Crypto-currencies, distributed ledger technologies and initial coin offerings dominate Crowd Dialog in Vienna

Three hundred delegates from thirty-countries convened in the Austrian National Library of the Hofburg Palace in Vienna, as guests of the Austrian Parliament, to consider developments in the crowdsourcing and crowdfunding space over the last year. Perhaps predictably, there was a strong focus on the role of distributed ledger technology (DLT), initial coin offerings (ICOs), Security Token Offers (STOs), crypto-currencies as well as peer-to-peer, equity and reward-based crowdfunding. The conference was opened by the deputy chair of the Austrian Parliament — who spoke of the crowdsourcing initiative of the national assembly in establishing the Austrian people’s priorities in the renovation of their building which is due to be completed in 2021. The theme of harnessing the power of the crowd in politics was also followed up in the afternoon when Austrian parliamentarian Martha Bissman opined about how citizen democracy might work.

The conference received a keynote address from Ewald Nowotny, the governor of the Austrian central bank who discussed different approaches to regulatory sandboxes across Europe, and observed that the distribution of alternative finance around the continent is very uneven. Austrian retail bank customers have arrived in the digital age with fifty-eight per cent using online banking at least monthly, and only forty-three per cent using bank counters. He stressed the importance of social objectives in devising regulation — including for traditional finance where the increasing use of algorithms in making lending decisions had generated some quite peculiar outcomes.

Reflecting on approaches to corporate finance, Dr Nowotny explained that the role of small businesses was greater in Europe than in the United States: and that higher risk should be financed through equity: contrasting that venture capitalists required robust risk appetites and products, whilst investment trusts tend towards risk aversion. The contribution of fintech was still small — just 20m Euros in Austria. Legislative change had been enacted there in 2015, but the sector still represented just 0.007 per cent compared with banking.

Finally, on crypto-assets, the governor argued that crypto-currencies were not proper currencies — suitable for speculation and trading, but not as means of payment and store of value.

The role of initial coin offerings was championed in another presentation where Olga Feldmeier reported that $30 billion had been raised through initial coin offerings this year (compared with $55 billion in venture capital last year), with three-thousand companies likely to adopt this approach this year. It was acknowledged that costs remain relatively high, and regulatory and banking complications exist (with banks charging as much as two per cent for an ICO, which is broadly consistent with that for an IPO, but just for managing the payments). ICOs offer the prospect of borderless capital not controlled by banks, which, whilst presenting some risks which need adequate management, can also replicate a global IPO.

The future of crypto-currencies was a feature of the afternoon’s discussion, including with a thoughtful speech by Dr Joachim Schwerin, the Principal Economist in the SME Access to Finance team at the European Commission — with markets identified as the vehicle to determine what does and doesn’t constitute a currency. Traditional banking — which poses significant systemic risk and has a poor track record in small business finance — has a particular dominance in European markets (with three-quarters of small business finance sourced through banks). Conventionally, the banking sector has created money, but with the emergence of new players — such as security token offerings, securities and ICOs — other opportunities are gaining momentum, with distributed ledger technology (DLT) increasingly integrated into the real economy. DLT is one of the four key issues being promoted by the European Commission (alongside genomics, artificial intelligence and quantum physics) with a view to: (i) scaling the internal market, including for crowdfunding; (ii) creating awareness and increasing the appetite: a process for education; and (iii) promoting the security and integrity of markets. An EU Blockchain Observatory had been created, but one challenge is the speed of development in the sector which renders legislation obsolete very quickly. However, establishing global governance for global technology is juxtaposed by the political dynamics which increasingly are shifting in the opposite direction.

All-in-all, Crowd Dialog was another opportunity to reflect on the rapidly-changing world of alternative finance and the broader power of the crowd. It’s clear that there is much to be done to promote the growth of crowdfunding in parts of Europe where experience lags behind that in more developed markets, such as in the United Kingdom. However, the main theme for me at the event was the future of distributed ledger technology, initial coin offerings (security token offers) and the difficulty in determining the future of crypto-currencies. What is certain is that this remains a very exciting field, and one which will fascinate delegates at many such gatherings in the future.

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