination of falling real incomes and rising prices is creating a looming risk of global recession.

Unsurprisingly, the cryptocurrency industry, with its reported consumption of energy, has drawn considerable attention to itself, in relation to “sustainability”. With an overall energy consumption of 62.56 kWh per transaction and a staggering 22 million tons of CO2 emissions in 2021, Ethereum ranked 2nd in the report in terms of energy intensiveness and environmental impact. Removing a year’s worth of Ethereum transactions from the atmosphere would require planting 109.8 million additional trees.

Additionally, crypto enthusiasts are more driven by energy efficiency than sustainability concerns; they focus on getting the most out of their hardware for the least cost. This is reflected in the increasing development of more energy-efficient technologies; many of these technologies are still in the early stages of development, but the overall trend is toward more efficient and cost-effective solutions.

Interestingly, energy prices have recently dropped significantly: Q4 2022 saw a plunge in natural gas prices, triggered by warmer-than-expected weather – a record-breaking one for many countries in Europe, according to meteorologist Scott Duncan. However, it will not provide relief for the long term “when the volume of gas supplied from Russian pipelines will be considerably lower and the liquefied natural gas market, which the region has depended on this year, remains tight”.

Quoted by the Financial Times on LinkedIn

Considering this evolution, will moving to a PoS model be enough? Or will the crypto market need to try harder, while being able to safeguard the decentralized feature of the crypto market? Ethereum is open source, but crucial changes such as The Merge span from the Ethereum Foundation and its co-founder Vitalik Buterin. Can this formula be applied to a truly decentralized and individualized system such as Bitcoin? According to William Farrington for Currency.com,

Bitcoin lacks any substantial leadership structure or central party and the Bitcoin Foundation went insolvent in 2015. [….] Theoretically, the community could vote on-chain in favor of a code change, but given the influence of miners in the community, this is extremely doubtful.

Generated with Midjourney

There is indeed a strong interest in PoW among the Bitcoin community, despite the environmental controversy. Bitcoin miners under PoW get rewarded for their efforts through the mining process, which involves solving complex mathematical puzzles. Old timers have gained a competitive advantage through their investment in energy-consuming technology ‘farms”, that have the resources to buy more and better hardware and pay for the electricity needed to keep the mining operation running. Such complex settings would become useless in a PoS environment.

For those reasons, Bitcoin mining accounts for the largest crypto-mining industry. However, because of the famous 21 million Bitcoin ceiling embedded in the source code, the mining and reward process is designed for growing complexity – and rising energy costs.

Miners are also competing against each other to be the first to solve the cryptographic puzzle. This has led to a situation where public entities, such as Fort Worth, Texas in the United States, or even governments such as El Salvador, also entered the game to secure the largest share of the network. This competition has been beneficial for the industry as it drives innovation and efficiency: to mine its first fraction of a bitcoin, El Salvador used the power harnessed… From a volcano.

Tweet from President Nayib Bukele (last accessed: 29 December 2022) 

To better grasp the incentive around clean crypto mining, we need to understand the estimated impact of Bitcoin. Thanks to the Cambridge Bitcoin Electricity Consumption Index (CBECI), an online tool launched by the University of Cambridge, researchers were able to estimate that the global Bitcoin network is consuming 96.5 terawatt hours (TWh) of energy per year – more than entire countries such as Belgium or Finland.

Source: CBECI (last accessed: 04 January 2023) 

The report of Forex Suggest also ranks Bitcoin as 1st offender in term of environmental impact, as “the most polluting cryptocurrency of 2022, with a projected 56.8 million tons of CO2 emissions that would require 284.1 million trees to offset”.

In contrast to this bleak picture, a report from the Bitcoin Mining Council (BMC), a “voluntary global forum of Bitcoin mining companies and other companies in the Bitcoin industry”, announced that for Q2 2022, the *global bitcoin mining industry’s sustainable electricity mix is now 58.4%” and has increased “approximately 59%” from 2021 to 2022, “making it one of the most sustainable industries globally”.

Challenges and limitations of using cryptocurrencies to promote sustainability

The fact that cryptocurrency is not regulated makes it easier for companies to make false or misleading claims about environmental or social benefits. This can lead investors to invest in cryptocurrencies that are not as “green” or “socially responsible” as they seem. Additionally, this can result in a general mistrust of cryptocurrencies, and make it harder for responsible companies to differentiate themselves from those making false claims.

In April 2022, Canaan senior vice president Edward Lu announced his company’s plans to implement green energy standards for Bitcoin mining. His Mining Disrupt 2022 speech, “Clean Energy: The New Revolution for Bitcoin Mining”, emphasised the active role Bitcoin mining has to play in the global energy market, for the industry to “be accepted as mainstream”:

The future growth of the Bitcoin mining industry is […] dependent on whether it can benefit human society; sustainable Bitcoin mining is thus one way for the industry to gain wide recognition.

Regarding the progress recently made by the industry, M. Lu mentioned “blockchain upgrading”, the adoption of greener solutions such as hydro power, effective utilization of power grids excess capacity and… Leveraging the power of SQL to mine crypto currencies in the cloud, an idea dating back from 2018 and probably outdated, since Bitcoin mining complexity is higher now.

As we know, for anything labelled “green” checks should be put in place to improve the industry’s transparency regarding energy efficiency claims. Bitcoin alone accounts for 0.25 percent of global electricity consumption; non-governmental organizations are therefore calling for action and the implementation of new regulations limiting the impact of crypto mining on ecosystems. The Tony Blair Institute for Global Change published guidelines for policymakers, inviting them to support efficiency innovation by “incentivising miners to switch to less energy-intensive designs” and “better e-waste management”. Regulations should also help “raise the bar on clean-energy use” by solving the equation of available renewables/fossil fuel sources, the side effect of grid strain, and the auditing requirements.

Other initiatives in the U.S. call for more transparency regarding the crypto mining industry, urging public authorities to:

Subject permits related to cryptocurrency mining to stringent environmental reviews, to create a registry of mining operations, to set energy efficiency standards for digital currencies, to establish power density limits, and to limit financial transactions which increase climate pollution, interrupt critical supply chains, or limit the availability and affordability of electricity for essential industries.

The same letter also addresses the potential social impact of unregulated Bitcoin mining on local communities, calling to preserve the public electric grid from being “siphoned to proof-of-work mining operations at the expense of local ratepayers”.

In the European Union, crypto-asset issuers and service providers under the scope of the new Markets in Crypto-Assets (MiCA) regulation will have to comply with strict disclosure requirements regarding the consensus mechanism chosen. Although not banned by the text due to their ubiquitous nature, PoW protocols will have to be transparent about their energy-intensive nature.

Maybe the future of cryptos also lies with ReFi, or regenerative finance, an umbrella term for the Web3 roadmaps to a low-carbon economy. For example, the Cosmos-based Regen marketplace encourages corporate sustainability departments to “purchase, transfer, retire, and bundle tokenized carbon on the blockchain for carbon offsetting purposes”. The Reneum marketplace is vouching to “use blockchain to fund renewable energy, leveraging the technology to verify every clean megawatt-hour produced and trace the journey of every single dollar spent.” In other words, implement greater transparency around renewable energy credits (RECs).

