The findings of PwC’s 2018 Global Blockchain survey have been released. The research provides one of the clearest signals yet of organisations’ fear of being left behind as blockchain developments accelerate globally, opening up opportunities including reduced cost, greater transaction speed and more traceability and transparency. Research analysts Gartner has forecast that blockchain will generate more than $3 trillion annual business value by 2030. It’s possible that 10% to 20% of global economic infrastructure will be running on blockchain based systems by the same year.
For many commentators and executives, the conversation has moved on from the early Bitcoin use case to wider industry applications: but for others the spectre of underground criminality and regulatory blockade keep blockchain off the boardroom agenda. Irrespective of the uncertainty the survey demonstrates that businesses are missing out and have a strong fear of missing out.
And it’s not just at the individual corporate level, but also at the industry and the national economy level too.
Steve Billinghurst, Advisory Director.
Globally, blockchain is fundamentally altering the business landscape through:
The Isle of Man has seen interest and corporate activity since the inaugural Cryptovalley summit back in 2014 and changes in regulation to recognise virtual/crypto currencies. More recently, the island has seen the first licensed blockchain based lottery, blockchain based digital gaming currencies and a number of initial coin offerings. Much of blockchain and blockchain related activity on the island has been to date within the eGaming sector and not in financial services, especially not in insurance.
Why is that? By its very definition, blockchain should engender trust, but a lack of understanding contributes to a trust gap. Our survey found many executives are unsure of what the technology really is and how it can change business. Finding consensus over design rules and standards within the system has been a major stumbling block to date.
Ironically, a lack of regulatory comfort over this disruptive technology has not helped. Whilst many territories have begun studying issues, particularly around the financial service use cases, there is no overall regulatory consensus. The main issue lies in a well-designed blockchain validating data and eliminating the need for a central authority to approve and process transactions. Whilst that reduces cost and delays, it removes the very institution that ensures stability and combats fraud.
Regulatory activity has been noted in respect of tokens and ICOs. Territories such as Switzerland and Malta are moving towards regulating tokens to speed up growth in blockchain, whilst in China, the government has quickly separated its interest in the technology from its ban of crypto currencies and ICOs.
Here in the Isle of Man, the regulatory landscape is not yet fully developed across all industries: the Gambling Supervision Commission is comfortable with blockchain technology, and the Financial Services Authority has issued some guidance notes regarding ICOs. However, as yet, unlike competitor jurisdictions, there is no draft or enacted legislation and regulation concerning blockchain (distributed ledger) technology or ICOs.
Our survey found that 62% of respondents have a blockchain project in development. Organisations are exploring the use of internal digital tokens representing assets to streamline intra business unit movements, conducting near real time transfers via smart contracts to allow traceability and eliminating the need for internal reconciliation. Although a single organisation can benefit from more effective enterprise-wide activities, blockchains benefits are realised when entire industry participants come together to create new ecosystems requiring collaboration.
To drive greater adoption and acceptance, industries should build small ecosystems with stakeholders cooperating on industry wide issues. This has been seen in the banking sector with the Italian Banking Association in the insurance sector with B3i (Swiss Re, Zurich, Munich Re, Allianz and Aegon), and in the aerospace and food supply chain industries. Respondents to the survey identified the scalability of projects and their interoperability - the need for standardised data, naming conventions and governance - as key to success.
Amongst our survey respondents, a quarter believed that regulatory concerns were the number one barrier to widespread blockchain adoption.
Even though the risks of blockchain and how to trust it are part of a growing public discussion of trust in the technology and also responsible innovation, business should engage with regulators and industry groups to shape policies and best practices. It’s not just the regulation over the technology, but also around data use and protection that could fundamentally change the blockchain operating model. It’s unclear how the EU’s GDPR privacy standards impact blockchain projects with the immutability of the personal data held within the technology. But it’s clear that businesses looking to adopt blockchain must pay attention to current regulations in place and stay agile to adapt to changes and remain compliant.
The current regulatory uncertainty, not only here on the island, but across major jurisdictions, doesn’t have to be a roadblock to blockchain innovation. It is likely that use cases in financial services may face more regulatory challenge and obstacles than other sectors such as industrial products, digital media, food and energy.
Interestingly, blockchain’s potential for transparency and the tamperproof record it creates could be a significant tool for regulators. It could make organisations’ compliance responsibilities easier to manage, tracking regulatory change for instance, providing oversight of regulatory activities for businesses and a granular view for the regulators.
There is much to be won for island businesses and for new business to the island in getting blockchain right, in identifying and testing use cases and in its regulation. Creating and implementing blockchain to realise its potential is not an IT project but more of a transformation of business models, roles and processes. It’s not something any one business or regulator can achieve in isolation, but rather intra industry working groups and cross industry collaboration must be achieved to ensure that development can keep pace with global technology and innovation. Clear business cases need to be identified, ecosystems to support them with rules, standards and flexibility, all to deal with regulatory change need to be built.
As the island’s Digital Agency begins to define how it can bring cross industry representatives together to explore and suggest economic development policies and initiatives, blockchain is an ideal opportunity to bring that to bear.
Director, PwC Isle of Man
Tel: +44 (0) 1624 689711