State sovereignty and blockchain

With the globalisation of trade and the advent of digital technology, the sovereignty exercised by states—which was essentially territorial in nature—has been diluted. Borders have become porous. A company can now extend its influence over a territory other than its own, notably by collecting the data of any citizen using its platform, like the American Gafa and the Chinese Batx. The emergence of blockchain—which is expected to disrupt many uses and monopolies—only reinforces this trend.

Blockchain, a real threat to Westphalian sovereignty

The Treaty of Westphalia of 1648 defined the concept of sovereignty with three key principles: external sovereignty, internal sovereignty, and the balance between states. This gave rise to the modern notion of border. In short, the sovereignty of a state consists of its ability to legislate freely on its territory and not to be subordinated to any other entity. These principles have been largely challenged by the emergence of the “right to interfere,” the globalisation of trade, the rise of multinational organisations, the development of legislation with extraterritorial aims, and the pooling of certain sovereign monopolies, such as coinage. In this respect, European countries have abandoned this major symbol of sovereignty to a superior entity, the European Central Bank (ECB). Although this technology has not triggered the dilution of state sovereignty, it should nevertheless accelerate it by calling into question certain prerogatives that were previously vested in states.

Monetary sovereignty issues

Blockchain—thanks in particular to bitcoin, the oldest and best-known cryptocurrency—allows the creation of a supranational currency, without the trusted third party that the central bank represents.

Last June, El Salvador made bitcoin a legal currency^[1]. Other countries in the region could follow suit and voluntarily lose all or part of their monetary sovereignty. While the motivation of these countries is sometimes tinged with opportunism, it may also reflect a certain defiance to the dollar, which is omnipresent in Latin America. Although its volatile nature can scare many away, bitcoin also represents a hope and a refuge for certain populations whose economy is weakened either by financial instability or by hyperinflation.

In addition to bitcoin, other projects are planning to use blockchain technology to create a supranational currency. Facebook, for example, is trying to jump into this global currency dream with Libra, now Diem^[2]. But the reaction of states^[3] to this cryptocurrency and the withdrawal of many banking organisations could well call the project into question.

Non-monetary sovereignty issues

Although the non-monetary use cases for blockchain are more numerous, they are also more difficult to identify because there are, to date, few concrete applications. Nevertheless, we can mention cybersecurity, where blockchain can contribute to the confidentiality and integrity of exchanges and data; notarisation, where the technology makes it possible to guarantee the integrity of a document (such as a diploma) or a transaction; or even electronic voting^[4], to guarantee the integrity of a ballot. These are all use cases that call into question the role of trusted third party played by states or their representatives, as long as the blockchain used is public and not subject to state control.

Conversely, a strengthening of sovereignty is also possible if a private blockchain, called a consortium blockchain, is developed by a state or an entity such as the European Union (EU), which would have de facto control over and reserved access to it. Although blockchain purists see in this solution a degradation of the very essence of this decentralised technology, such a solution would have the merit of reconciling blockchain and sovereignty and of freeing itself from a possible Chinese or American stranglehold over Europe.

The European Union’s blockchain strategy

The European Commission has clearly stated its ambition: Europe wants to be a leader in blockchain technology^[5]. To achieve this, the sector must meet a gold standard consisting of sustainability, data protection, digital identity, cybersecurity, and interoperability. The ultimate goal is to build a common EU blockchain infrastructure.

Led by the European Blockchain Service Infrastructure (EBSI) network, this strategy envisages several use cases: notarisation of deeds, certification of diplomas, European digital identity, and data sharing. We can note the absence of the digital euro, which has been in the pipeline since July at the ECB.

The blockchain strategy has thus been launched within the European Union. However, there are still many obstacles, starting with the budget of 4 million euros over two years^[6], which is meagre compared to the stakes. The legal framework is also not very favourable. Europe, which is already dominated in terms of cloud and digital platforms, must therefore give itself the adequate means to avoid one day depending on a possible supranational blockchain developed by the United States or China.

France’s blockchain strategy

In parallel with the European strategy, France must step up its game on the subject. The parliamentary report entitled “Building and promoting national and European digital sovereignty” even talks about blockchain as one of the keys to digital sovereignty^[7]. Several use cases are mentioned, including the certification of diplomas and electronic invoices or financing via a fundraising in digital assets or ICO for Initial Coin Offering. In both cases, the prerequisite is to grant probative force to the blockchain, by creating a certification system so that the blockchains themselves are incorruptible. Finally, the report stresses the need to strengthen the training offer in blockchain, which is still largely underdeveloped in France.

However, to make France the “blockchain nation” that Rémy Ozcan (president of the French Federation of blockchain professionals, or FFPB) dreams of, the challenges remain numerous, whether they are legislative obstacles or the reluctance of banks to finance, support, or simply host the bank account of a company working in the sector. The Association for the Development of Digital Assets (ADAN) regrets, for example, the difficulty for players in the sector to access bank accounts^[8]. This obstacle, even if it mainly concerns the sphere of cryptocurrencies, actually affects the whole blockchain, which can hardly be considered without digital assets, whether they are “currency” or not. Thus, to develop an Ethereum^[9] architecture, tokens will be used in one way or another.

Switzerland and Estonia lead the way

While France is very late on the subject, Switzerland appears today as the European leader. The country hosts many projects, including the famous ‘Crypto Valley’ in the canton of Zug^[10]. It is even possible to pay your taxes in bitcoin (BTC) or ether (ETH) in this canton. A law recently came into force to adapt Swiss federal law to the developments in distributed electronic ledger technology^[11].

Another example is Estonia, which adopted blockchain back in 2012^[12] . The Estonian commercial register, land registry, court judgments, and official journal are examples of state registers secured by KSI Blockchain, a technology developed in Estonia^[13], which makes the system one of the most efficient and secure in the world.

Without reforming the entire registers of the French administration, a law adapting to blockchain technology modelled on the Swiss law would provide the necessary foundations for any blockchain nation.

^[1] https://cryptoast.fr/salvador-loi-bitcoin-adoptee-crypto-nation/

^[2] https://www.cnbc.com/2021/04/20/facebook-backed-diem-aims-to-launch-digital-currency-pilot-in-2021.html

^[3] https://www.huffingtonpost.fr/entry/bruno-le-maire-dit-non-a-libra-la-cryptomonnaie-de-facebook_fr_5d7a7669e4b0fc715343adbc

^[4] https://journals.openedition.org/terminal/4190

^[5] https://digital-strategy.ec.europa.eu/en/policies/blockchain-strategy

^[6] https://ec.europa.eu/cefdigital/wiki/display/CEFDIGITAL/EBSI

^[7] https://www.assemblee-nationale.fr/dyn/15/rapports/souvnum/l15b4299-t1_rapport-information

^[8] https://adan.eu/actualite/compte-rendu-acces-comte-crypto-fbf

^[9] The second largest crypto-currency on the market after bitcoin, Ethereum is a form of blockchain created in 2015 by Vitalik Buterin that allows the creation of decentralised applications. Its own cryptocurrency is the Ether (ETH).

^[10] https://www.letemps.ch/economie/suisse-se-positionne-leader-lex-blockchain

^[11] https://www.parlament.ch/fr/ratsbetrieb/suche-curia-vista/geschaeft?AffairId=20190074

^[12] https://www.pwc.com/gx/en/services/legal/tech/assets/estonia-the-digital-republic-secured-by-blockchain.pdf

^[13] https://e-estonia.com/solutions/security-and-safety/ksi-blockchain/