There’s a great deal of interest in blockchain technologies, and the UK has developed into Europe’s foremost hub for innovation in this field, attracting serious interest from global investors and corporates, including those in Japan.
Earlier this year, Tokyo Electric Power Company Holdings (TEPCO) announced it had closed an investment in Electron, a UK blockchain start-up. The move turned heads because a major Japanese utility was investing in a relatively unknown British start-up working on a cutting-edge technology with relatively few real-life use cases.
Why the UK?
The UK has long been known as a start-up hub, especially in the fintech arena. As such, it’s been an attractive market for overseas corporates looking for new technologies and ideas, and we’re increasingly seeing companies looking at the UK as a source of innovation in blockchain technology.
New players in the blockchain space benefit from the UK’s world-leading financial sector, its substantial number of VCs and other sources of funding, its government support and openness to innovation.
Over £500 million was invested in UK blockchain start-ups during financial 2017-18. This represents a significant part of the UK’s venture ecosystem, with the potential for increased YoY funding during 2018-19.
In 2017, the UK remained Europe’s leading country for global tech investors - with British firms receiving £2.99bn of investment according to research by London & Partners.
Almost half of that investment (£1.34bn, to be precise) went into the fintech space, underlining the importance of London and the UK as a centre for innovation in this field. The UK attracted almost four times more funding in 2017 than Germany (£694 million) — and more than France, Ireland and Sweden combined.
The UK government has long encouraged innovation in the financial sector by pioneering regulatory ‘sandboxes’ as ways to encourage investment. These sandboxes allow businesses to test ‘innovative products, services, business models and delivery mechanisms’, with the local regulator’s temporary authorisation.
This enables start-ups to bring to market solutions without the onerous regulatory burden of acting as a full financial services provider, and enables them to experiment under the close supervision of the regulator. Now, for the first time, blockchain-related start-ups are being accepted to the sandbox. So far, of the total 29 start-ups accepted under the scheme, 11 are innovating in blockchain and distributed ledger technologies.
Use cases for blockchain & distributed technology
In the UK, pilots and real-life use cases have quickly emerged within the financial sector, including trials focused on payments, currency remittance, securities trading, insurance and trade finance.
The Bank of England, for example, is rebuilding its Real Time Gross Settlement (RTGS) system so it can interface with business and platforms using distributed ledger technology (DLT).
Meanwhile, UK banks such as Barclays and Standard Chartered are working on projects to use blockchain technology in trade finance to eliminate paper-based transactions — a development with the potential to revolutionise a highly inefficient process. Barclays has also applied for multiple blockchain patents, including two recent patents to facilitate cryptocurrency transfers and streamline its ‘know-your-customer’ processes.
Use cases outside financial services are also growing, and a number of UK blockchain start-ups, such as Everledger (insurance), Tradle (KYC) and Provenance (ecommerce), have come to international prominence
In my view, this trend is only likely to accelerate as start-ups seek to disrupt traditional, inefficient processes such as those relating to financial transactions, land ownership and government-administered activities.
The UK looks set to continue leading the way in the development of applied blockchain and distributed ledger technologies over the coming years, making it the right destination for Japanese companies looking for the next generation of technologies and solutions.