Ukraine vs. UK: European Blockchain Leadership in East and West

25.01.2016

While in days gone by the UK and Ukraine had nothing in common but a couple of letters in their names, nowadays the situation has drastically changed. Both countries are beyond any doubt Europe’s most prominent countries in terms of integrating innovative financial technologies in their economies. However, while Great Britain is the obvious fintech leader of Western Europe, Ukraine acts as its counterpart in Eastern Europe.

Both countries demonstrate friendly attitude towards cryptotechnologies in general and cryptocurrencies in particular. However, while the process of integrating those innovations is more or less basic for both of them, its actual practicing may significantly vary. ForkLog compared the situation around cryptotechnologies in the UK and Ukraine. While not intended to be comprehensive, this review is to demonstrate how exactly more or less similar processes occur in those two countries.

Bitcoin and Regulation

In late 2014, 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 de-centralized 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.”

In March 2014, the British government announced its intent to tax bitcoin. However, in the wake of the ruling by the European Court of Justice those plans might have been abandoned.

In addition, in February 2015 the Bank of England stated it would be developing its own cryptocurrency, and compared the propagation of bitcoin with that of the internet in the nineties.

Meahwhile across Europe, a major role in promotion of cryptotechnologies and Bitcoin in Ukraine was played by local Bitcoin Foundation (BFU) as well as other local Bitcoin activists. Due to lack of regulation the Bitcoin integration in Ukraine proceeds in a more decentralized manner. However, the discussion boards and consulting meetings with banking organizations and the National Bank lead to wider understanding of Bitcoin and blockchain tech by government officials and financial industry. BFU acts mostly as a consulting entity and knowledge base for financing institutions interested in modern technology.

Currently the National Bank of Ukraine (NBU) engages in active negotiations with local bitcoin community and pays close attention to global processes around cryptocurrencies.

“We realize that basic [fiat cash] functionality may remain satisfactory for a while, but the future lies with advanced technologies. The regulator welcomes all initiatives helping the cashless market in Ukraine. We are open to discussion of all new trends in this realm,” said Sergei Shatski, head of retail payment department at the National Bank of Ukraine.

However, the regulator prefers not to act hastily. Its official position consists in following whatever decision is made by European regulators.

“The National Bank of Ukraine will keep on studying the experience of implementing innovative payment solutions and keep a close eye on policies of other countries’ central banks and government institutions concerning regulaton of virtual currencies in European and global contexts,” said Natalia Lapko, the head of department for payment systems at the National Bank of Ukraine.

Anyway, this position did not stop the country’s biggest private bank PrivatBank to incorporate bitcoin in the list of their financial services in late 2015. Dmitri Donets, deputy chairman of e-business center at PrivatBank stated in an interview to ForkLog:

“Blockchain is a great technology, but we put our stake on bitcoin in the first place.”

The Blockchain

Back in May 2015, department for economic development of the Isle of Man launched one of the first distributed ledger projects for government operations. In particular, it established a register of cryptocurrency companies operating on the island.

In late 2015, the British government stated it would invest ÂŁ10 million in research of financial technologies and distributed ledgers. 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. Most of them admitted the blockchain technology was worth investing in, however, they remained skeptical when it came to digital currencies. Anyway, the goverment’s investment will go to the country’s biggest fintech researchers, including the Alan Turing Institute, Digital Catapult, and Councils.

British initiative Future Cities Group partnered with development team Guardtime to develop a blockchain-based system for protection of high-security infrastructure objects in the country, as it became known in December 2015.

The UK government’s chief scientific advisor sir Mark Walport called it to implement the blockchain technology in various government services in early 2016. He also noted that the existing approach to data management in goverment institutions implied presence of giant centralized systems with expensive weakest links that make them prone to attacks and errors. The official report also draws attention to advantages offered by bitcoin as compared to fiat money, as well as to its underlying technology’s features that may help in fighting criminal activities.

In Ukraine, American company Innovecs in cooperation with local KUNA Bitcoin Agency launched a competence center named simply Blockchain. The center became a technological lab focused on blockchain integration. Currently the R&D’s researchers are engaged in connecting Ukrainian banks to Ripple protocol.

Along with Bitcoin and Blockchain conferences in the country’s capital, the series of “Blockchain Incredible Party” (BIP) events has been held in Odessa and Lviv (the major cities in southern and western parts of the country), where international developing community members could meet each other, share ideas and discuss their projects.

However, in case of Ukraine, blockchain is more applicable in public services than in finance. Currently two independent projects are experimenting with government services powered by blockchain tech. Both projects develop in close cooperation between local governments, civil activists and developers.

The first one is a blockchain-based voting system project located in an old town Vyshgorod near Kyiv. The Reanimation Package of Reforms’ electronic democracy reforming group has signed a memorandum with the town’s mayor, and calls for everyone interested to participate.

Additionally, an Odessa-based project develops a system for state auctions seeking to make privatization more transparent and less corruption-prone with the use of distributed ledger. The project is employed by Odessa’s Georgian reformers in team with Distributed Lab. The system’s release is scheduled to February 2016.

While both pilot projects are to launch in just two cities of Odessa and Vyshgorod, should any of them prove successful, its operations will be expanded across the whole country.

Applications

UK-based startups are mostly known beyond their home country. Most of them offer services somehow related to finance – they are currency exchanges, online marketplaces, crowdfunding platforms, trading facilities, and so on. Just a few of them offer services for practical everyday use, like Nomad, a service offering store-to-door delivery.

Again, across Europe the situation is somewhat different, as local startups and service providers are more focused on practical applications. In Ukraine’s capital, the city of Kyiv, one may do grocery shopping, buy tickets to a cinema or a theater, and pay for a cab ride with bitcoins these days. In another Ukrainian city, Odessa, one may pay for real estate services with btcoins as well. Buying bitcoins for cash is also easy in Ukraine, as it offers several thousands of iBox terminals.

Moreover, PrivatBank backed a messenger app dubbed Sender with integrated feature of sending microtransactions to a counterpart. In addition, the bank added bitcoin to its currency exchange options available online.

Those examples, though far from being comprehensive, signify that in two different countries, though more or less equally friendly to disruptive innovations, the processes of actual implementation thereof may choose completely different ways. British companies and even the government tend to dedicate themselves to more conceptual and comprehensive fields of activity, like finance services and overall security. Ukrainian companies, in their turn, focus mostly on consumer services, while the government seeks for applying blockchain in its governance; however, it opted to follow the course set by prominent Western nations when it comes to regulation issues.

Both approaches have their pros and cons, however, they never contradict each other, and may easily entwine. Seeing what it eventually comes to is a matter of just a few years.

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Tags: UK, Ukraine