Next to aspiring artists and musicians, Berlin has increasingly attracted a crowd of young entrepreneurs over the past decade. No other European city has seen such a steady and rapid growth of its startup ecosystem. One branch being especially of interest is Berlin’s blockchain startups.
It all started back in 2011 with a burger restaurant in Kreuzberg, Berlin. Instead of accepting only cash like any other place in Germany, the restaurant was trading Burgers for Bitcoin – “magic internet money”, as one Google Maps reviewer described it. Since then a lot has happened in Berlin’s blockchain scene. The city is no longer only attractive to young artists and musicians to kick off their careers, but also to business school graduates. Together they inhabit the numerous co-working spaces like Full Node, Trust and Factory, breeding out ‘disruptive’ ideas for their next Initial Coin Offering (ICO). But since when do lefty artists hang out with venture capitalists?
Neither the artists nor the businessmen were there at first. Bitcoin and its underlying technology Blockchain were proposed in 2008 by Satoshi Nakamoto as a response to the economic crisis. The idea was, a decentralised financial system, which can run without banks and governments with the vision to end the vicious cycle of financial crises. Decentralised meaning here, that participants using a blockchain would verify every transaction independently with their own computers, ensuring transparency, and at the same time cutting the middleman. In its first years the currency was mostly popular amongst crypto anarchists which used it to make (back then) anonymous payments for their burgers. By now Bitcoin has turned into a digital gold, and everyone from 50 Cent to Goldmansachs is feeling the rush, turning Satoshi’s initial goal to liberate us from financial markets upside down.
In the meantime hundreds of alternatives to Bitcoin have been developed, based on Satoshi’s blockchain. Most famously Ethereum. On its blockchain it runs its own currency called Ether which value has by now skyrocketed at times above the 1.000 Euro margin. However, it is not only a currency, Ethereum markets itself as a decentralised world computer. It allows developers to build applications on top of the Ethereum blockchain. And this is where many startups enter the arena. They can for example create their own currency coin on top of the Ethereum blockchain. By creating an ICO startups can quickly raise millions of Euros from their supporters, as a form of investment. Another application are tokens. Unlike currency coins, tokens can be equipped with smart contracts which govern future agreements and interactions between token issuer (sexy blockchain startup) and token holder (person using the startup’s service). The technology makes space for endless applications, whether in the realm of business, art or smart governance.
A cross section of Berlin’s Blockchain startup scene is the best example for the variety of applications. Whether it’s musicians and artists, German businessmen or San Francisco University alumni, they are all busy making plans to tokenise the world around us and with it changing the web as we know it.
For instance, one digital asset which can be perfectly tokenised is music. Resonate equips songs with smart contracts, thereby ensuring musicians receive their fair share and get paid quickly. The musician Mat Dryhurst who is advising Resonate explains why artists have become interested in using blockchain: “We have to change our business model every four months, because of the Facebook algorithm which doesn’t care about us.” Artists do not longer believe “that they will benefit form the new software as a service” model from platforms like Spotify and Facebook. Ultimately, he says, the web 2.0 “is destroying culture.”
Therefore he bets on blockchain. A decentralised web 3.0 enabled by blockchain would move the distribution of information away from platforms, back into the hands of creators. Dryhurst strongly believes into the community which is trying to push for exactly this. However, he also thinks there is already a resentment against blockchain applications, because of the cryptocurrency speculation. In a couple of years we will probably learn about people who turned into multi millionaires overnight without doing anything. “In [speculating] uncaringly we run the risk in fuelling the flames of scepticism towards the idea [of blockchain] as a whole,” he says. He promotes blockchain applications, which have the potential to empower creatives around the world. But, not every blockchain entrepreneur has such altruistic goals.
Weeve is a blockchain startup which is currently preparing for its token sale. Thereby the young startup wants to raise enough funds to realise its application for secure data transfers between connected devices. Harald Zapp, the founder of Weeve got the idea of a token sale through Berlin’s blockchain community. In the past he raised capital for his various ventures by classical means. But a token sale seemed more efficient to raise money quickly and simultaneously embed trust via smart contracts into his business application. His incubator Next Big Thing is well connected and collaborates regularly with other Berlin based startups. Zapp considers the density of similar startups as a chance to collaborate on building the web 3.0 together.
The German government has now declared NBT as one of its official hubs for connected devices. Early stage startups come to visit the NBT office to share knowledge and collaborate on projects. In a couple of weeks NBT’s startups will get a new home and place to experiment at the Factory co-working space which just opened in Kreuzberg. Here NBT will be curating a makerspace in which startups and tinkerers alike can prototype new technologies. Zapp definitely sees the future of Berlin in the creation of such smart connected hardware devices. In conjunction with blockchain technology there is “a great potential,” he says.
Right across the park on which NBT’s new headquarters will be located, another co-working space is opening its doors. Full Node aims to bring together the future unicorns of the blockchain startup scene. Mostly mature startups which are post their ICO or token sale, will rent a desk in the new co-working space. The idea of the place was born by two other Berlin blockchain startups, which are already well established: Gnosis and Tendermint. Together with like minded companies they want to create a “base for high-profile blockchain projects and a unique environment for R&D,” says Nadja Beneš, who’s responsible for brand and content strategy at Gnosis. Beneš who had been studying in San Francisco and worked in Silicon Valley as a brand strategist was surprised to see such a big and active blockchain community in Berlin. “There’s so much going on at the moment. About 300 people came to a blockchain meetup at Factory.” But what makes Berlin so appealing?
Beneš believes it’s the mix between German crypto legislation and Berlin as a cultural hub. The German “regulations that put a strong focus on anonymity and privacy protection are attractive to people working in the blockchain space.” And, she says that the “creative and alternative character of the city resonates with those pursuing the transformative power of blockchain technology.” But this transformation can also leave people behind. Even though desks at Full Node will only be affordable by rather grown up blockchain startups and not the Turkish vegetable vendors from next door, Full Node plans to invite its neighbours to regular educative events. Beneš says crypto is not just about speculation, Full Node “wants to give something back to the community.”
The transformative power which Beneš describes can be seen in all areas of Blockchain developments in Berlin. The new internet which is being made by Berlin’s startups has many potentials, whether it is raising funds for a startup or building up new decentralised services. Blockchain is much more than just a Bitcoin bubble. The future will show if blockchain brings the end for web 2.0 and its platforms, or whether it is just a quick chance for VCs to raise money.
Crypto raves, however, will remain for now an urban legend.