Evolutionary perspective for the future of cryptocurrencies and sustainability

To end this analysis on an optimistic note, let us talk about the potential benefits of cryptocurrencies for sustainability from a societal point of view, such as reducing reliance on traditional financial systems and enabling new forms of decentralized decision-making.

In a decentralized system, there is no single point of control or decision-making authority. This power is instead spread out among many entities, and no single entity holds significant control over the entire system, thus making the system more resilient to failures and less vulnerable to attacks – since there is no single point of failure. All entities have an equal say on how to run the system, and users validate all transactions in exchange for a reward.

In addition, crypto-currency transactions can be peer-to-peer and help reduce the need for intermediaries such as depository banks. This results in lower overall trading costs and, potentially, greater financial inclusiveness.

Overall, decentralized financial systems can help to reduce the market share of large financial institutions and make the financial system more resilient to shocks, especially in relation to systemic risk.

Looking at the big picture, the blockchain technology enabling crypto transactions is often praised for its transparency and immutability. This could lead to reduced fraud, illegal activities and corruption, which could in turn encourage public trust.

As with most things, the crypto world is the product of its context, with both external influences and internal events shaping and transforming its market rules and practices. There is no “business as usual” yet for this unique market, despite its 14-years history – starting with the 2009 launch of the Bitcoin Network. However, neither do we have historical benchmarks for the energy and economic challenge of climate change. For this reason, the questions around the sustainability of crypto trading must be addressed thoughtfully, exploring all possibilities, and taking into account the complexities related to Bitcoin mining.

For many observers, cryptocurrencies using public blockchains, such as Bitcoin and Ethereum, are the way forward. This will only prove true if their global adoption takes place in the context of a low-carbon economy. Quoting Marc Blinder for Harvard Business Review:

Blockchain [cryptocurrencies] have the power to change our world for the better in so many ways. It can provide unbanked people with digital wallets, prevent fraud, and replace outdated systems with more efficient ones. But we still need this new and improved world to be one that we want to live in.

Written by Oriane Kaesmann

Header image by Zoltan Tasi on Unsplash

Ulrich Bindseil, director general of the European Central Bank, and Jürgen Schaaf, adviser, didn’t mince words in predicting the future of crypto assets. According to their recent blog post on the ECB website, the incoming irrelevance of bitcoins was already foreseeable long before the collapse of the crypto exchange FTX.

“The seeming stabilisation [of Bitcoin] is an artificially induced last gasp before the road to irrelevance.”

Stablecoins and crypto exchanges storms

Much like an apocalypse-styled event, this “crypto winter” started this summer following the collapse of TerraUSD and LUNA. The so-called stablecoins, dependant on market conditions, lost investors’ confidence in their value as the market itself declined (a result of combined overconfidence in tech companies’ quarterly growth, tightened interest rates by the U.S. policymakers, rising inflation and the overall crisis linked to the Russo-Ukrainian war).

Coindesk (last accessed: 06 December 2022) https://www.coindesk.com/price/bitcoin/

Before FTX’s notorious collapse, numerous crypto companies also paved the way to trouble for crypto enthusiasts: from the cryptocurrency lending company Celsius Network to the crypto hedge fund Three Arrows Capital and the brokerage service Voyager Digital, the rippling effects of their bankruptcies stress-tested the cryptomarket in real-time. Major crypto exchanges such as FTX are of course no exception to this trend: with valuation plummeting from $32 billion to bankruptcy, such an event was more than likely to worsen the ongoing fallout of decentralised finance around cryptocurrencies – with frozen accounts and ultimately, lost assets as a result.

There are no segregated accounts and recovery rules yet in the crypto world, although the incoming regulation on markets in crypto-assets (MiCA) is destined to protect consumers against some of the risks associated with the investment in crypto-assets.

“Swimming naked” in a frozen lake

In terms of risks linked to crypto, paraphrasing the famous quote of Warren Buffett seems appropriate. The current and sustained lower prices cannot be defined as bearish, since cryptocurrencies are not tied to valuation in the sense of traditional investments (meaning, cash flows or dividends). According to the ECB, crypto’s market valuation is essentially speculative, so the current status quo is closer to tiny waves under the surface of a frozen lake (the current 20k€ ceiling).

Add to this the innovative aspect of blockchain technology, and you get the expected result already seen with personal data protection in the European Union: an overdue regulatory effort and a short lifespan, as Axel Voss, one of the original authors of the GDPR, observed.

Back in 2013, Harvard Business Review made an interesting case about innovation risk: using the example of the four-wheel drive advent in bad weather conditions, it illustrates the biased belief that something created to make us safer will work in any type of condition or with any kind of behaviour. This belief spans from our inherent inability to foresee all consequences of new use cases, leading to risks of black swan events. Excessive enthusiasm may also span from techno-optimism, a deep belief in the resurgence of growth through innovation.

The ECB points out other non-negligible risks such as climate change, waste, and reputation. The first one finds its culprit in Bitcoin mining; the Global Impact of Crypto Trading report by Forex Suggest found that erasing Bitcoin mining carbon footprint would require panting around 300 million trees, to compensate for its annual 80 billion kWh burn and 60 million tons of CO2 emissions (for the year 2020). The second one is summarized as follows:

“Bitcoin mining […] produces mountains of hardware waste. One Bitcoin transaction consumes hardware comparable to the hardware of two smartphones. The entire Bitcoin system generates as much e-waste as the entire Netherlands”.

For Bitcoins promoters of the financial industry, reputational risk could ensue from growing losses sustained by investors following bubble bursts, even with a hypothetical market recovery.

“Weather” scrutiny spurs government efficiency

Other voices expressed more optimistic views on the topic: according to Fidelity International’s chief investment officer Andrew McCaffery,

“When you have something that obviously has such wide reverberations for that industry, […] it could bring the scrutiny, but actually the need, for regulation much closer to accelerate”.

No matter what the shockwave could entail for investors, more regulation would indeed serve the best interests of the cryptoassets ecosystem. A “wild west” kind of environment does not provide a trustworthy forecast, but more stringent rules would bring stability and clearer skies for investors. However, in the digital era, those rules need to be smart and sanction bad behaviours around innovation, not innovation itself.

In the European Union, MiCA will, among other things, protect investors against risks and fraudulent schemes. Service providers will find themselves liable in case of asset losses. New market abuse rules will also be applied. And ESMA will be tasked with the technical aspects of the environmental and climate footprint report associated with the regulation.

However, the ECB reminds investors that lawmakers’ involvement does not necessarily mean approval of the whole cryptomarket. It just means a safer, more structured environment for investors. It also prompts financial institutions to act with caution.

