European blockchain companies are sorely lacking funding, according to a new report by the LeadBlock venture fund, which estimated the scale of the disaster at more than € 350 million. And even though Europe can now boast a number of successful blockchain companies, many venture investors In the EU, blockchain technology is still associated exclusively with cryptocurrencies, and they cause negative associations. Despite this, the authorities of several Eurozone countries decided to start issuing grants for the development of blockchain startups. Read about what difficulties blockchain startups in the EU face and who are the main players in this market
The state of the EU blockchain industry
Ethereum is the most popular blockchain used by European crypto startups. This conclusion was reached by the authors of the report prepared by the LeadBlock Partners venture capital fund. The report is dedicated to the situation in the European blockchain industry. In the process of its preparation, the researchers interviewed representatives of about 200 startups.
So, according to analysts, Ethereum use 27% of European startups that are developing decentralized solutions. The second and third most popular corporate platforms are Hyperledger (20%) and Corda (16%). Thus, these three protocols use two-thirds of startups surveyed.
The most common area of work is financial services (28% of the number of respondents). They are followed by health care (11%), energy (10%) and agriculture (7%).
LeadBlock experts note a strong lack of funding for blockchain startups in the European Union compared to the United States. According to the organization, specialized venture capital funds in the EU manage assets worth approximately € 100 million (about $ 113 million), while in the United States young crypto companies have capital in excess of $ 2 billion. A total of 200 startups surveyed by LeadBlock will need over the next 18 months additional € 350 million
One of the reasons for weak funding is the lack of knowledge about blockchain technologies in the European investment market. “The knowledge gap also manifests itself in the fact that many investors do not separate the blockchain from the cryptocurrencies that cause negative associations in them ,” the LeadBlock report says.
In total, according to LeadBlock, in the EU today there are more than 3,000 companies with a profile in decentralized development, and approximately 500 new startups are opened annually - all this apart from projects expanding the product line due to DLT. Most of the blockchain companies that participated in the survey are in the early stages of development, while 60% of them generate revenue.
In order for the EU to take full advantage of the opportunities of the blockchain industry, LeadBlock called on entrepreneurs, incubators, corporations and other market participants to “ accept the blockchain and launch projects based on this technology .” Investors, large companies, states and regulators should also support new investment programs and educational projects in this “ not yet occupied market, ” the report said.
In 2019, the European Commission published its own data on the state of the European blockchain industry. According to them, the United Kingdom became the absolute leader in the number of blockchain companies and the amount of funds used from 2009 to 2018. During this period, 89 startups were opened in the United Kingdom, and the total investment in them amounted to more than € 2 billion, the Netherlands came in second place (€ 350 million).
However, these statistics took into account the declared fees for the ICO. For example, according to Beauhurst, the amount of funding for UK startups in exchange for shares of companies fell from 99 million pounds in 2018 to 32.3 million pounds in 2019.
The European Union adopts regulation for investments in the blockchain industry
One of the main problems of the European blockchain industry has long been legalization. The lack of legal status was a barrier to obtaining investments, especially for fintech startups that work with cryptocurrencies and make up the lion's share of the entire industry. This problem will probably be solved with the adoption of the Fifth Anti-Laundering Directive of the EU (5AMLD) , which entered into force on January 10 this year. It allowed EU members to extend financial regulation to crypto service providers.
The German parliament immediately approved this initiative and, in essence, allowed commercial banks to offer customers the services of storing and transferring digital assets. At the same time, the same guarantees apply to crypto assets as to cash capital.
In Germany, one of the largest EU crypto start-ups is located - Bitwala, which in partnership with the German Solarisbank provides banking services in working with cryptocurrencies. These services include trading crypto assets exchanged for fiat money, opening bank deposits in bitcoins (the service was launched in May together with the Celsius Network), and even salary projects. Last summer, Bitwala raised more than $ 14 million in Round A from a number of funds. About 80,000 customers use Bitwala services.
Another center for the development of legal cryptocurrency transactions is the Stuttgart Exchange. The subsidiary project of the exchange, an application for trading in digital assets called Bison, is responsible for this. At the end of March, the number of application users exceeded 100,000.
Other European applications for the transfer and exchange of cryptocurrencies include Bitpanda (Austria), LocalBitcoins (Finland) and the Bitstamp exchange (Luxembourg). In the UK, the largest provider of Bitcoin-wallets is Blockchain.com, in France it is the producer of “cold” crypto-wallets Ledger, and in the Czech Republic it is Trezor. The cryptocurrency custodian market (which is important for institutional investors) is dominated by companies from the UK, Switzerland and the EU.
Blockchain for a social good
Meanwhile, the EU authorities are paying attention to non-profit methods of using the blockchain. In early July, the European Innovation Council (EIC) distributed € 5.6 million among the six winners of the Blockchain for Social Welfare program. Applications for the competition were submitted by 176 participants from 43 countries.
Award-winning projects (each in a separate nomination):
The quality of the content . The WordProof project (created by the Dutch company SME WordProof), aimed at developing time-stamping technology for content on the Internet, which allows authors to publicly verify their materials and confirm their accuracy.
Tracking and fair trading . Project PPP (Project Provenance, UK). Allows enterprises involved in supply chains to prove their social responsibility in the production of goods.
Financial inclusion . GMeRitS (a project of Aalto University of Finland) is a large-scale experiment on the use of alternative economic structures.
Humanitarian aid and charity. UnBlocked Cash Project OXBBU (project of the Irish Oxfam and French Sempo). Development of a decentralized model for more efficient and transparent delivery of humanitarian supplies to disaster areas.
The circular economy . Project CKH2020 (Kleros, France). It is a platform for resolving consumer disputes in e-commerce. Using the blockchain guarantees the impossibility of falsifying data of any of the parties or the manipulation of arbitrators. Dispute solutions are automated through smart contracts.
Energy Project PROSUME (Prosume, Italy). Decentralized digital platform for peer-to-peer electricity trading. The aim of the project is to create a market for small owners of renewable sources, which both produce and consume electricity.
In addition, the blockchain direction is included in another EU grant program called CEF Telecom , the acceptance of applications for which ended on June 25. According to the results of the competition, the European Commission will allocate € 3 million to implement solutions based on a decentralized registry aimed at providing cross-border digital services.
Blockchain startups in the EU have problems, but they are more likely connected with the effect of the novelty of the technology on which they work. At the same time, startups have difficulties not only with investments: their potential clients, including large companies outside the financial industry, do not yet understand the capabilities of the new technology. The money allocated by the authorities is also unlikely to be greater - now the priority is the fight against the economic crisis.
At the same time, last year, EU countries began to adopt laws on the legalization and rules of the crypto industry. New regulation and successful examples of decentralized applications will inevitably force attention to the blockchain sphere of both investors and users.