Can Blockchain really save the Brexit Bacon?

15 Aug

[Editorial co-authored by Susie McAleer of 21c Consultancy & David Brunnen, Groupe Intellex]

Brexit=uncertainty.   Business leaders have no idea how government negotiations with the European Commission will evolve. The likelihood that nothing will change is at, or very close to, absolute zero.

What is certain is that cross-border transactions will be different in at least two ways – pricing and regulation. The consequences (even if the UK moves to WTO tariffs) will probably involve potentially costly administrative adjustments to the way we all do business in any transnational flow whether import or export, inward investment, overseas acquisition, emigration or immigration.

Anyone already immersed in overseas trade will know the current complexities. In recent times it has been useful to (a) simplify the process and/or (b) outsource the hassle. Wholesale elimination of tariffs and trade barriers within the EU expanded the scale of accessible markets on our doorstep. But old customs die hard, so a new industry has emerged – an army of specialist intermediaries to handle the ‘red tape’ and logistical complexities that add extra costs but very little extra value.

Conventional analysis would see easy/local market access shrinking and also increased regulatory red tape, but could Brexit have an unforeseen silver lining? Some enthusiastic Brexiteers have suggested that technology can somehow bridge new borders.

  • Is it possible that we now have the will to design transnational transaction systems sans rubber stamps in triplicate?
  • Is it plausible that the UK could find competitive advantage through some new global protocol to make trading easier?
  • What is the chance that all other countries would agree and fall into line?
  • And could all this be designed and implemented before the guillotine falls?

It may sound unlikely but the underlying spirit of our digital times – disintermediation – should, in theory, sweep away the old (or new) roadblocks.

Consider, for example, the vexed question of a land border between Northern Ireland and the rest of that island. Their border had lost much of its polarising significance but may now return to regulate the flow of people, goods and services. Can technology save everyone the hassle of stopping, searching and rubber-stamping?

Well, in theory, yes. Adopting blockchain technology has the potential to create simple, fast and efficient systems for organisations on both sides of the border enabling them to trade using a robust, secure platform and network with automatically pre-assured customs clearances, dues paid and all boxes ticked.

The chain itself is simply an electronic document ledger that enables people and businesses to share information – financial, legal, electronic or physical asset description – securely across a network of computers without the need for a central authority, be it a bank or government department. No one member of the chain has the power or authority to change or tamper with the records, and the blockchain algorithms keep everyone honest by ensuring data integrity and authentication of the transactions. This transference of governance from centralized institutions to a system of distributed networks of peer-to-peer collaborators ensures a trust protocol is created and managed by the members of the chain, the ones who create and drive value, not by a third-party middleman.

So, that’s the theory, but what would the blockchain mean in real life?

In the Northern Ireland Brexit case blockchain could provide complete trade transparency enabling borders to be kept open without hindrance. For example, supply blockchain’s would ensure the provenance of food (the titular brexit bacon) and of goods that cross the border, ensuring they are transported at the right temperature, in the right volumes, keeping quality from source to destination without the need for overwhelming volumes of paperwork and ‘red tape’.

Selling high value assets, such as property and enterprises between those from Northern Ireland and the Republic could be made faster with automatic and immutable historic ownership data, from copies of deeds to due diligence information, thereby removing fraud and reducing bureaucracy.

The use of faster, secure payments means local businesses could rival bigger companies. Imagine if a local mini-cab firm could take on Uber by placing transactions on the blockchain, thereby removing the centralized organistation taking a 30% cut from fees. The idea of blockchain is to give better value/more money to those in the network, rather than large corporates based in, say, China or the USA.

Whilst the potential of blockchain is still largely theoretical, advances in its use for trade are being made. At the start of 2017 seven European banks (Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Société Générale and UniCredit) created the Digital Trade Chain (DTC) consortium in order to collaborate on the design, development and commercialisation of a shared supply chain management and trade finance platform for small and medium-sized companies (SMEs) using blockchain technology. In addition, a new initiative called BlockchainCITIES provides an EU membership platform of local authorities in BlockChain transition. Could we be on the cusp of reinventing the trusted city trading partnerships of the Hanseatic League in the 15th Century?

Perhaps a good UK starting point would focus on trade between cities within Commonwealth countries where we have a shared heritage of law and commercial frameworks.

However, it remains to be seen if the traditionally bureaucratic institutions such as banks and government can actually drive an innovation of this nature and overcome a range of deterrents from high initial capital costs to large computing power consumption. The new energy for development of blockchain-enabled cross-border trading will almost certainly come from major cities where inward investors could be attracted by frictionless trading environments.

BUT, all this hope (and hype) for an easier trading life requires massive concerted effort.

In the US-State of Illinois, for example, 107 students have been immersed in a month-long ‘hackathon’ to explore the possibilities.  Five pilot projects undertaken by the state include the areas of land title registry, academic credentials, health provider registries, energy credit marketplaces and vital records.

‘The state’s idea is that if it can figure out blockchain, there are a lot of record keeping and transaction processes that can be made more secure and more reliable.‘ – statescoop.com  But none of these pilots have yet tackled International Trade Transactions – most probably because they live in a giant single market where import/export rules are a minority sport.

As yet there is little sign that here in the UK we are assembling any similarly scaled collaborative efforts – and time to organise these before Brexit is slipping away.

Does the UK government have any clear idea of the investment required for such innovation?

And if the Department for International Trade is not on top of this, will some of our leading Cities take the lead?

Will we let go of something that we’ve not yet fully grasped?

One thing is certain; we have a golden opportunity now to transform digital platforms for the borders of tomorrow with Blockchain forming the central nervous system of trade.  Surely, regardless of Brexit outcomes, it’s time to start a chain reaction!

_______

(C) (2017) 21c Consultancy & Groupe Intellex

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