Though Luxembourg is a small country, it plays an outsized global role in financial services. Our Senior Product Marketing Manager, Soelene Justus, reports from Luxembourg Blockchain Week on how the country uses distributed ledger technology to achieve its national ambitions.
For anyone working in financial services, chances are that blockchain is no longer considered ‘futuristic’ technology but part of your company’s core transformation strategy. The industry is embracing blockchain’s immense promise: including the tokenisation of funds, private equity, and money. This technology will finally allow the free flow of value. And, in Luxembourg, the rails are being laid fast.
With digitisation top of the government’s agenda, DLT is widely viewed as a natural conduit to help the country gain a competitive edge and ensure inclusive and sustainable digital transformation. Moreover, given that Luxembourg is one of the EU’s largest financial centres, characteristics of DLT, such as the traceability and security provided by smart contracts and automation, are considered crucial value drivers for the economy.
Such is the pace and appetite for innovation that in early 2019, the Ministry of Digitalisation (led by the Prime Minister) announced the creation of the public sector’s first blockchain – claimed to be the first in the world. It allows all public sector participants access improvements in the transparency, reliability and security of the country’s digital information systems. In February of that year, lawmakers adopted a bill to provide legal certainty for securities transfers using blockchain technology.
In Luxembourg, digitisation is extending past the realm of financial services. Since 2021, aspiring students can apply for higher education funding in a fully secure and traceable way on the blockchain. There are also DLT projects in the works to enable digital driving licences, university diplomas and residency certificates.
Regulations paves the way for future growth
The country is also looking to implement progressive regulatory frameworks to enable DLT adoption. Echoing this at the event, the Prime Minister Xavier Bettel said, “we want to do things which are not allowed elsewhere, not what’s forbidden.”
Many speakers highlighted blockchain’s future importance as the foundation of tomorrow’s internet. With that, the government believes that local regulators should follow the speed of innovation and find ways to deal with emerging risks.
Regulations are materialising, however, and Luxembourg’s financial services industry is working hard to comply with the evolving regimes. There seemed to be different opinions on the EU’s new Markets in Crypto Assets regulations. Financial institutions were mainly in favour of the new rules and how these brought credibility and sustainability to the industry. While conversely, many in the web 3.0 community raised concerns about the regulation stifling innovation.
Other hurdles to blockchain adoption were also discussed. Businesses considering DLT projects need to think hard about transaction costs, energy consumption, architecture and future scalability. Despite these challenges, most attendees felt we are witnessing the start of a major technological transformation whose full impact would play out in decades to come. And Luxembourg, while a small country, is playing a leading role in bringing about this change.
