A report submitted by Digital Catapult and DLT Field Labs, titled Blockchain in Action: State of the UK Market, concluded that British distributed ledger technology firms seem to be concerned regarding the regulatory uncertainty found in the country’s blockchain sector.
The research support highlighted not only the opportunities that come with the adoption of blockchain technology and other DLT, but it also identified the challenges felt by businesses across the UK.
The digital innovation firm studied a mix of 264 DLT businesses in the country. About 74% of the participating companies were not happy with the current regulatory issues and highlighted it as one of their major concerns. Some other issues included a lack of access to business, legal, or technical expertise.
What Are These Regulatory Challenges
British companies appear to be facing a mix of challenges. The most prominent of them all is the European Union’s General Data Protection Regulation (GDPR).
Recent changes in the GDPR has left many European companies confused. The GDPR aims to unify how personal data is handled in the continent. The changing legislation, however, has become a challenge for companies that use blockchain technology since it stores data from all around the world.
The report from Digital Catapult said:
“This legislation raised concerns for companies using permissionless, public blockchains, which are open to anyone regardless of location, and where full copies of the database are replicated across all of the nodes participating in the network, making it impossible to selectively limit where the data goes.”
The Right to Erasure
The concept of GDPR comes into conflict with the proposal of a decentralised secured storage by the blockchain technology. That is because GDPR places control over personal data into the hands of citizens. They enjoy the right to delete their private data whenever they want to. This goes in contrast with how permissionless blockchains work as they keep data in an immutable state.
Reconciling these two has proven to be a big task for lawmakers and companies alike.
Concerns Regarding ICOs
There seems to be a lot of worries regarding Initial Coin Offerings (ICO) as well. According to the report, the UK has the second largest number of ICOs launched (10%), with the US in the first place with 20%.
While crypto-tokens as a way to raise funds through an ICO was seen as a way to raise “fair revenue shares for creative works”, it has caused a lot of companies to dwell in the midst of regulatory uncertainty.
The UK Financial Conduct Authority had earlier announced plans to regulate ICOs, but the organization is yet to issue a formal notice on the same.
This delay is causing companies to delay their ICO plans, which results in even more uncertainty. The report stated:
“This uncertainty was raised many times by the companies consulted, as they were unsure whether they should conduct an ICO in the UK or allow UK citizens to participate given the current regulatory landscape.”
The primary question is:
How to perform an ICO that is GDPR compliant and at the same time conforming to anti-money laundering laws, as well as compliant with Know-Your-Customer rules, if cryptocurrency transactions are meant to be anonymous?
More Issues Due to Uncertainty
Of the 264 DLT firms surveyed, about 54% of the blockchain companies highlighted the difficulties when opening bank accounts with traditional financial organizations. That is due to the uncertainty regarding cryptocurrencies.
Also, the survey pointed about that funds raised in crypto-assets posed a tougher time for the firms, who were faced with obstacles opening accounts in spite of going through all AML and KYC checks. This has led them to open multiple accounts around the world.
Still Some Positivity
Despite all the concerns, the report concluded that the sector is growing at a good pace in the country. According to Digital Catapult, the DLT “landscape has revealed the potential of its nascent technology to disrupt industries across the country.”
It found a vibrant ecosystem in a wide range of industries in the UK, displaying different stages of developments. It said:
“…investments rose from just over $50m in Q3 of 2016 to $150m by Q2 of 2018 (with ICO-related investments topping $100m in Q4 of 2017 and fiat investments climbing to over $100m in Q2 of 2018).”
They hope that the UK will regain their leading position in the DLT field, as it was in 2015, after “smoothing out the road to success.”