For Queen and Country and Bitcoin: How the UK Turns into Fintech Avalon
British government seems to have seriously approached the issues of implementing fintech innovations in its operations.
Speaking at London’s Digital Catapult, a government-funded think tank, Cabinet Office minister Matt Hancock stated:
“We’re exploring the use of a blockchain to manage the distribution of grants. Monitoring and controlling the use of grants is incredibly complex. A blockchain, accessible to all the parties involved, might be a better way of solving that problem.”
He went on describing blockchain technology as one bringing “built-in integrity and immutability”, though incapable of “solv[ing] any problem, or work in every context”. However, he added that “data held in the blockchain comes with its own history, and that history is a fundamental part of proving its integrity, this fact is enormously powerful.”
He pictured blockchain technology as follows:
“Rather than a single central authority demanding trust and declaring: ‘I say this data is correct,’ you have the distributed consensus of everyone in the chain saying in unison: ‘We agree that this data is correct.'”
Most importantly, Hancock said that the government is going to put the technology to use in a short while. Referencing to Bitcoin as a source of inspiration, he said:
“Bitcoin proved that distributed ledgers can be used to track currency as it is passed from one entity to another. Where else could we use that? Think about the Student Loans Company tracking money all the way from Treasury to a student’s bank account. Or the Department for International Development tracking money all the way to the aid organization spending the money in country.”
Hancock considered further implementation of blockchain-related technologies a part of “the mission to improve the lives of the citizens who we serve.”
This speech could hardly be surprising, as British government is well-known for its warm embrace of cryptotechnologies, as opposed to many other national governments in the world. For instance, in early 2016 Minouche Shafik, Deputy Governor, Markets & Banking Bank Of England, stated the bank considers using the distributed ledger technology in its new infrastructure. Speaking at the Bank of England this January, she noted that legacy payment and settlement systems have “changed dramatically”. According to Shafik, new forms of technologies based on distributed ledgers may have inherent challengesÂ as they enable complete elimination of third parties due to their option of decentralized verification. However, those technologies are capable of rebooting payment securing mechanisms.
In most cases, politicians are at least cautious attitude towards cryptocurrency, usually linking it to good old money laundering, human and drugs trafficking, and terrorism financing, even though there is little evidence of such.
British government, on the contrary, invested ÂŁ10 million ($14.5 million) in the country’s biggest think tanks last year, including the aforementioned Digital Catapult, the Alan Turing Institute, and Councils which is engaged in researching cryptotechnologies. Earlier that year, Her Majesty’s Treasury issued a public inquiry concerning the blockchain technology and bitcoin. It received numerous responses from commercial organizations around the globe, including MasterCard, Citi Bank, and Accenture.
Even though Hancock did not go on to describe how exactly the government intends to use the technology, the move seems to signify that the Whitehall has heard Sir Mark Walport, its chief scientific adviser, who urged it to adopt distributed ledgers earlier this year.
“Distributed ledger technology has the potential to transform the delivery of public and private services. It has the potential to redefine the relationship between government and the citizen in terms of data sharing, transparency and trust, and make a leading contribution to the government’s digital transformation plan,” Sir Mark Walport stated back then.
The government has apparently realized that centralized nature of its data management systems presents an easy and attractive target to hackers. The research started last year with exploration of blockchain’s possible employment in improving transparency and record keeping. Paul Downey, technical architect for the Government Digital Service, wrote back then that while government ledgers are all processed differently, it may be significantly improved through blockchain’s use.
British government’s interest for cryptotechnologies, in fact, dates back to 2014, when Ed Vaizey, Her Majesty’s Minister at the Department for Culture and the Department for Business stated:
“We want to make these e-payments faster, quicker, we want to make it as safe as possible. And we want to look at the kind of technologies that the digital currencies use to allow end systems to operate in a decentralized way, with no intermediaries. We want to look at how the new technologies can benefit consumers and the wider economy. So that’s something the Treasury is very interested in.”
Finally, the governmental interest for Bitcoin resulted in development of so-called RSCoin, a centralized and completely regulated cryptocurrency. Â According to MIT Technology Review, the currency was developed by Sarah Meiklejohn and George Danezis, both from the University College of London.
As for the original Bitcoin, UK Treasury has recently announced that bitcoin wallets will not be subject to AML regulations. Last week’s report describing the government’s plans as to terrorism funding and money laundering read:
“This [focus on exchanges] is consistent with a risk-based approach, and we note that extending the perimeter of anti-money laundering regulations beyond digital currency exchange firms (eg to wallet providers) would not deliver any benefits in terms of mitigating money laundering and terrorist finance risk, and would place significant burdens on firms in this innovative and embryonic sector.”
The document also noted that law enforcement agencies, academics, and government officials agree that digital currency networks feature a very low level of illegal activities, which has possibly justified the decision to leave bitcoin wallet providers alone.
All in all, it seems that the United Kingdom is not joking when they talk of becoming “the world’s new financial centre” very seriously. And, judging from the recent tidings from Britain, it seems that the world’s only jurisdiction more bitcoin-friendly than the UK is Liberland, which, honestly speaking, is in fact no jurisdiction at all.
The United Kingdom gradually becomes the center of attraction for financial technology researchers and entrepreneurs. Assuming that, as provided in some forecasts, blockchain will eventually disrupt international finance by the year 2025, British government has chosen the right time to turn their country in fintech Avalon, which is an especially reasonable decision as compared to multiple attempts of banning or even criminalizing cryptocurrency elsewhere.
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