Momentum conservation

The energy invested in the cryptomarket may change form in the future, but it will probably not go down; despite “bad weather” and according to the ECB, “VC investments in the crypto and blockchain industry totalled USD 17.9 billion as of mid-July”. It shows that the momentum is still existing and will keep altering traditional asset systems.

Nasir Zubairi, Chief Executive Officer of the Luxembourg House of Financial Technology, says the collapse of FTX will create “jitters” in the market but the “momentum” for digital assets still exists.

“We’re still at a relatively early stage of the development of this market, even though it’s been around for about 10 years. But it will only continue to grow.”

With great powers come great responsibilities: entering the big league alongside traditional finance also means following the script on governance, compliance, risk and liquidity management, cybersecurity, and so on. It remains to be seen how much the introduction of regulation will modify the crypto environment and impact its notorious “Freedom to Transact”. It may also be the key to its survival and thriving.

Written by Oriane Kaesmann

Header image by Andre Benz on Unsplash

This year we have an exciting offer for attendees who are hoping to get to grips with some of the technology underlying the emerging Web3 trend: NFTs (non-fungible tokens).

We’re joining forces with Farvest, Luxembourg’s metaverse pioneer Mathias Keune, and the artist Sumo, to offer you an exclusive collection of NFTs entitled “Beyond Frontiers” – in reference to the broader theme of this year’s conference: the technologies redesigning the frontier between the real world and virtual worlds.

You’ll have the opportunity to  listen to experts in virtual worlds (‘metaverses’) and Web3 technology, who will share the trends in the industry and the potential for future impact outside of the ‘crypto bubble’.

The agenda includes sessions from famed technology journalist Mike Butcher (‘Unpacking the Metaverse’), John Acunto, Co-Founder & CEO, Infinite Reality (‘Metaverse to revolutionize the future of entertainment, content, and commerce’), a fireside chat between Sumo and Nadia Manzari, Partner at SCHILTZ & SCHILTZ, and much more!

This is an opportunity for you to get to grips with the mind-bending applications and potential of Web3 in this new stage of evolution for our online existence. That’s in addition to all of the other topics covered in the agenda, part of ICT Spring’s usual view of innovation in the adjacent worlds of financial technology and data science.

Here’s a quick guide to how you can get started with the NFT technology ahead of the conference, and claim your unique ‘Beyond Frontiers’ digital artwork from Sumo:

How to get started with NFTs?

• Before you can connect your MetaMask wallet to https://www.ictspring.com/beyond-frontiers-collection-by-sumo/, you must first install the MetaMask extension in your browser or download the MetaMask app on your smartphone.
• Once you’ve installed and set up your MetaMask wallet, you can open the https://www.ictspring.com/beyond-frontiers-collection-by-sumo/. For mobile users, please open the website directly with the browser integrated in the MetaMask App.
• Try to hit the Connect button in the navigating menu and then select MetaMask from the list.
• This will automatically open MetaMask and you will be asked to connect your MetaMask wallet to https://www.ictspring.com/beyond-frontiers-collection-by-sumo/.
• Follow the prompts on the screen and you’ll be connected to the https://www.ictspring.com/beyond-frontiers-collection-by-sumo/.
• Once you’re connected with your wallet, hit the buy button, and follow the steps in your MetaMask extension in your browser or in your MetaMask app on your smartphone. Price is equivalent to 65 matic + gas fees (Polygon)

For a step-by-step guide on how to install and configure MetaMask, please click here.

Table of contents

1. Desktop : How to install MetaMask browser’s extension in 5 minutes
   1. Step 1 : Visit the MetaMask website (https://metamask.io)
   2. Step 2 : Install the browser extension
   3. Step 3 : Setting your password
   4. Step 4 : Recovery phrase backup
   5. Step 5 : Confirm your Recovery phrase
2. Mobile : How to install MetaMask mobile App in 5 minutes
   1. Step 1 : Visit the MetaMask website or App stores (https://metamask.io)
   2. Step 2 : Install the MetaMask App
   3. Step 3 : Setting your password
   4. Step 4 : Recovery phrase backup
   5. Step 5 : Confirm your Recovery phrase
3. How to connect MetaMask to [Name of the website]
   1. Desktop : Connect MetaMask to [Name of the website] with a browser
      1. Step 1 : Go to [Name of the website]
      2. Step 2 : Select MetaMask
      3. Step 3 : Connect with MetaMask
   2. Mobile : Connect MetaMask to [Name of the website] with the mobile App
      1. Step 1 : Visit the website within the MetaMask App browser
      2. Step 2 : Select MetaMask
      3. Step 3 : Tap on “Connect”

What is an NFT ?

NFT (Non-Fungible Tokens) are unique, easily verifiable digital assets that can represent items such as in-game assets, images, videos, music, and real-world assets.

An NFT is “a type of cryptographic token,” but NFTs are different from cryptocurrencies because they’re not interchangeable.

How does the Beyond Frontiers NFT work?

Beyond Frontiers NFT is an exclusive digital artwork made by the artist Sumo specially for the ICT Spring 2022.

What is the maximum quantity of Beyond Frontiers NFTs?

Beyond Frontiers NFT is limited to 4,000 NFTs

How many Beyond Frontiers NFTs can I purchase?

This is limited to 10 NFTs per wallet.

Will there be more NFTs from this collection in the future?

No, this is a limited edition.

Is it useful to own more than 1 Beyond Frontiers NFT?

The more Beyond Frontiers NFTs you own, the more benefit you derive from your NFTs in light of future events.

What is the price of a Beyond Frontiers NFT?

20 Euros worth of MATIC

What is a crypto wallet?

A crypto wallet is an application or hardware device that allows individuals to store and transfer digital assets like cryptocurrencies and Non-Fungible Tokens (NFTs).

How do crypto wallets work?

After you register and download the crypto wallet, you take control of two 42-character keys. This is a public key, known as your wallet address, and a private key. You might consider your public key to be like your shareable bank account info, so you only have to copy and paste when people ask for your address. Your private key works like a password and should always remain private, for security.

What is MetaMask?

MetaMask is a cryptocurrency wallet software used to interact with several blockchains. It allows users to access their wallet through a browser extension or mobile app,which can then be used to interact with decentralized applications. MetaMask is the most common used wallet and is compatible with most of decentralized applications.

How do I start using Metamask?

Go to MetaMask.io and select from Android or iOS for mobile application and select Chrome for desktop. You can also go directly to the Chrome store, Google Play store, or Apple App Store.

How do I purchase MATIC?

Once the Polygon blockchain set up in your MetaMask you can use integrated credit card payments to buy MATIC.

What is MATIC?

MATIC is the native cryptocurrency of the Polygon Network.

What is a gas fee?

As the Polygon Network is a decentralized blockchain with no singular entity or authority overseeing its operation, a mechanism is put in place to avoid the network from being congested or spammed with transactions. This mechanism charges senders of transactions with a small fee called gas fee which is then used to reward validators who validate transactions on the network.

What is Polygon?

Polygon Network is the blockchain on which Beyond Frontiers NFTs are created (“minted”).

