The European Union (EU) may be undergoing challenging times with disputes over the Italian budget, Brexit looming large and the “gilets jaunes” riots in Paris, but it is still managing to look to the future.
A new report released on 7th December from the EU’s Blockchain Observatory and Forum (EUBOF) sets out a case in favour of a blockchain-based digital identity system as well as national currencies in digital coin format.
For anyone interested in trading CFDs based on forex markets and cryptocurrencies, this news is an interesting development and a further confirmation that digital coins are receiving recognition at the highest levels.
Blockchain software technology company ConsenSys AG prepared the new report for the EUBOF with the aim of focusing on the properties of blockchains that could potentially benefit governments.
The EUBOF itself suggested that governments should be looking at developing what it calls “user-controlled, ‘self-sovereign’ identity capabilities.” It claimed that these can be part of creating secure and private identities that are both unique and verifiable.
One of the challenges facing the future regarding online transactions is figuring out how people can provide proof of their identities without releasing more data than is strictly necessary. This will apply to financial and retail transactions as well as the increasing number of government services moving online, including benefit claims and taxation information.
The EUBOF report states that this has been challenging to achieve with existing centralised technologies. A blockchain-based self-sovereign identity would allow individuals to keep their own verified personal information without the need for third-party involvement.
Identity standards and frameworks would need to be established first, and the extent to which people would want such identity systems decentralised would also need ascertaining.
“They [governments] will have to take into account how identity attributes change over time during a person’s natural lifecycle and will need to offer different levels of transparency depending on the context (e.g., verifying that someone is over 18 without providing a birth date). Identity platforms also need to be inclusive of all citizens, including those who, for whatever reason, have no access to or are not able to use technology,” the report says.
The EUBOF report also raises the issue of digital versions of national currencies being on a blockchain and discusses the possibility of governments being able to “put fiat currency on the chain.”
It goes on to detail a future in which digitalised national currencies on the blockchain could become vital parts of smart contracts. This would allow for the potential innovation of giving all parties the opportunity to create automated agreements involving direct transactions in the currencies. This would eliminate the current need to have a cryptocurrency as a proxy.
For CFD traders on forex markets, the implications are staggering. Not only could entire transaction bases speed up at an unknown rate, but price fluctuations could also become even more micro-managed. The potential merging of a cryptocurrency blockchain-based approach with national currencies would present a truly ground-breaking sea change in the way that international foreign exchange markets operate.
The report contains details of how the central banks could tokenise national currencies through a series of plans and initiatives. These could include inter-bank payments based on distributed ledgers, which, as anyone already familiar with blockchain tech knows, adds transparency and resilience while also cutting costs
Perhaps the most interesting fact about the report is that it points to other areas apart from currencies where governments could benefit from using blockchains. They could use digital tokens in non-monetary ways, such as turning them into e-vouchers that could be exchanged for services or entitlements to many different types of state benefits.
A declaration calling for help in the promotion of Distributed Ledger Technology use in the EU has already been issued by France, Italy, Spain, Portugal, Malta, Cyprus and Greece. These member states claim that adopting this tech could be a major innovation for southern EU economies such as their own. The group of nations also highlighted the way that blockchains could protect citizens’ privacy and simplify bureaucratic procedures.
Forex markets are extremely responsive to international political influences, and something this big would certainly reverberate through CFD trading circles should it ever come to pass.
The ways in which trading blocs such as the EU and individual nations with their own currencies do business with each other relies heavily on exchange rates, which can dictate the viability of buying imports or selling exports.
The type of change that the report suggests goes far beyond the usual central bank announcements about rate hikes, so the positive or negative effects for CFD traders would be very hard to quantify.