Exploring Blockchain for Alternative Finance
The ECN multi-stakeholder working group “Exploring Blockchain for Alternative Finance” has published its scoping paper for the work it set out for the coming 18 month. The paper argues, that early-stage funding has witnessed a small revolution that has the potential to fully change the financial sector. Crowdfunding platforms were launched to provide market testing and funding through large groups of retail investors and private funders. This led to a new, diverse and increasingly professional alternative finance sector in Europe, providing equity-, lending- and reward-based funding options.
In this context, distributed ledger technology (DLT) systems, blockchain and cryptocurrencies represent an opportunity to further innovate crowdfunding and alternative finance provision. Although “DLT systems conceptually emerged in 1982, while the earliest occurrence of the ‘blockchain’ concept can be traced back to 1991” so far, a “coherent definition for DLT has not yet developed”.
For the sake of simplicity, we will interchangeably use the terms blockchain and DLT and refer to a well understandable explanation from the European Commission:
“Blockchain is the best-known distributed ledger technology. A ledger is a database which keeps a final and definitive record of transactions. Records, once stored, cannot be tampered without leaving behind a clear track. Blockchain enables a ledger to be held in a network across a series of nodes, which avoids one centralised location and the need for intermediaries’ services. This is particularly helpful for providing trust, traceability and security in systems that exchange data or assets. There is a lot of potential for blockchain to be used in many different areas such as financial services, supply chains or healthcare.”
The crowdfunding and alternative finance industry is aware of the potential of blockchain applications. But current technological challenges, regulatory uncertainties and the lack of clearly explained use cases are impeding the uptake.
Our focus will be on the use of blockchain technologies in the alternative finance industry, and especially European crowdfunding platforms. To this end, we will also be in dialogue with public institutions and stakeholders at European, international and national levels, taking into account and complementing their initiatives.
You can download the scoping paper here in PDF