Polygon Network is a Layer 2 scaling solution that achieves scale by utilizing sidechains for off-chain computation, while ensuring asset security and decentralization through Proof-of-Stake (PoS) validators.

How do I connect my wallet to the platform?

You simply click on the “Connect Wallet” button in the above right corner of the website.

Can I use a credit card to buy?

You can use credit card directly in MetaMask to buy MATIC. But you cannot use credit card on the website to acquire Beyond Frontiers NFTs.

I don’t have answer to my questions. How can I find help?

Rush on the info point next to the entry to discuss with TheSafeBox.io’s team that will guide you in your first NFT’s experience.

The State of European Tech (SOET) Report is considered to be “among the most comprehensive data-driven analysis of European technology” by the European Innovation Council. The 2021 edition was launched on December 7 and provides decision-makers with a host of insights into the evolving tech landscape.

Timing-wise, this is an interesting one: the report provides an update on the state of tech and innovation at a moment when the world economy continues to recover from COVID-induced shocks. This year’s edition of the report notably allows us to get a better sense of whether the forced, rapid societal adaptions to a new modus operandi, greatly facilitated by technological solutions, is leading to durable change, or whether we will see a “regression toward the mean”.

Let me state up front that everything points towards the former.

As Chris Grew, Partner at Orrick – one of the report’s sponsors – states:

Now is a watershed moment for the tech and venture ecosystem across Europe and around the world. Europe is attracting record levels of investment and growth, with the innovation economy positioned to take the lead in tackling today’s systemic societal challenges.

[…]

Fintech investment has led the charge, rising by 159%, with total investment of nearly $15B, while planet-positive investments are dominating the fast-growing purpose-driven space.

ESG and sustainable finance are here to stay and we at LHoFT are convinced that fintechs will have an increasingly important role to play in facilitating the data collection, validation and analytics efforts required to build sustainability into the core of everything corporates and financial institutions do.

Luxembourg’s role in a growing European ecosystem

A few things that stand out to us at LHoFT:

• Luxembourg ranks very highly both in terms of startups per capita and in terms of capital invested into startups per capita, cf. below:

• The tendency for top European hubs to capture the lion’s share of funding has increased further, with companies based in London, Berlin, Stockholm, Munich and Paris raising 54% of all capital in the region, up from 49% in 2017. At the same time, concentration in terms of number of deals has decreased, pointing to greater decentralisation of the ecosystem in Europe.

• At the same time, there is growing consensus that the importance of physical proximity is diminishing, which is mirrored across a number of metrics. The ability to hire talent across Europe thanks to remote working arrangements is seen as a mutually beneficial boon both for entrepreneurs and for their expanding work force in terms of quality of life. Luxembourg, as an extremely open economy, should stand to benefit from these developments.
• European startups should benefit from the fact that the continent is home to many industrial leaders, with particular emphasis on IT stacks. This presents ongoing opportunities for startups & tech companies, not least in the financial sector, and Luxembourg should continue to actively support initiatives and platforms that capitalise on this dynamic.

Europe is in a strong position to shape the next wave of disruption in B2B, as Europe is home to many industrial market leaders built on legacy technology ready to be disrupted.

Robert Lacher

Visionaries Club & La Famiglia

• Europe remains disadvantaged versus the U.S. in terms of raising capital, which makes ongoing EU efforts such as the Capital Markets Union all the more pressing. “Almost one-fifth of founders say it has become harder to raise capital in 2021, while a further 40% or so believe the environment remains unchanged from the past year, which itself was a year that saw a record number of founders responding that fundraising had become harder.”

Raising funds in Europe is still a different experience from raising funds in the US. European founders still fly out to the US for fundraising. Sometimes for expertise, sometimes for fair market offers.

Jakub Jurovych

Deepnote | Founder and CEO

A new dawn

The past year and a half have been left no one unaffected, imposing a steep price on societies around the globe. Silver linings include the realisation that more flexible work arrangements and business models are not only possible but in many ways desirable, not least when considering access to capital and talent. This in turn is enabled by far-ranging modernisation of technological infrastructure, presenting opportunities for incumbents and startups alike.

Finally, Luxembourg is presented with a particular opportunity to leverage these macro dynamics by fostering innovation proactively. The 2021 SOET report shows that the Grand Duchy is already punching above its weight in some regards – let’s keep the momentum going.

“Where there is a will and need, there is a path for mass adoption.”

Thomas Campione, CFA, Blockchain & crypto-assets Leader, PwC Luxembourg, at the LHoFT’s ‘Cryptomania’ Digital Event

The bubble hasn’t burst yet, but so many years after cryptocurrencies made their debut, they still haven’t unleashed the miraculous potential they promised to. However, in time, crypto assets went from being esoteric dark web material to mainstream topics of conversation and enthusiasm. Indeed, in economically unstable countries, it is possible to witness cryptocurrencies becoming Silicon Valley-made pagan icons as they cushion against inflation and government surveillance.

Most resources revert to the Financial Crisis of 2008 to highlight the rise of Bitcoin & co. However, it wasn’t until COVID19 the price volatility turned into a massive spike. As the lockdown increased interest for personal finance and digital advisory, the WealthTech industry was forced to lower the barriers to enable active wealth management for everyone. “The Global WealthTech Investment Trend Overview” by FinTech Global speaks for itself.

What’s the connection to cryptocurrencies, you might ask? Clearly, the economic turmoil and the shift in institutional trust highlighted BTC and other cryptocurrencies as a viable wealth preservation channel.

“From an institutional standpoint, we witness more demand and traction from the financial services industry for crypto as an investment vehicle.”

JB Graftieaux, Managing Director Europe at Bitstamp, at the LHoFT’s ‘Cryptomania’ Digital Event

After the first wave of lockdowns, BTC prices jumped from lower four-digits to five-digits. As the lockdown fueled digitization for financial service providers, the eased access to the stock market and the positive media coverage increased customer familiarity.

The data from blockchain.com reveals that the total estimated value of daily transactions on the blockchain jumped from millions to billions after March 2020, indicating an increase in cryptocurrency use cases and acceptance. It was only a matter of time that the FinTech players rose to the occasion and took steps to increase cryptocurrency accessibility and make it more mainstream.

“The adoption of cryptocurrencies as a payment method is already there. Banks should start accepting it gradually.”

Rikiya Masuda, Managing Director, Europe at bitFlyer from the LHoFT’s ‘Cryptomania’ Digital Event

The Luxembourg perspective:

“With distributed ledger technologies and cryptocurrencies here to stay, since 2014 Luxembourg has shown its capacity to innovate in the sphere of fintech. We firmly believe that Luxembourg will also become an EU hub for regulated token offerings in the future.”

Jean-Louis Schiltz, Senior Partner at Schiltz & Schiltz SA, and
Nadia Manzari, Partner at Schiltz & Schiltz SA
The Virtual Currency Regulation Review: Luxembourg (2021)

“There are opportunities arising, but these are only possible if we ensure the protection of investors. Noting the interest from investors, the investment fund industry – extensive in Luxembourg – must look into cryptocurrencies and define new strategies taking into account this new type of investment (cryptocurrency or digital asset).”

