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    Paige Aarhus

    Should the EU diversify – with blockchain?

    Should the EU diversify – with blockchain?
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    The European Investment Bank has warned that the EU is not investing enough in blockchain — the technology that underpins cryptocurrencies — and artificial intelligence.

    In a report released Tuesday, the EIB wrote that the EU is falling behind both China and the US in these two areas, with the funding gap estimated at between €5 billion and €10 billion annually. This is problematic because, as the bank argues, AI and blockchain are two of the most significant disruptive technologies of our time, and they will have a major impact on the future economy.

    At present, the US and China account for more than 80 per cent of annual equity investments in AI and blockchain, compared to the EU’s 7 per cent. The EIB wrote that there are no fundamental structural differences between the EU economy and other major economic systems that could lower business demand to deploy these technologies. The bank highlighted Europe’s fragmented venture capital ecosystem as one of the biggest challenges, writing that European VCs mainly provide early-stage finance for AI and blockchain, and underperform in subsequent rounds of financing. The funding gap is most significant for AI, which accounts for 80 per cent of the annual shortfall.

    Large European corporates play a limited role in the acquisition of AI and blockchain companies, keeping the EU dependent on foreign investors. The bank notes that several Europe-born companies have been acquired by non-EU investors in recent years and that all the top ten companies by number of global AI acquisitions are US-based. Initial public offerings in Europe are more subdued than in the US, exacerbating the challenges facing potential European champions.

    At the end of the day, the problem is that investors are reluctant to take risks requiring higher upfront investment in research and development. This is particularly unfortunate given the EU’s leading talent pool: according to the EIB, the EU has more AI researchers than anywhere else, at 40,000 compared to 30,000 in the US and 20,000 in China.

    Also interesting to note is while 76 per cent of respondents in the European Investment Fund’s 2019 VC survey reported having at least one AI company in their portfolio, only 23 per cent reported having a blockchain company. As the EIB rightly notes, limited appetite for blockchain is largely attributable to the misconception that blockchain is bitcoin. This is a significant statement for the bank.

    This was first published in the EuroIntelligence morning briefing. For a trial subscription click here.