The economic impact of Brexit has been much explored (and debated). The OECD and UK Treasury have put forward analysis suggesting that Brexit could negatively impact the country’s GDP by 3% until 2020, while the Bank of England has made occasional statements about other dire scenarios of crashing house prices, spiralling interest rates, loan defaults, asset outflows, and negative returns on equity. Some might call this Project Fear 2.0.
Irrespective of one’s views on the actual economic impact of Brexit, surprisingly little public discourse has centred on the opportunities presented by the ability for the UK to pursue a relatively more free industrial strategy. The early 19th century thinkers Ricardo and List have much to say about understanding and developing the comparative economic advantages of a nation, with a view towards establishing greater relative growth on a global stage. The UK has an incredible opportunity to support an innovation economy centred on its relative strengths, namely with London as a leading international financial centre and, increasingly, as a technology hub with significant international investment. Apple, Google, and others have all recently increased their presence in London, and there has also been the emergence of several home grown technology firms (“unicorns”) with valuations over $1 billion such as. Revolut, among others..
Blockchain, or distributed ledger technology (“DLT”), is increasingly seen as a path towards delivering a new industrial revolution, by providing a means of trusted communication and exchange which can be publicly verified. The logic behind blockchain is one that we consider to be as revolutionary as the Internet, and much work and investment is ongoing to develop transformational “use cases” for deployment not only in the most developed areas of financial services, but also in any sector where information is stored and transferred, including healthcare, and real estate, among others According to Gartner (a leading technology research and advisory company) “by 2030, the business value added by Blockchain will grow to $3.1 trillion.”
Surely the UK, with its inherent strengths in finance and technology, is well placed to take a leading position in building this innovation economy. DAG Global has recently published a report with the UK Parliament APPG on Blockchain, together with the Big Innovation Centre and Deep Knowledge Ventures, which outlines the current state of blockchain investment in the UK as well as the considerable ecosystem that has emerged (with 225 blockchain companies across sectors referenced) – largely without a supportive UK industrial strategy. Countries such as Switzerland and Malta have publicly gone forward to actively promote their relative strengths in fostering blockchain innovation, with both countries recently putting forward specific financial services regulation setting out permissions for blockchain companies. Malta now has comprehensive DLT legislation and regulatory guidance and in Switzerland the Swiss Financial Market Supervisory Authority (FINMA) has issued guidelines for Initial Coin Offerings (“ICOs”) with the latter recently authorising its first blockchain asset management company in Crypto Fund AG. This has sent an important statement to the market that these countries are open for business, and considerable blockchain-related investment has flowed into these countries including Binance, a leading crypto exchange which has moved its Global HQ to Malta. Nevertheless, the UK is better positioned to adopt blockchain and implement the necessary regulations post Brexit compared to other EU nations, as Malta having to deal with the EU as it seeks to introduce overarching blockchain regulations will be a big speed bump, priming the UK to be in a better position in the long run.
Still, in the UK, many existing banks will not service blockchain businesses (let alone anything connected to cryptocurrency!) due to fears of reputational and regulatory risk in facilitating money laundering. These fears are not by any means baseless, although recent developments in what has been termed as “blockchain analysis” help to track every single transaction on the reputable public blockchains, such that flows of funds can be clearly sourced through to origination. In this respect, checking flows in blockchain-based digital instruments is more robust than in traditional fiat currency-based transactions, where often it is only possible to trace source of funds only from the immediate prior institution from which funds were sent. The UK Treasury Select Committee put out in September 2018 a comprehensive report, citing: “Regulation needed for “Wild West” crypto-asset market”. The report outlined that the country was tentatively positive on accepting such novel blockchain-based instruments, but much work remains to develop the regulatory frameworks and standards of governance to promote general acceptance.
According to in depth joint research and analysis conducted by GMEX Group and DAG Global, Britain’s exit from the European Union will result in a loss of 150,000 jobs over 5 years, with 0.41 percent annualised negative GDP growth over a 15 year period. However, 250,000 jobs will be created over 5 years and an annualised GDP growth of 3.82 percent will ensue as a result of nurturing the digital economy in the UK. Therefore, the net result of focussing on digital innovation is 100,000 jobs created over 5 years and 3.41 percent of annualised GDP growth thus acting as a positive counter measure to Brexit.
The Bank of England put forward some estimates in a July 2016 report that UK GDP could increase by 3% by introducing a Central Bank Digital Currency (CBDC). A comparable effort in Estonia was halted recently by the EU given the imperative of retaining the status of the Euro as the unique regional currency. Perhaps, with vision and some derring-do, the impacts of Brexit need not be so negative after all?
Hirander Misra, CEO of GMEX Group, a UK-based technology and business services provider for traditional exchanges as well as cryptocurrency and digital token exchanges
Sean Kiernan, CEO of DAG Global, a UK-based company seeking to set up the first regulated “crypto bank” in the UK to service both the fiat and crypto banking needs of SMEs, fintechs, and crypto companies.
The authors are currently seeking input to a book they are publishing entitled “Tech Meets Trust: The Case for a Blockchain Economy”, which will further explore the opportunities outlined in this article.