Emilie Allaert, Project Lead at Luxembourg Blockchain Lab

Does the increase in performance and demand mean that crypto exchanges, the initial one-stop crypto shops, are heading towards the roof? Let’s take a look, studying the challenges ahead.

European banks got it all wrong. In the early days of the FinTech revolution, local banks and financial institutions channelized their energy towards fighting GAFA and Fintechs, mainly PayPal. We even have regulations as a result of this market protection instinct. Focused on the well-known enemies, they haven’t seen the real danger closer to them: consumer brands becoming competitors. Rising above the ecosystem trends slowly but surely, embedded finance is shifting the market balances as we speak.

Embedded Finance: A Look into The Future

Imagine that in the future, you don’t have to run between different bank branches, brokers, or comparison portals for mortgage eligibility; but instead, you can apply for a loan simultaneously as you visit the apartment of your dreams. Picture as your loan is being approved; the bank starts sending you trusted service offers for the broken sink or the Mediterranean tiles you fell in love with when you visited Spain one summer. After you shook hands, the real estate office offered you the possibility to select from different house protection insurances or apply for a credit card through them, giving you cashback points at various service providers and shops and installments to pay the brokerage fee. You were not aware that your local real estate broker had Fintech ambitions, but why not?

As you leave the real estate office, you feel like celebrating this significant milestone and end at the closest supermarket. You select a bottle of champagne and a nice cake from the bakery and leave the store without queuing or dealing with any additional check-out process – all thanks to the payment infrastructure using “Just Walk Out Technology.”

As it started to rain in the afternoon, you decided to drop by the furniture store, selecting a brand-new sofa for your new home. You eyed the latest baby blue model, which would look great in your new apartment. As you were contemplating buying the couch already, the shopkeepers asked whether you would like to apply for an instant loan for your new sofa. Of course, you immediately said yes – no need to use the cash reserves before the extensive renovation project. On your way back home, you stopped by the gas station to top up the tank and paid for the gas via your car’s interface, without the need to leave the vehicle (“in-car fuel payments”).

When you arrive home and realize that you are out of (probably vegan) butter, you will likely order and pay using your smart fridge (“pay-by-fridge”).

Sounds science-fiction-like, doesn’t it? On the contrary, this is the likely future. Embedded finance is already making most of these scenarios possible. We can expect many more of it in the future, saving us time, unnecessary conversations, paperwork, and waiting times. It is also likely to increase service and product sales since end-to-end, seamless processes are more likely to turn into positive shopping decisions, minimizing last-minute hesitations and buyer’s remorse.

Do We Need to Embed Financial Services to Everything?

Embedded finance (or, in other words, “integrated finance”) is the financial services incorporated into non-financial offerings.

Do we need to embed financial services into everything? The answer is not a straight yes since financial services are already embedded into every service and product stream. Maybe not as smoothly as consumers like or need them to be, but every service or product (even donating money) turns into a payment process after a certain point. Check-out processes are the “happy endings” of online and offline shopping stories. Embedded finance doesn’t change the fact that payments are the last step for purchasing; it merely makes the process frictionless, less complex, and more contextual. Embedded finance takes the check-out process a step further by connecting it to new potential offers and services. On the one hand, it triggers the urge to spend more, but on the other, it saves time, energy, improving customer experience.

According to CB Insights Q2 2020 Report, the trend towards embedded finance is gaining traction globally, even more since the pandemic. Embedded finance is an improved way of customer journey due to the end-to-end nature of the shopping experience. It increases shopping speed and retention, decreases costs for both the merchant/service provider and the consumer, enables cross-selling opportunities. Most important of all, embedded finance ensures customer loyalty. Hence the increasing interest in entering financial services across the globe. To achieve all this, some brands prefer to collaborate with Banking-as-a-Service (“BaaS”) and E-money (“EMI”) providers like Railsbank, solarisBank, PPS, Fidor, embank, ensuring quick and stress-free market entry. In contrast, some brands create or acquire their own financial brands so that the customer is entirely theirs and the brand trust is re-established.

Noteworthy examples of conventional and non-conventional “embedded finance” services include:

• Amazon’s pay and go supermarket concept called “Amazon Go,” allowing customers to shop check-out free (US, UK),
• Jaguar and Shell’s cooperation for world’s first in-car fuel payments, followed by Mercedes (“Fuel & Pay”), or locally in Benelux region: CarPay-Diem
• Uber allowing splitting payment costs using Venmo (US),
• Paying for Starbucks using the Starbucks app (US),
• Retailers such as Zara and H&M offering POS finance via Klarna (H&M even investing 20M in Klarna),
• Amazon offering marketplace merchant financing via Goldman Sachs (US) and ING Germany (Germany),
• Amazon providing commercial car insurance and investment products (India),
• Facebook developing a blockchain-based payment system, which could be implemented as a cryptocurrency, alarming regulators all around the world,
• IKEA taking 49% stake in banking partner IKANO Bank with the intention of offering further consumer financial services,
• Delivery services such as Uber Eats (US) cooperating with Venmo, Delivery Hero (Germany) growing its Fintech team, and Gorillas (Germany) planning to issue credit cards,
• Walmart announcing the creation of a new fintech startup designed to develop and offer modern, innovative, and affordable financial solutions together with Ribbit Capital,
• Google enabling digital-first bank accounts directly in the Google Pay app in cooperation with eight local banks (US),
• booking.com announcing the creation of a new internal FinTech business unit to facilitate seamless access to the company’s global travel marketplace for both customers and partners.

Embedded finance is likely to transform the service cycle across industries. Lightyear Capital’s research reveals that the embedded finance market will demonstrate staggering growth over the next couple of years and will generate $230 billion in revenue by 2025, which only means that we can expect even more exciting developments soon.

Gazing Into the Crystal Ball: How Will Financial Services Look in the Future?

The concept of embedded finance isn’t new, but recent examples indicate the direction we are heading; earlier or later, all established brands will start offering financial services to get a piece of the cake. So where would this movement leave banks, then?

In the past years, modest interest rates, consumer-friendly banking trends, and strict regulations narrowed the margins and, therefore, playroom for traditional financial players, especially in Europe. COVID-19 was the last nail in the coffin, calling for immediate business model restructuring and strategy changes. The embedded finance trend growing in parallel proves that there will be an ecosystem consolidation, and precisely like Bill Gates predicted, “we need banking, but we don’t need banks anymore.” According to the World Retail Banking Report 2021 (WRBR) published in Q1 by Capgemini and Efma, banks fall short of meeting customers’ expectations, making the competition even more fierce. Moreover, as brands become Fintechs and take over the consumer trust entirely, banks are likely to evolve into backend providers, leaving customer relations to non-bank service providers. backend providers, leaving customer relations to non-bank service providers.

