Blockchain and Crypto trends

“Blockchain for Good”

Several trends emerged during the week, with the growing importance of ESG (environmental, social and governance) criteria and sustainable finance issues. After the debate on blockchain’s energy consumption, which was particularly centred around Bitcoin, discussions are now increasingly focused on how this technology is used to make a positive and lasting impact. By way of reminder, following Ethereum’s change of protocol with “The Merge”, CO2 emissions fell by 99.992%, from more than 11 million tonnes per year to less than 870, according to the CCRI.

Blockchain is a technology that makes the information recorded on it immutable and transparent. Numerous initiatives have been introduced to enable companies to track their investments more closely. They use blockchain to communicate on their commitments linked to the Sustainable Development Goals (SDGs) defined by the United Nations, thereby increasing the confidence of investors and the ecosystem, which is proving to be a key factor in their success.

At the same time, in addition to traceability, carbon credit trading is developing on these technologies, which offer secure and appropriate infrastructure for these new players.

Financial inclusion was also on this week’s agenda, and the spotlight was on major trends. Cryptocurrencies and blockchain, which can provide solutions that promote financial inclusion, were also highlighted for their use in crisis situations or in supporting humanitarian causes.

The synergies between ESG issues and new technologies thus create value and new business models.

The finance of the future in Luxembourg

A full day was dedicated to finance, which accounts for nearly 50% of use cases. European regulations, with the future implementation of the MiCA (Markets in Crypto-Assets) Regulation and the recent adoption of the pilot regime for security tokens, were at the heart of the discussions. All the speakers commended the European Union’s responsiveness in this area. Thanks to this responsiveness, Europe is ahead of the game, particularly in relation to the United States, where the regulators’ positions are not yet clear. As a result of this ground-breaking positioning, a number of leading companies have already chosen Europe as their home. 

The tokenisation of financial and non-financial assets was also discussed over the course of the day. The use of tokenisation is increasing among most financial banking players as well as among supra-state players such as the European Investment Bank. It has already issued several digital bonds in Luxembourg. These major achievements are contributing to the adoption of the new technology by key institutions. These days, we no longer talk about experiments but about market transactions.

During the panel discussion organised by Societe Generale Luxembourg, speakers from the Banque Centrale de Luxembourg, the European Stability Mechanism, Olkypay and SG Forge – a subsidiary of the Societe Generale group – spoke about the main challenges that the industry must overcome to reach Gartner’s “plateau of productivity”. Interoperability, standardisation, the risk of market fragmentation and a “Cash on Chain” solution are some of the measures needed to ensure adoption by the market.

The recent announcements by the European Central Bank on experiments with a wholesale digital currency are a step in this direction. Once these conditions have been met, they will help to attract more players and therefore more liquidity, which is currently considered insufficient. A virtuous circle needs to be created to take full advantage of blockchain. There is still a long way to go, but preparations are already under way. According to David Durouchoux, Deputy CEO of SG Forge: “The experimentation phase is over. With MiCA and the pilot scheme, we are at the beginning of a new era of industrialisation, with new marketplaces and new instant payment methods”.

And in the more distant future?

Further into the future, blockchain will also revolutionise the circulation of money, through Decentralised Finance (DeFI). As a result, transactions could take place without the involvement of a financial institution and through trading, lending or borrowing transactions. Apart from the MiCA regulation, these developments in finance for the more distant future are of increasing interest and Luxembourg will have to pay close attention to them.

On a different note, governance, an essential element that generates trust in organisations and relies on administrators, could also be decentralised thanks to decentralised autonomous organisation (DAO) systems governed by rules entered into the blockchain.

More generally, this latest edition of Luxembourg Blockchain Week also highlighted the fact that technologies are evolving exponentially. The acceleration of the use of generative artificial intelligence, such as ChatGPT, could help to accelerate new sources of innovation.  It is therefore important to be attentive and properly equipped to seize the opportunities to make Luxembourg a key financial and innovation centre for the future.

Article published in AGEFI Luxembourg

Laurent Marochini
Head of Innovation, Societe Generale Securities Services Luxembourg