Who needs a blockchain? 

In a wide-ranging interview with WCR Lyle Wraxall explains how diversity will drive the adoption and understanding of blockchain across the Isle of Man’s business communities and beyond Blockchain is an immature technology. While companies are trying to understand how it can create value for their business, regulators are still trying to figure out what blockchain actually is and how it represents traditional financial instruments. The likelihood is that the true value of blockchain lies beyond crypto and finance – these were merely the first areas that were looked at – and that ultimately it will be a technology used horizontally across all sectors. This is something we’re already beginning to see. Through the TradeLens supply-chain platform, for example, the world’s largest container ship and supply vessel operator, Maersk, has – with the help of IBM – essentially put its global shipping network on the blockchain. The result is a digital tracking system that promises more efficient and secure global trade through information-sharing and transparency. One day, we will have full interoperability between all public, private and consortium blockchain variants, creating a vast network that has the potential to revolutionise financial transactions by uniting a currently fragmented space. When that happens, the value for mainstream businesses may be more immediately obvious. In the meantime, however, the real testing grounds for blockchain innovation are small jurisdictions that can offer the regulatory agility to work with companies that are eager to innovate. Small is beautiful In Europe, jurisdictions like Malta, Gibraltar and the Isle of Man have each embraced blockchain and are integrating the technology into their digital ecosystems and regulatory frameworks. While some concentrate on one specific area, such as fintech or cryptocurrency, the Isle of Man is trying to build a diverse digital ecosystem across all its sectors, in which blockchain businesses can leverage one another, as well as other businesses across the island. The self-governing British Crown Dependency in the Irish Sea between has a well-established and diverse financial sector, encompassing banking, insurance and wealth management, as well as strong infrastructure to support digital businesses, including its eGaming sector. But according to Lyle Wraxall, chief-executive of Digital Isle of Man, of the blockchain-based businesses that have made the island their home, only around 40 per cent belong to the financial or eGaming sectors. The remaining 60 per cent are a hugely diverse range of ventures – everything from environmental initiatives, to health, to education, to retail. Wraxall believes it’s this kind of diversity that will ultimately drive the adoption and understanding of blockchain across the island’s business communities and beyond. “When I came to the island about a year ago, I looked at what was happening in the digital economy,” says Wraxall. “People were kind of interested in blockchain, they were talking about it. But the regulators and the government were nervous about it. “There was a big education piece that needed to be done across government, across regulators, to get them to understand what blockchain was and how it could add value to the island and what the risks were with supporting that.” The government agreed to adopt new policies at a national strategy level to support blockchain and declared the island a blockchain-permissive jurisdiction. Wraxall set up Blockchain Isle of Man, which opened earlier this year, as well as a sandbox that provides a collaborative space for companies to live-test their products, services or delivery mechanisms. It’s a testbed that allows crucial experimentation in an environment where potential risks to financial customers can be strictly contained. Blockchain Isle of Man, meanwhile, provides expertise, guidance and marketing support, facilitating and encouraging collaboration between companies. It can also guide blockchain businesses through current and future regulatory landscapes and create dialogue between companies and local and international regulators, if needed. “We have the agility, from a regulatory perspective – we’re doing that with our financial regulator and with our gambling regulator,” says Wraxall. “We’re also involving our information commissioner from a data protection perspective. And I’d expect more regulators to get involved in the blockchain world as it matures. “And when we work with businesses, we’re always trying to impress on them the fact that – yes – you may not be regulated right now, but you always need to create a platform with compliance in mind so that you’re ready for regulation when it catches up with you so it doesn’t destabilise your business or put you out of business completely.” Protecting consumers Crypto has influenced blockchain’s a reputation. Investing in cryptocurrencies is a volatile business and a lack of regulatory oversight can make the markets vulnerable to manipulation. Meanwhile, amid shady ICOs and whispers of money laundering, investors have been targeted by several highly publicised scams, such as the OneCoin Ponzi scheme, which US authorities allege may have generated as much as $4 billion globally from its victims. All this makes the need for regulatory protection for consumers increasingly important for governments, like the Isle of Man’s, that have chosen to embrace blockchain. But cryptocurrencies and blockchain are not the same thing and many of the Isle of Man’s start-ups view blockchain not as an investment vehicle but as a business solution tool that will cut costs and simplify processes. Nevertheless, for companies eager to try out new things, there can be a lot of onerous red tape. “This is where the Isle of Man’s smallness is its strength,” says Wraxall. “These regulatory challenges need to be dealt with quickly and it’s the smaller jurisdictions like the Isle of Man that have the capability and the agility to deal with those regulatory issues. “We’re a small enough island that we have the advantage of doing tech trials really easily. We can do really good proof of concepts on the island, which again is more difficult to do in a city which is less well defined in terms of where your boundaries are – and getting a bit of legislation or a regulatory change just for that can be quite time-consuming and complex. “Because we’re currently working with smaller businesses and startups, we have a digital ecosystem and a financial ecosystem that are small enough that we can introduce these businesses to their respective customers, so they can have that dialogue. “Yes, you can do that if you sit in the middle of London, and you can go out to the banks there and so on, but actually it’s quite difficult as a small business to have the face time with senior folk within those organisations. “In the Isle of Man that’s entirely possible. We can set up meetings between senior folk within finance and insurance companies with blockchain businesses and start talking about how that can work.” Catching up with the tech There’s a lot we don’t yet know about the capabilities of blockchain because it’s still evolving. From a regulatory perspective, particularly in the finance world, regulation is years behind the technology, although jurisdictions like the Isle of Man are leading the battle to catch up. “There are challenges around how consensus works, how much energy that takes, how long that takes, how do we increase the capacity of it, and you’ll see that being tackled by the Facebook Libra campaign by creating a private blockchain before it goes public,” says Wraxall. “It’s allowing technology to catch up to the point where it can sustain that level of transaction and speed. But it also enables Facebook to deal with one set of challenges first before taking on the second set of challenges.” Another challenge facing blockchain enterprises is that the tech is not yet well understood within many larger enterprises. That’s partly because its difficult to get out of the mindset of thinking around centralized process, which is a huge barrier for some organisations, says Wraxall. But it’s also because the technology lacks credibility among mainstream companies in terms of its ability to deliver value. Wraxall agrees that blockchain has not yet achieved credibility but believes the Island’s carefully managed approach to cross-sector cooperation and experimentation – coupled with the idea of blockchain as a business solution – is gradually changing minds. “It’s about ensuring the ecosystem is diverse enough that it doesn’t create little pockets of competition,” he says. “We look more for cooperation across these businesses and that they will support the existing kinds of businesses that we have on the island. “So, we can introduce people and create the right kind of landscape for people to try out new things. And it’s by doing these things that we’ll see companies – and we’re seeing it already on the Island – begin to understand where the value is for their business and where they have opportunities to work with blockchain as a technology or work with other blockchain businesses to create value for their own. “When you look at it holistically like that – which again is easier to do in a place with the scale of the Isle of Man – then it’s worth more than the sum of its parts. That’s really what we’re looking to do. “At this point in the lifecycle of blockchain, that seems to be what’s working.”
There’s a lot we don’t yet know about the capabilities of blockchain because it’s still evolving. From a regulatory perspective [...] regulation is years behind the technology