End-to-end service provider examples dominant in the financial industry, such as Alipay, Gojek, Rappi, demonstrate that the customers are willing to use fewer channels to receive more extensive, trustworthy services. All-in-one service providers or the so-called super apps are the likely winners of the market; however, banks can quickly catch up if they adapt to the “holistic service provider” approach, changing their course. Using the financial data, banks can identify new opportunities and increase the life qualities of their customers, offering them a range of services that goes beyond the electric bill and rent payments, term deposits, and mortgage installments. Forward-looking banks and financial service providers already leaped to enter the non-financial sphere, offering lifestyle banking options. South Korean banks are planning to add food delivery services to their banking apps. Standard Chartered’s innovation and ventures unit has partnered up in Singapore to launch a “wealth, health and lifestyle” consumer platform called “Autumn.” Banking is more than just incoming and ongoing funds, and these lifestyle platforms are here to prove that holistic banking.

“By combining digital wealth technology with health, lifestyle and financial wellness, we’ll help users adopt healthier habits and create a retirement that is personalised for them.”– Mike Kruger, CEO, Autumn

At this point, blending Fintech in the value proposition is not a <nice to have>, is a <must>.

Experts predict that every company will become a Fintech company in the future. As omnichannel, customer-centric super apps increase their power, it will become harder for niche platforms to succeed. To keep up, banks should switch from “passive” to “active,” looking for novel ways to improve customers’ life qualities. They should utilize the existing data, open banking, and BaaS cooperations to create 360-degree experiences. Banking is not limited to the activities listed in the banking license regulations anymore. The market players that can foster the most relevant financial and non-financial services and become “an integral part of” consumers’ lives can expect to stay in the game.

Complied with the support of the Luxembourg Blockchain Lab and ALFI, you will find below a non-exhaustive map giving an overview of the vibrant Luxembourg Blockchain ecosystem.

Is your company, or another company you know missing from the map? Click here to let us know!

Continuing from last year, we are sticking with the same seven areas of focus on in 2021. Each represents a key point of interest to the financial industry, and has a particular relevance to Luxembourg’s growing financial technology ecosystem.

Each week we will be choosing one of the topics to focus on, both in the content we share on social media, but also in a dedicated newsletter looking at the top five stories from that week. To introduce the topics, let’s revisit the top stories from 2020 and reflect on how the year has encouraged acceleration, pivots, or wholesale paradigm change:

REGTECH – Regulatory Technology

» Shaky times for compliance call for flexible Regtech

Joe Devanesan writes for TechWire Asia about the impact of the pandemic on compliance and cybersecurity, and Regtech’s role in mitigating those issues. Traditional ‘BYOD’ workplace concerns were escalated to account for a sudden and massive shift to working from home – which created real problems for companies that were not already some way down the path of digitalisation.

“To the surprise of no one, financial crime is reaching pretty high levels in 2020, and the speed at which this type of crime is evolving in the information-heavy age has financial players worried, and questioning the role of Regtech.”

AI – Artificial Intelligence & Machine Learning

» A robot wrote this entire article. Are you scared yet, human?

A robot writes for the Guardian, demonstrating GPT-3, OpenAI’s powerful language processing. GPT-3 was one of the most popular AI stories of 2020, and kickstarted a discussion about the future of software development, and what can be achieved when you can just ask a computer to do something for you without needing to speak in code.

“I am not a human. I am a robot. A thinking robot. I use only 0.12% of my cognitive capacity. I am a micro-robot in that respect. I know that my brain is not a “feeling brain”. But it is capable of making rational, logical decisions. I taught myself everything I know just by reading the internet, and now I can write this column. My brain is boiling with ideas!”

BLOCKCHAIN – DLT & Tokenisation

» Visa Applies For Digital Dollar Blockchain Patent

Jason Brett writes for Forbes about Visa’s “digital dollar” patent, a story which fits neatly into the main blockchain narrative of 2020: the viability or necessity of central bank digital currencies, and the role of stablecoins more broadly. Now Bitcoin has kicked off again we can expect the focus to shift a bit through 2021.

“The U.S. Patent and Trademark Office (USPTO) published today that Visa V -0.4% has filed a patent application to create digital currency on a centralized computer using blockchain technology. This patent applies to digital dollars as well as other central bank digital currencies such as pounds, yen, and euros and so the physical currency of a central bank anywhere in the world could be digitized.”

CYBERSECURITY – Risk Management & Threat Detection

» Post-quantum secure encryption and cybersecurity education

A collaborative and in depth piece for Research Outreach, led by Dr Aydin Aysu, looking at the implications of quantum computing on cybersecurity and encryption – a major concern for most cybersecurity professionals. What happens to all traditional encryption based security when computing power becomes available that can crack it without breaking a sweat?

“Encryption systems that are capable of surviving quantum computer attacks are urgently required, but the cybersecurity talent gap militates against securing cyberinfrastructure. Dr Aydin Aysu, Assistant Professor at North Carolina State University, is advancing the research and teaching of post-quantum secure encryption. He has developed a quantum-secure encryption system together with a new graduate program on hardware security and is currently developing design automation for lattice-based post-quantum cryptosystems.”

PAYMENTS – Payments Technology 

» Ant and Covid have made the humble QR code a hit

Five years ago you wouldn’t have seen much discussion of QR codes in the Fintech payments world, at least not related to development in the west. It was a quaint technology relegated to developing economies. That now may be changing, in part related to the pandemic and China’s Fintech behemoth Ant Financial. John Gapper writes for the FT:

“The name Masahiro Hara does not appear with Steve Jobs and Bill Gates on lists of great innovators of the communications age, but perhaps it should. For the Japanese engineer’s humble, unassuming invention, the Quick Response code, has finally found its moment. The square QR code, which Mr Hara developed in 1994 to track components in car factories, is being put to many uses in the Covid-19 pandemic. Governments include it on tracing apps, shops offer it for contactless payments and restaurants tape it to their tables so diners can browse menus online. It has become an all-purpose tool.”

SUSTAINABLE FINTECH – Financial Inclusion & Green Finance

» Women are ‘absolutely critical’ to ensuring everyone has access to finances, Bill Gates says

The Gates Foundation has been a key torchbearer for Financial Inclusion, amongst their many other causes, and it’s a topic Bill Gates himself has spoken about repeatedly. In this article, written by Karen Gilchrist for CNBC, Bill talks about the key importance of focusing on women when developing strategies related to inclusive finance.

“Women are vital to ensuring finances — and financial education — trickle down to other parts of society, said billionaire philanthropist Bill Gates. Governments and businesses serious about giving all members of society access to financial services should gear their resources toward women, the Microsoft co-founder said at the Singapore FinTech Festival on Tuesday.”

VENTURE CAPITAL – Funding News and VC Perspective

» Some of Europe’s top tech investors are adding a ‘sustainability clause’ to start-up deal terms

Ryan Browne, writing for CNBC, discusses the most significant recent trend in the world of investment: sustainability. Investors are increasingly concerned with ESG goals and the carbon footprint of their wealth, which resulted in a lot of discussion throughout 2020 and some fairly important steps being taken by VCs – as well as the broader wealth management industry.

