Is Blockchain destined to fail in Italy?

Introduction

Blockchain represents something seemingly distant, compared to the hunger for digitization that we discovered in the most dramatic phases of the health emergency. But is it really so?

Reading the document “Proposals for the Italian strategy on technologies based on shared ledgers and blockchain”, elaborated by the group of experts appointed by MiSE, it can be safely stated that blockchain is not destined to end its run on a dead track. The document, even if it arrived after two years of work, represents a response finally up to expectations. Moreover, if 2018, thanks to decree-law no. 135/2018, will be remembered as the year in which Italy discovered the political importance of blockchain and regulated some of its aspects, 2020 is the year in which experts have finally spoken out, formulating a strategy that has now become public domain.

The summary of the document, available at this link and in consultation until last July 20, exposes some recommendations that range in various directions:

from providing Italy with a competitive regulatory framework, to increasing public and private investments, favoring the adoption of a common European infrastructure; from identifying application fields to direct investments in line with key sectors of the economy, favoring, among other things, the transition towards circular economy models, to promoting Blockchain/DLT among citizens, to make them more informed and aware of its potential[2]. The whole document deserves attention and sharing because it represents an important step for the technology to become central. If today blockchain is moving beyond the hype and into the mainstream, the ball now passes back to politics, which is responsible for putting into practice, with concrete measures, the directions and recommendations formulated by the technicians.

The Strategy, in fact, is not enough on its own. The proposals must be implemented and policy-makers will have to prioritize. Let’s see what the next steps can be for starting the executive phase and the critical nodes that still need to be untangled.

Recovering lost ground

In September, the group of experts will meet to examine the documents that emerged during the consultation. In any case, the choices on priorities and how to translate the recommendations into operational indications will be up to Parliament and the Government, which will have to indicate where DLTs (which have been around for several years) can be used and where blockchain can be applied.

Of course, Guidelines on Blockchain must be issued as soon as possible, that is, the Agid measure containing the technical standards and requirements of distributed ledger technologies. Announced for issuance at the beginning of the year, they have not been issued yet.

The reason for the non-publication is not clear, considering that the document was already ready in January, but by remaining in the drawer, further delay is being accumulated. It is therefore essential to submit the Agid document to consultation as soon as possible, in order to untangle any knots.

There is no more time to waste, and we cannot afford to accumulate any more delays, especially because in this recovery phase, businesses should be supported and the supply chain should be strengthened, with a new welding between high-quality artisanal productions and distribution.

Community or consortia blockchain, voluntary but incentivized, supported by a national infrastructure. An innovative concept that looks at the sharing economy and that carries with it proposals related to the use of sandboxes and those related to the legal framework necessary for the definition of tokens, at the basis of tokenomics. Then think about the mobilization of real estate, or at least the accessory rights on them, through the reform of public registers.

Objectives

Simplification and assistance to businesses are the two main objectives that need to be addressed. Blockchain represents the best way to reduce bureaucracy, simplify and make all processes transparent, and make it a professional and solid ICT tool on which to structure data exchange and interoperability between systems in the immediate future.

If some blockchain projects in Italy sometimes falter, it is because there is a lack of clear tax and a simple regulatory framework. In some cases, investors are afraid to invest money in a project that could cause tax evasion or privacy violations due to an ambiguous comma in the future.

The central issue of Blockchain is transparency, which is also its strength, but which scares many people. The government must accept transparency and trust as a philosophy (think of public competitions), thus reforming the tax system in a simple and non-punitive way. All this is far from happening, and this time it is not a problem unique to Italy.

Other important steps to take are:

• integrating the Blockchain strategy with Proposals for an Italian Strategy for Artificial Intelligence (consultable at the link here), also developed by 30 MiSE experts and waiting for executive design;
• coordination with the National Innovation Fund, already operational after the presentation of the Cassa Depositi e Prestiti 2020-2022 Industrial Plan, to make venture capital a mainstay of economic development and to meet the need for innovative startups to find investors capable of investing in blockchain projects.

Investments

Total venture capital investments are growing rapidly in Europe (from €5 billion in 2013 to €25 billion in 2018), but remain limited compared to the United States, where the market is about five times larger.

However, when we look at investments in Blockchain technologies, the gap in investments for startups between Europe and the United States is significantly smaller.

While most investments in Blockchain startups are directed to US companies for a total of €4.4 billion (33%), European companies have attracted a solid €2.9 billion (22%), and China follows with a total of €2.8 billion (21%).

One of the underlying reasons is that between 2009 and 2018, European blockchain startups relied much more on alternative forms of financing than their US counterparts.

According to research by the Blockchain & Distributed Ledger Observatory of the School of Management of the Politecnico di Milano, Italy in 2018 showed strong ferment, ranking third in Europe by number of projects after the UK and Germany, spending €15 million, with 150 cases divided between training courses and strategic consulting to understand modes and application areas, consultations to learn about different platforms and develop pilot projects, actual operational projects, and 10 cases of ICO (Initial Coin Offerings activated by startups).

Blockchain development: tangible strategies for support.

European institutions want to strengthen this trend and intend to support the development of a dynamic ecosystem of innovation at the European level.

In particular, the European Commission, in collaboration with the European Investment Fund, has created the first EU equity investment fund dedicated to AI and blockchain technologies, which will be announced at Convergence – the Global Blockchain Congress (link here) in Malaga from 11th to 13th November 2020.

Many countries have developed a strategy on Blockchain, for example, Germany. Now it’s also up to Italy to make its moves. While waiting for a decisive initiative from Europe, the Italian national strategy, if well applied, could serve to attract Italian and foreign capital. We need it so much.

It is therefore a matter of systematizing various initiatives underway, with the MiSE which must demonstrate that it is capable of playing the role of an institution capable of making reforms operational, the place where strategies become reality.

Only in this way can we dissolve the dilemma of whether Blockchain is slowly sinking, much like MiniDiscs did twenty years ago, or whether it is something worth investing in today to create new processes, new ways of managing data flows technologically, or even to build new business models to fuel organizational units and new companies.

[1] Among the approved provisions, it is worth mentioning Article 8-ter, which for the first time defines smart contracts and gives legal validity to “distributed ledger-based technologies,” such as blockchain, defined as “technologies and computer protocols that use a shared, distributed, replicable, simultaneously accessible, architecturally decentralized register on cryptographic bases, capable of registering, validating, updating and storing data both in clear and further protected by encryption, verifiable by each participant, unalterable and unmodifiable.”

[2] According to the Ipsos thermometer, 20% of Italians are informed about what Blockchain is, the remaining 17% have heard of it but do not know what it is, and 62% have never heard of it.