Regulatory agility and blockchain potential
The search for blockchain’s ‘killer use case’
By Philip Conneller
Blockchain drives more than just cryptocurrency and fintech. Many believe that ultimately it will become a technology used horizontally across all sectors, with relevance to everything from agriculture and real estate, to healthcare and voting.
One day, we will achieve full interoperability between all blockchain variants, creating a vast network that has the potential to revolutionise financial transactions, logistics, supply-chain management and the way data, on pretty much anything, is stored and accessed – although that may be some way away.
In the meantime, the small jurisdictions, like Malta, Gibraltar and the Isle of Man, are becoming the testing grounds for the blockchain start-ups that may one day help the technology realise its potential.
All three jurisdictions have embraced blockchain and are integrating the technology into their digital ecosystems and regulatory frameworks. The likes of Malta and the Isle of Man have established regulatory sandboxes – regulated spaces for companies to live-test their products, which allow for experimentation in an environment where potential risks can be strictly contained.
Of course, blockchain jurisdictions can be found across the world — and certainly in most major cities in Europe — but when it comes to tech start-ups, small is beautiful.
And small is faster, according to Jason Scales, chief executive of the Isle of Man’s blockchain incubator, the Hubb, because small jurisdictions can provide the regulatory agility to accommodate innovation.
“It’s all about moving fast,” said Scales. “If you’re a big institutional bank in Canary Wharf that has a regulated blockchain project, then you work on it with your existing global teams and you keep it with your regulators in the UK. In the start-up world, you need to move fast, and you need to satisfy investment, and the only way to really do that is to look at the offshore jurisdictions.
“Likewise, if you’re a UK-based blockchain business and you need regulatory support – so you apply the sandbox with the regulator in the UK – it could take you a prolonged period of time to be onboarded in that process – maybe too long. But in a much smaller jurisdiction, there’s better ease of access — it could be four to eight weeks maximum from point of application.”
Malta is home to many crypto businesses, including the world’s two biggest crypto exchanges, Binance and OKEx. Also in Malta, as well as Gibralta, there is a strong focus on the e-gaming, esports and sportsbook sectors. Naturally, Malta and Gibraltar are heavily geared towards these sectors, which represent a large proportion of their GDP.
The Isle of Man, meanwhile, is attracting and encouraging a greater diversity of blockchain businesses at this early stage. Only around 40 per cent belong to either the financial or e-gaming sectors. The remaining 60 per cent are focused on everything from environmental initiatives, to health, education, and retail.
Another jurisdiction worthy of mention is Estonia, where the focus is crypto. The country has licensed over 900 exchanges and wallet service providers in less than a year since it introduced its licensing regime, helped by its crypto-friendly banking system.
While Scales suggests this strategy might be ‘risky’ because the European Bank has recently shown a desire to clamp down on crypto banks, he believes that Estonia and not Gibraltar should now be considered among Europe’s top three blockchain jurisdictions.
These jurisdictions remain competitors, of course, especially in the online gaming space and other areas where sectors overlap, but Scales believes blockchain offers opportunities for future collaboration.
“The goal moving forward is that the Isle of Man’s sandbox will be linked into other jurisdictional sandboxes and that may be a really good way to work together in the future,” says Scales. “Because then you can test your platform in multiple jurisdictional areas with their regulatory support, while staying in one location.”
Just as blockchain might one day achieve interoperability, competing jurisdictions might one day achieve cooperability through shared testing spaces, as the search for blockchain’s “killer use case” continues.
Follow the discussion on regulation, sustainability and all things tech at the Malta AIBC Summit this November, 7th and 8th.