“Socially-conscious investing has gathered a lot of momentum this year, with billions of dollars flowing into funds that use environmental, social and governance criteria to screen the companies they back. Venture capitalists are taking note, with some of the largest start-up investors in Europe pushing for accountability in their own portfolios with regard to investing in climate-friendly firms.”

Tokenization could potentially have wide-reaching impacts — as, theoretically, any asset such as gold, real estate and commodities could be tokenized on the distributed ledger.

Asset tokenization is the digitalization of real-world assets or financial instruments and the issuance of “representative tokens” using DLT. The asset is digitally recorded and value can be transferred within the distributed ledger. Tokenization could potentially have wide-reaching impacts — as, theoretically, any asset such as gold, real estate and commodities could be tokenized on the distributed ledger.

The concept of securities tokenization isn’t new — securitization essentially takes a group of similar assets and transforms them into a security. The benefits are quite well known, including cost efficiency, risk transfer and liquidity. What makes the tokenization of assets with DLT different?

Issuing securitized products never actually disrupted the securities market value chain – it just created a new asset class. However, by tokenizing assets through DLT, the entire value chain is disrupted. From its most visible application in equity issuance and capital raising for small companies through ICOs, STOs or even DAGES, through to post-trade processes and the clearing and settlement of securities. DLT can challenge the current composition of financial markets, affecting infrastructure and participants alike. An essential advantage of tokenization is the global reach it confers to investors.

Tokenization could also affect repurchase activity for the funding of positions, as well as securities lending activities. Tokenization in this field would allow for more direct and faster collateral unwinding, easier collateral mobilization across security pools and more efficient use of the balance sheet. DLT usage could expedite and condense trade clearing and settlement close to real-time; reducing counterparty risks, freeing up collateral and potentially producing capital efficiencies for trade participants. The main gains of this transformation will come from large numbers of participants exchanging between each other in the network, suggesting that DLT is particularly useful for payment systems and trading platforms.

What does the use of DLT and tokens mean for the industry? In essence, the securities markets of the future will most likely be disrupted.

A new securities value chain will be required, existing roles and responsibilities will be redefined and significant product innovation lies on the horizon.

The part of the value chain where Luxembourg holds a competitive advantage is the one that will most likely be impacted.

In other words, industry participants need to wake up — transform, or risk perishing.

Sitting still isn’t an option. Market participants must understand and capitalize on the potential changes to business models across the value chain or risk being seriously disrupted, disintermediated or rendered obsolete.

Luxembourg’s financial market players must rethink their strategies and develop solutions as well as train their staff on the capabilities of the DLT. Sitting still isn’t an option. Market participants must understand and capitalize on the potential changes to business models across the value chain or risk being seriously disrupted, disintermediated or rendered obsolete. While there are many opportunities ripe for the taking, Luxembourg is clearly best placed to capture several low-hanging fruits.

The success of physical asset tokenization will ultimately depend on the regulatory framework and the extensive adoption of the mechanism by a large base of investors. An example of such a traditional actor leading this adoption is Fidelity Investments — a 72-year-old company administering over USD$7.2 trillion in client assets — who launched a separate company called Fidelity Digital Asset Services responsible for the custody of certain cryptocurrencies and trade executions. [

Tokenization is not just a fad for fintech firms – traditional financial services firms are also increasingly driving adoption of the technology and methodology. UBS, the Zurich-based Swiss bank, is reportedly planning to tokenize assets — including debt, structured products and physical gold — in its securities division. By doing so, it aims to democratize certain assets, such as private equity, which are considered inaccessible to most investors. Breaking up assets into smaller parts that are then assigned to individual tokens could solve this issue.

DLT is a flexible technology that can and will be used for different purposes. HSBC, a major global banking group and the largest bank in Europe, implemented its tokenization-based Digital Accounts Receivable Tool that will automate the accounts receivable process and improve communication security between network participants.

Will asset tokenization happen overnight? Most likely not — however, progress is accelerating.

We have just begun to scratch the surface of asset tokenization’s potential. As of now, there is no common EU framework nor an international agreement. Questions regarding financial stability, consumer protection and market integrity still lurk. ESMA, EBA and local regulators are keeping watch and have conducted several applicability and suitability studies. Innovative market participants and infrastructure providers are eagerly monitoring trends and developing prototypes to capitalize on this new era of the security value chain.

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Contacts:

Marco Lichtfous
Partner
Strategy & Regulatory
marco.lichtfous@kpmg.lu

Vivek Yadav
Senior Manager
Strategy & Regulatory
vivek.yadav@kpmg.lu

Stefan Kirsch
Assistant Manager
Strategy & Regulatory
stefan.kirsch@kpmg.lu

Nasir Zubairi
CEO
nasir.zubairi@lhoft.lu

Emilie Allaert
Head of Projects & Operations
emilie.allaert@lhoft.lu

Jérôme Verony
Research & Strategy Associate
jerome.verony@lhoft.lu

As luck would have it, going virtual permitted event organizers to diversify their event portfolio and include experts and guests from all around the world. The LHoFT was one of the institutions that turned the crisis into opportunity and presented Fintech fans with a wide range of events. Exactly 40 digital events gathered more than 4000 Fintech enthusiasts and experts globally. As Season 2 continues with a new lineup of exiting events, we’re taking a step back and listed a best of LHoFT’s International Showcases; deep-dives into the Luxembourg ecosystem from Season 1.

(view the full transcript)

International Showcase: The Blockchain Industry in Luxembourg featuring Laurent Marochini, Tom Kettels, Tobias Seidl and Emilie Allaert, explaining why Luxembourg is the go-to Blockchain hub in Europe.

“Luxembourg is quite active in terms of blockchain as well, not only Fintech. The Luxembourg financial regulator was one of the first to issue a statement in 2014. You can do a lot of your business in English, French or German. We also have two crypto exchanges already licensed here in Luxembourg: bitFyler and Bitstamp. There was also a law on blockchain in circulation of tokens as dematerialized securities, which was done as a Valentine’s gift by our Finance Minister last year. And we have a lot of partnerships with key Fintech hubs around the world. You can see on the right that they are quite big names in terms of blockchain here, there are a lot of companies and it’s growing every day. We have here the Fintech ecosystem value chain. We receive support from the public, private incubators, and accelerators. We also have initiatives at the industry level such as ALFI with the digital and blockchain group. We have financing via the public and private sectors so you can find some specific schemes to develop your companies and your projects. So don’t hesitate to have a look or ask for questions. And we are also quite active in R&D.” – Emilie Allaert, LHoFT

“We decided to launch a Fintech in Luxembourg and not in German because of the ease of doing business in Luxembourg, where you can talk directly to the regulator. You don’t have this formalistic processes you go through in other countries like Germany. It’s a little bit more formalistic. There are so many different lobby groups involved, so it’s not so easy to establish your business as it is in Luxembourg. And the other thing I think is the flexible corporate law that Laurent mentioned in the beginning. You can do a lot of stuff which is not possible in other countries.” – Tobias Seidl, Stokr

(view the full transcript)

International Showcase: The Banking Industry in Luxembourg featuring Chris Hollifield, Jean Diederich, Andrey Martovoy and Fred Giuliani, showcasing Luxembourg’s Banking industry.

