Will Orde, investor at Oxford Capital, on why the UK should have the best crypto startup ecosystem in the world; and why we should care about entrepreneurs, not the price of bitcoin.
Cryptocurrencies are rarely far away from the headlines. Against a backdrop of continued regulatory uncertainty, we’ve seen the bull run of late 2017 come to a shuddering halt, giving way to big price drops, while mainstream financial services haven’t yet worked out how best to engage with crypto.
In the UK, we’ve had continued talk about regulation, but no new rules yet. The latest was Mark Carney’s warning “The time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system.” City Minister John Glen has taken a gentler line, however, promising proportionate regulation, and a cross-body crypto task force has been setup with a balanced mandate of managing the risks and harnessing the upside.
With regulation of cryptocurrencies still unclear, it is little wonder that engagement from traditional financial services has been mixed. Many banks remain reluctant to touch the proceeds of cryptocurrencies, due to the lack of AML/KYC controls.
Personally, I believe that proportionate regulation will be a good thing, as it would help enable traditional financial services to engage confidently with crypto. However, regulation is only part of the solution. Another huge driver of change will be better knowledge of how cryptocurrencies actually ‘work’ throughout the financial services sector. The tools exist to assess the risk of cryptocurrency proceeds, and banks shouldn’t be able to hide behind the lack of regulation to avoid doing business with those customers who’ve made money through legitimate investments. They shouldn’t want to, either, as there is money to be made here.
However, even against this complicated legislative backdrop, the startup ecosystem surrounding cryptocurrencies and blockchain is going from strength to strength. As a technology investor, I’m fortunate to have a front-row-seat. In recent years, most blockchain projects were mired in (fascinating) theory; but now I am seeing a lot more tangible technologies with sensible, real-world deployments. Additionally, there has been a record number of new ICOs, and the largest ICO ever from Telegram.
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The more exciting side of the crypto space isn’t the well-established currencies like bitcoin, but the startup arena, where entrepreneurs are using blockchain and ledger technologies to tackle real world problems and drive innovation. I’ve made no secret thatI believe that the UK is one of the best places to found and scale a blockchain startup. All the right ingredients are here: great technical talent, plenty of open-minded companies ready to be early adopters, and investors willing to fund it. The stats back this up: according to ICO Bench the UK ranks 3rdglobally for the number of ICOs, and 2018 has also seen success stories for blockchain startups raising venture funding, with both Everledger and Luther Systems announcing rounds.
As I meet more companies, it has become clear that the success of blockchain will be driven by the imaginations of talented founders. Great entrepreneurs are creating potential use cases for blockchain technologies, and they’re much broader than many originally suspected. Some crypto ‘believers’ argue that the technology just needs to find that killer use case to take off; however many believe that blockchain will become a broad ‘horizontal’ technology – in other words, a solution to many problems. It could be used for all manner of applications, from personalised learning, to TV production ideation, and many things in between.
So where next for crypto in the UK? One thing for sure is that regulation is coming. Proportionate, light-touch regulation would give traditional providers the comfort they need to engage, without stifling the innovation. Over the next twelve months, we will also see plenty more success stories coming out of the UK blockchain space, from successful fundraises, to ‘real’ customer deployments.
And finally one wish – even though the crypto space is decentralised (by definition), and the ecosystem has been very international in nature – it would be great to see more home-grown entrepreneurs banging the drum about the UK as a destination for the technology. Compared to other areas of fintech, crypto hasn’t been great at self-promoting the UK as the place to be.