3FOOD

Third Industrial Revolution Consulting Group
blockchain, these sophisticated analytics create ostensibly anonymous user profiles that are
extremely effective for discovering money launderers and terrorist financiers and for
demonstrating the harmlessness of other transactions made by many poorer economic agents
that lack traditional ID.
In effect, these data-bundling profiles are a form of identity and, when combined with device
identity protocols, can empower regulators to block targeted nodes of illicit activity while
keeping healthy financial transactions flowing -- even in the absence of personal identifying
information (PII.) As we move to a more complicated global financial system with multiple
digital currencies, micropayments and machine-to-machine transactions within the Internet of
Things, this kind of digital ID approach will be critical. The CSSF could take a lead here, pushing
the EU into the cutting edge of money transmission regulation.
Regtech ideas that are based on the blockchain should also be explored as a means of
overhauling the oversight of financial entities and money service businesses. Robust “multi-sig”
protections, for example, in which funds cannot be moved out of an account unless signed by a
combination of keys, could greatly enhance consumer protection and allow for less
burdensome capital requirements on financial startups. Designed appropriately, these new
systems can make it virtually impossible for a custodian to lose or steal a customer’s digitalcurrency
funds -- in fact, with the customer holding one of the keys, it challenges the very
definition of “custody.” Similarly, the Blockchain’s powerful audit capabilities allow real-time
proofs of reserves; institutions can unquestionably demonstrate solvency to regulators and
customers alike, at any time of their choosing. This should both enhance regulatory oversight
and obviate the need for time-consuming, costly quarterly reports that are out of date by the
time they are delivered.
Additional Core Blockchian Concepts for Luxembourg to Consider
The Blockchain gives rise to a number of core concepts with which to build a more versatile and
robust governance infrastructure for an economy. Examining these concepts helps to frame the
various options facing the Luxembourg government. We will explore four in particular -- the
device identity model, anchoring, tokenization and smart contracts -- and highlight their
application to potential projects that the government could pursue.
2.1 Identity and the Blockchain
The Blockchain introduces the Device Identity Model, a revolutionary approach to digital
identity. Traditional digital identity systems rely on shared secrets and institutional
endorsements. Under that model, when a user creates an account with a service, the service
asks the user to choose a secret password, and then attempts to verify an email address by
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