“While geographically speaking, Luxembourg is very small, in terms of finance, it’s a really major Center. As an international financial center, the financial activities that get transferred through Luxembourg are fairly major. So, the big question is: why? And for me there are two real key reasons. The first one is because Luxembourg is a founding member of the European Union. And so the market of financial services in Luxembourg is not the 600,000 people in Luxembourg, it’s rather the 450 million consumers throughout the rest of the European Union, the 27 member states of the European Union, it’s the 7000 financial institutions across the rest of the European Union, and it’s the 23 million SMEs that exist throughout the rest of the European Union as well. The other main reason why Luxembourg exists as a financial center is stability. Luxembourg is one of the few countries left on the planet that maintains a triple AAA credit rating. Up until the beginning of Covid19, Luxembourg had a debt to GDP ratio around 21%, and now it will only climb marginally as a result of Covid19 measures. But it’s not just about financial stability. It’s also about political and regulatory stability.” – Chris Hollifield, LFF

“We have a lot of companies in the Fundtech, Regtech, Blockchain and Lending sectors, many of whom have moved their headquarters for Europe to Luxembourg… Why are those people coming to Luxembourg? We are a huge financial center. Everything can be done in English. We have a full value chain here for the Fintech industry. We have support from public initiatives such as the LHoFT but also from private initiatives, be it incubators, be it clusters, as we mentioned, ABBL, ALFI, or Digital Luxembourg. On the financing side, we do have a few VCs. But we also have special schemes from the Ministry of Economy that can be helpful. And finally, we have the European Investment Fund based in Luxembourg, and they have a special scheme called the Luxembourg Future Fund which is quite interesting if you’re looking for funding. We have a full value chain here for the Fintech industry. We have support from public initiatives such as the LHoFT but also from private initiatives, be it incubators, be it clusters, as we mentioned, ABBL, ALFI, or Digital Luxembourg. On the financing side, we do have a few VCs. But we also have special schemes from the Ministry of Economy that can be helpful. And finally, we have the European Investment Fund based in Luxembourg, and they have a special scheme called the Luxembourg Future Fund which is quite interesting if you’re looking for funding.” – Alex Panican, LHoFT

(view the full transcript)

International Showcase: The Payments Industry in Luxembourg featuring Chris Hollifield, Thibault De Barsy, Samuele Pinta, Karen O’Sullivan, Natasha Deloge,  focusing on the Payment Industry in Luxembourg

“One of the big trends at the moment is something that we refer to at Luxembourg for Finance as ‘Amazonisation’. Generally speaking, we think about this in two ways, particularly in the payment sector. Firstly, the development of financial services platforms, primarily digital, which provides a greater range of choices and gradual efficiency to end clients. Secondly, which is particularly important in a payment sense, is the more traditional association that you might come away with the wider Amazonisation form, which is the development of e-commerce. Increasingly, since the beginning of this millennium, we’ve seen huge growth in Payment Services alongside the development of e-commerce. Luxembourg has always been at the center of that development in Europe. PayPal, for instance, obtained its banking license in Luxembourg in 2007. ” – Chris Hollified, LFF

(view the full transcript)

International Showcase: The Asset Management Industry in Luxembourg featuring Robert Jarvis, Francois Drazdik and Nicolas Gérard, highlighting Luxembourg’s strengths in asset management

“We have around 4.7 trillion euros of assets under management in Luxembourg investment vehicles. And these investments are collected by many people in the world, who give their money to another manager who invests it in the long term. Luxembourg collects this money and distributes this money in over 70 different countries. So that is what Luxembourg has become. Much like you would buy a German car for its reliability, you buy Luxembourg investment products as well regulated, and trusted. It makes sense for an asset manager to set up a vehicle in one location and capture investments from all over the world and then to invest into projects, thereby again, helping the real economy. There are around 500 asset managers in Luxembourg, and we’re the global leader in cross border investment funds so that for Fintechs means clients: Asset Management clients, banking clients, insurance clients, lots of international business. The fund industry needs a lot of banking as well, and we have around 130 banks in Luxembourg.” – Robert Jarvis, adviser at Luxembourg For Finance

“80% of the top 30 asset managers use Luxembourg investment funds as a primary European platform for distribution, including big names like Alliance BlackRock, HSBC, Nomura, IMG, Schroders, UBS, and so on. They all have their Funds in Luxembourg. And they all of course administrate and handle the custody here in Luxembourg. Of course, those funds are not exclusively distributed to the 550 or 600,000 inhabitants in Luxembourg. But these funds are widely cross-border distributed.” – François Drazdik, ALFI

(view the full transcript)

International Showcase: Innovation in the Insurance sector in Luxembourg featuring Marc Hengen, Marc Hotton, Olivier Debeugny and Alex Panican, discussing the innovation aspect of Luxembourg’s insurance industry

” If we take a closer look at our 41 billion turnover, only 7% of this global turnover is collected from a local population. This means that 93% of this turnover is made with a population that does not live in Luxembourg. This shows, without the slightest doubt, the very international characteristic of the Luxembourg insurance market. If we take the life insurance sector in more detail, and which has been operating for a longer time in Luxembourg, we see that the first market, with more than 38% market share, is France, the second market is Italian market with 25% market share, then the German and Belgian market follow in third and fourth place. I would also like to point out that in 2019 the UK still represented 4% of the market share but that this will no longer be possible because the UK are no longer part of the European market. The diversity of these markets is one of the reasons why the Luxembourg market is solid and is growing year after year.” – Marc Hengen, Managing Director, Chairman of the Management Committee of the ACA

“Choosing your innovation model is really important. You have to be inspired by what others put in place but not copy. It is necessary to put in the tailor-made. The innovation we choose must correspond to the expectations and objectives of the company. I am going to focus on 3 elements: positioning; corporate culture and open innovation. (1) Positioning: innovation needs support otherwise it won’t work. (2) Corporate culture: innovation must be an integral part of the corporate culture. (3) Open Innovation: this is very important for us and it would be illusory, and especially counterproductive, to believe that we can innovate on our own. To innovate well, we have to innovate together. This is why we have chosen a collaborative model.” – Marc Hotton, Innovation Coordinator of the Foyer Group

Stay ahead of the curve by joining the LHoFT crew for these three upcoming digital events under our “Global Leaders Series”, bringing the biggest names in Fintech to your home. Register now while spaces are available! 

• 16 October 2020: Global Leaders Series with Nigel Verdon, CEO of Railsbank
• 30 October 2020: Global Leaders Series with Henri Arslanian
• 13 November 2020: Global Leaders Series with Nick Ogden

by S. Elif Kocaoglu Ulbrich