The European Blockchain Centers

Blockchain companies and venture capital

Another factor influencing the number of blockchain companies could be their access to venture capital. European countries with high venture capital investments are Denmark and Finland, with 0.1 percent of their gross domestic product (GDP) and Ireland and Sweden, each with 0.09 percent of their GDP. In Estonia and the Netherlands, the value of venture capital investments is 0.06 and 0.05 percent of GDP (OECD, 2021). The correlation between the indicator for venture capital availa-bility (World Bank, 2021) and the foundation of new businesses is 0.35; the correlation between venture cap- ital availability and the number of blockchain companies is 0.24, reflecting the high correlation between the foundation of new businesses and blockchain companies. Although the access to venture capital is an im- portant factor, it is only one among others determining the number of blockchain companies.

The role of agglomerations

Businesses tend to agglomerate because in this way, they can benefit from the exchange of information with other businesses more easily. This agglomeration externality has led to the development of financial centers, like London and New York, and high-tech centers like the Silicon Valley. Thus, we look at the concentration of blockchain companies on their home country’s cities. In Estonia, for example, 98.6 percent of the blockchain companies are headquartered in the capital Tallinn. Lith- uania’s capital Vilnius hosts 88.2 percent of the country’s blockchain companies. All of Luxembourg’s blockchain companies are located in its capital. However, there are also agglomeration effects in larger countries. For example, 90.6 percent of France’s blockchain companies are headquartered in Paris. Although the renting office space might be higher there, the companies have chosen Paris as their headquarter in order to profit from the exchange of information and a better access to custom- ers in the capital.

Besides such countries in which more than 85 percent of the blockchain companies are located in the capital, there are also less concentrated blockchain ecosystems. Examples for these are Vienna, Prague and Berlin that host between 44 and 61 percent of the respective domestic blockchain companies. Warsaw, Lisbon and Madrid have even lower percentages between 30 and 40 percent. Italy differs greatly from this, since only 6 percent of its blockchain companies are headquartered in the capital Rome. Besides some agglomerations in Milan, the companies are distributed is several cities and regions. The agglomeration indicator is mildly correlated with the number of new businesses and the blockchain density (correlation coefficients are 0.19 and 0.14) reflecting the high correlation between new businesses and blockchain density. Moreover, the agglomeration indicator is positively correlated with the availability of venture capital. This correlation is due to the fact that new businesses tend to prefer agglomerations and have a high demand for this type of financing as well as the fact that agglomerations enable the contact between companies and investors. Thus, factors that promote a flourishing ecosystem for start-up companies also tend to be beneficial for blockchain companies.

Financial services with and without cryptocurrencies

Around 43 percent of the blockchain companies in the data set supply products and services that are related to cryptocurrencies, while the majority of companies use blockchains for purposes beyond cryptocurrencies. While many blockchain companies from financial services supply payment services (the correlation coefficient is 0.74), there are several blockchain companies which supply payment services or financial services without using cryptocurrencies. This is reflected in the rather small correlation coefficient between companies which use cryptocurrencies and blockchain companies which supply payment services of only 0.40. On the other hand, the correlation between companies which use cryptocurrencies and blockchain companies which supply financial services is only 0.34.

How will the EU’s blockchain centers develop?

Cyprus, Estonia, Luxembourg and Malta have the high- est number of foundations of new businesses in rela- tion to their labor force. Because most blockchain companies are start-ups, these countries are also leading in the number of blockchain companies in relation to their workforce. Countries which intend to embrace blockchain as a technology should therefore develop a business-friendly environment for digital start-ups, ease the access to venture capital and establish agglomerations with affordable office space for entrepreneurs.