Regulation and blockchain: Why tech isn’t just about code.
Working in tech goes beyond the code
When a new acquaintance learns that you work in tech, you are almost always asked the same question: “Do you have a background in programming?”. The answer from us: “No!”.
While it’s vital that you understand the technology your company is developing, not everyone needs to be an expert in writing code. In fact there are multiple roles in tech that sit outside of software development, not to mention the teams that manage your accounting, marketing, and HR functions.
However, most people don’t realise how much time tech founders commit to communicating their company’s narrative at events and in meetings. This makes sense if you’re fundraising or selling a product, but why would you spend your precious time speaking to external parties if you’re not looking for revenues or funding? The answer: uncertain regulation.
But what does regulation have to do with emerging tech?
When we started our first blockchain company, back in 2015, we had no idea how much of our time would be committed to informing and driving policy change relating to blockchain. At the time, few people knew what Bitcoin was, let alone blockchain. Regulators were, understandably, nervous about blockchain. They were aware that this mysterious technology was used to disguise the identity of criminals as they smuggled drugs, trafficked people, and laundered money, not to mention the impact on climate change. But how could they regulate something they didn’t yet understand?
Regulation for blockchain in the ‘10s: a stalemate
While the regulatory bodies were struggling to get to grips with this confusing new technology, we were pitching to boards across a range of sectors and countries.
Everyone wanted to know what blockchain technology could do for them, but the only firm commitments were for proof of concepts or consultancy work. The reason? No company was willing to build anything tangible until the regulation and policy relating to this technology was well established. Meanwhile, the regulators and policy makers weren’t willing to put any hard opinions forward until they had seen tangible use-cases in action. They were at an impasse.
This was NOT good news for us. Regulatory uncertainty is a big no-no for your corporate clients. If they think experimenting with your technology may result in an investigation from their regulator, their risk team will almost always shut down that conversation before it’s even started.
Educating regulators and governments on blockchain (pro-bono)
So what do you do as an entrepreneur when something is blocking your way? Find a way around it.
We began spending significant amounts of time with regulatory bodies and government departments on both an international and national level. We educated them around the risks and limitations of blockchain. Crucially, we covered topics like “How is blockchain different from cryptocurrencies?”, and “How can blockchain be useful for us”?
We spoke at European Parliament, the House of Lords, the House of Commons, All Party Parliamentary Groups, and countless conferences. We accepted pro bono work for the Isle of Man Government, PSD2, banks, magic circle law firms, and trade bodies… we were the subject matter experts for “global brands” but weren’t allowed to claim the work as our own, or even publicise the relationship. We contributed to government working groups, calls for evidence, whitepapers, and surveys. We worked with multiple industries, advising countless boards on their approach to blockchain.
It was all very exciting and academically interesting, but incredibly taxing on our time – your most precious commodity as a startup. Not to mention your other most prized commodity – working capital.
The value of collaborating with regulators and government
Were we being paid for this work? No. Which seems counter-intuitive when you’re told as an entrepreneur that every second of your time should be spent on commercialising your business. However, this work was crucial in driving understanding of the technology, allowing policy makers and regulators to shape their guidelines for each industry, thereby allowing our clients to feel comfortable when signing contracts to do business with us.
But the value for startups engaging in the regulatory debate isn’t just about getting the right regulatory governance. It’s also incredibly important for building your credibility and network. As a startup working with a nascent technology, you have access to knowledge that is poorly understood, and you will rarely get such a chance to leverage that position.
Our advice? Balance is key.
Of course, you need to keep the lights on through sourcing funding or revenues, and you need to ensure that your operations are sufficiently resilient to keep the wheels on the wagon.
But committing your time to establishing the regulation governing your technology, by engaging with your competitors, the incumbents in your sector, and regulatory bodies, is a crucial step in building a successful company.
A sample of our regulatory engagement
Some of the regulatory work we’ve been involved in over the past 5 years (that we’re allowed to publicise!):
- Our first real engagement with regulators: Working with ESMA, FCA, ECB, etc. on a Trade Finance solution, with Euroclear (ESMA call for evidence)
- Intensely engaged DFID and the FCA Regulatory Sandbox, including one of our companies – Disberse – being accepted onto the second cohort (announcement)
- Formed part of the Office of Tax Simplification (part of HMRC) working group for blockchain (OTS summary paper)
- Laura representing the British Blockchain Association and Crypto Asset Task Force (article)
- Working with techUK (where Laura sits on the Board of Directors), on a number of matters, most recently the UK Government’s approach to digital identity (article)
- Last year, we launched GovChain: a groundbreaking report summarising the global state of blockchain regulation, following years of working with the EU Parliament and global governments on their blockchain strategy