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 Japanese investors and corporates.
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 it shone a light on a relatively unknown British start-up, and because a major Japanese utility was investing in a cutting-edge technology with few proven real-life use cases.
Japanese utilities are not widely known for gambling on new technologies, so the move was significant. It was also noticeable that TEPCO was investing a long way from home.
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 Japanese 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 British blockchain companies in 2018. This represents a small but growing part of the UK’s start-up scene, with the potential for much more funding for blockchain companies to come.
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 (£694m) — and more than France, Ireland and Sweden combined.
As financial institutions continue to experiment with blockchain solutions and partner with blockchain-related start-ups, the UK’s blockchain market is likely only to continue to accelerate. This is being boosted by the UK government’s attitude to fintech in general and blockchain in particular.
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.
Most UK start-ups experimenting with blockchain are in the financial services space. This makes sense, as transaction-heavy industries like financial services are more likely to see a high-level of disruption.
Here, blockchain has the potential to remove ‘middlemen’ and change the way we conduct transactions. It’s a distributed ledger that cryptographically records transactions between two parties and provides a record that can’t be altered without being apparent to all of those connected to the network. By providing such a permanent record, blockchain provides the trust and transparency to enable peer-to-peer transactions which today require a trusted third party, such as a bank, to verify.
Financial services use cases
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 have also started to emerge outside financial services. And a number of UK blockchain start-ups have come to international prominence — including Everledger (in insurance), Tradle (in KYC/identity) and Provenance (in ecommerce).
In my view, this trend is only likely to accelerate as start-ups seek to disrupt traditional, inefficient industries like land ownership and government.
I’m confident that the UK looks set to continue leading the way in the development of blockchain as the innovation ecosystem is already in place. This makes it the right destination for Japanese companies looking for the next generation of blockchain technologies and solutions.