The Land of Linux: Finland now aims to be a home for blockchain innovation

Blockchain innovation is currently creating a buzz in Finland, the home country of Martti Malmi who was one of the first developers to work on the bitcoin protocol created by the enigmatic Satoshi Nakamoto. While cryptocurrency-related business activities remain the major focus and the source of commercial blockchain applications, the interest is spreading beyond the bitcoin world where the Finnish companies Prasos and Localbitcoins have been expanding their international operations in recent years.

“Finnish companies across industries now have blockchain technology firmly on their radar and there are ongoing pilot and test projects in many different sectors,” says Juri Mattila, researcher at ETLA – the Research Institute of the Finnish Economy.

“As the home country of Linus Torvalds and the Linux operating system, Finland has a long tradition in developing open source code and peer-to-peer systems. Finland’s strong cooperative tradition and flexible legislation can also contribute to making it an attractive home for blockchain innovation.”

 

BOND supports blockchain piloting

Finland has also been an early mover in terms of blockchain research.

“The funding is there and we have the cooperation between companies and researchers up and running. The other Nordic countries have not reacted as quickly,” says Timo Seppälä, a co-director of the BOND research project which brings together Finnish companies, VTT Technical Research Centre of Finland, ETLA and Aalto University.

BOND has published a blockchain application as a proof-of-concept with the Finnish energy company Fortum. By utilizing Ethereum-based smart contracts, the application enables distributed market coordination for decentralized energy systems and facilitates market matching between individual electricity producers and consumers.

In another proof of concept with Euroclear, the national central securities depository, BOND has examined how blockchain technology affects contractual practices. Similar proofs of concept are also currently underway with Nokia Solutions and Networks, and Elo Mutual Pension Insurance Company. The other companies involved in BOND are Kinno Kouvola Innovation Oy, Tietomitta, Boogie Software and 3 Step IT.

“The next step is to see what the commercial demand is for these types of systems and which sectors it will come from. Businesses will make their decisions accordingly. Based on the research so far, the biggest blockchain innovation potential we currently see is in the opportunities created by smart contracts,” says Seppälä.

Access to global finance and markets

Blockchain technology has the potential to transform the world in many ways. The development of the technology is still in its immature phase, however, and some companies are hesitant to get involved because of the shady reputation initially cast on cryptocurrencies – an integral component in most blockchain applications – in their early days.

“The mention of cryptocurrencies sets the alarm bells ringing among some company executives. At the same time, we have already seen the first Finnish startups, ETH Lend and Streamr, funded through the new types of financing mechanisms enabled by blockchain technology. There is clearly a generational issue here,” says Seppälä.

Mattila hails the opportunities that blockchain technology and cryptocurrencies have created for innovative business financing.

“Apple Store and other platforms have enabled access to global markets for any company from day one. Now, the Initial Coin Offering (ICO) model and has also empowered startups to tap into the global finance market from the very beginning. Perhaps the younger generation can better imagine how to exploit the business opportunities in this new and changing operating environment.”

Promise of a new business model

Mattila draws a parallel between the emergence of blockchain technology and the early days of the World Wide Web.

“Back in 1993, it would have been extremely difficult, if not impossible, for anyone to predict the business logic and the value creation models that are now part and parcel of the digital economy. Making money in the World Wide Web involved creating a protocol, on top of which applications such as Amazon and Facebook were developed. Today, the business logic is shifting so that the value is no longer captured only at the level of applications – but also at the level of protocols,” he explains.

“Previously, the thinking around platforms was that first you create a company and then an ecosystem around it. With blockchain technology, it is possible to work in the reverse order – you first create the ecosystem and then your own company inside it.”

As the technology matures, the variety of blockchain applications will increase and take new directions. Mattila urges companies to explore what blockchain can offer because the technology is evolving fast. Nobody knows exactly where it will lead but it is important to understand the vast possibilities.

“At the core of blockchain technology is the possibility for anyone to develop an open source code protocol for a specific use case, with built-in incentives for its deployment and the creation of its own ecosystem. So, we are not talking about just one ecosystem but a tool for creating new ecosystems and maybe whole new markets,” says Mattila.

Seppälä points to the global prevalence of the Linux operating system, now used in billions devices from servers to smartphones, cars, televisions and industrial IoT devices.

“Finland was the birthplace of Linux and a Finn was among the first developers for bitcoin. Just think of the business potential if Finland back then had been able to bake in a financial reward structure into Linux, if the possibility to capture value was already there at the protocol level. With blockchain technology, it is possible to weave the rules on how different actions in the ecosystem are compensated right into the algorithmic fabric of the network. This way, the rewards can also be shared more equally in this peer-to-peer network. It offers a different way of doing business,” he says.

ETLA’s report on the BOND project will be published in early 2018.

Read more about Blockchain research in Finland

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