Location Advantage: Germany? Why Things are Going Better Here Than in Silicon Valley (so far) for Start-Ups From the Blockchain Industry
Many start-ups from the technology sector in Germany dream of a success story in Silicon Valley, next door to companies such as Apple, Intel, Google, eBay, Facebook, and Tesla. But is that worth striving for, or should one rather stay “at home” and use the advantages that Germany offers? What many do not know is that, especially for companies from the blockchain sector, Berlin is considered the “interstellar hub of the web 3.0 scene”. There are several reasons for this.
Federal government funding:
The start-up industry and its digital pioneers have long been regarded as figureheads for Germany’s innovative and modern economy, which the government hopes will give Germany a reputation on the global stage. So far, both state financial support and legislation have been in favor of expanding the use of blockchain. To ensure digital sovereignty, for example, the federal government decided on a blockchain strategy as early as 2019. The 44 individual measures contained therein are to be implemented by the end of 2021, with the aim of using the opportunities offered by blockchain technology and mobilizing its potential for digital transformation. With its blockchain strategy, the German government has thus taken on a pioneering role in Europe to help the technology achieve a breakthrough.
Opinion makers sit in Berlin between Mitte and Kreuzberg:
The positive legislative environment has contributed to the fact a blockchain hub has grown in Berlin, as close as possible to the government. Government figures tend to like to be photographed with creative start-ups at events and adorn themselves with these “digital child prodigies”. This is rightly so; Germany leads the way in terms of blockchain knowledge and progress. However, other countries do a better job of marketing their acceptance and support of blockchain. Germany, and especially Berlin, offer several advantages: Both the setting up a company and ongoing operations are much cheaper for start-ups in Germany than in Silicon Valley. And, from a geographical point of view, it is possible to quickly recruit strong developers from Eastern Europe — an important consideration for blockchain start-ups seeking to build their product and expand their teams.
Fund Location Act, Crypto Value Transfer Regulation, and new taxation:
The federal government in Berlin is currently giving mixed signals to blockchain companies, which has attracted the notice of the broader industry. First, the Fund Location Act, which further legitimizes Bitcoin & Co., has been well-received. The legislative package, which came into play on July 1, 2021, allows domestic special funds to invest up to 20 percent of the funds they manage in crypto assets such as Bitcoin. Without a doubt, this is another accolade for the crypto universe. However, there are also downsides: To fight financial crime, the Federal Ministry of Finance (BMF) would like to herald the end of anonymity with the Crypto Value Transfer Regulation. This regulation states that crypto providers must log all transaction data, including identities. The digital association Bitkom describes the regulation as practically impossible. Even with the transition periods declared by the BMF, if technically feasible at all for the providers, there would be a considerable disadvantage for the German crypto scene.
In addition to the Crypto Value Transfer Regulation, the next draft of the BMF that replaces the previous taxation has recently become public. It is planned that staking, lending, and master node income will no longer be tax-free after one year, instead becoming tax-free after ten years. Placing a ten-year holding period on a volatile and liquid asset class like crypto is more than astonishing and counterproductive, to put it mildly.
Is the Federal Ministry of Finance forcing a step backwards?
Nothing has been decided yet, but should the federal government destroy the global blockchain hub of Berlin by counteracting positive changes in blockchain law, many model companies in the industry, which have made it from start-ups to well-known listed companies, would likely turn to relocating abroad.
This should be considered carefully by lawmakers, especially since the COVID-19 pandemic has acted as a massive accelerator of digitization. Innovation drivers from the blockchain area are now very well positioned here, and if more restrictions in this space are imposed, Germany would lose a massive amount of digital know-how, entrepreneurship, and economic power that has been built up over the years.
German version published on 02/08/2021 @ https://www.geldinstitute.de/business/2021/standortvorteil-deutschland-fuer-start-ups-aus-der-blockchain-br.html
About the Author:
Michael Geike is a mathematician with over six years of experience as an investment banker at JP Morgan. He has also led teams of data scientists specializing in the optimization of payment algorithms for Zalando, and has worked with Distributed Ledger Technology for over nine years and founded various projects in this area, including the first publicly-traded company in Europe to focus exclusively on cryptocurrencies. As a student, Michael earned his MSci in Mathematics from Imperial College of London. He then spent seven years in the financial industry, where he acted as vice president of the investment derivatives branch of JP Morgan’s London branch. At Advanced Blockchain AG, he channels these experiences to positively influence the blockchain-based companies, markets and economies of tomorrow.
