Innovation from the Isle of Man

Many of us put blockchain and crypto in the same bracket because blockchain is the technology that underpins cryptocurrencies. This may have given blockchain a bad rep. Not that there’s anything inherently wrong with cryptocurrencies, but bad actors and a lack of regulation have generated plenty of bad press in the crypto space – whether it’s stories about shady ICOs or market manipulation.
But the truth is a blockchain company can be just like any other tech company, developing software that doesn’t need regulatory oversight at all. It could be a company building a blockchain-driven online platform that deals with something like absence management, for example.

A lot of jurisdictions are perhaps too focused on crypto involvement when there’s a big chunk of businesses in this sector are simply tech companies. In the Isle of Man, we see blockchain companies working all kinds of sectors. Yes, there are crypto, fintech and egaming companies, but these are outnumbered by a diverse range of ventures in everything from environmental initiatives, to health, to education, to retail. This challenges a jurisdiction to review its legislation and regulation, bringing them up to speed with contemporary technology — because a lot of jurisdictions have quite dated legislation which may not be fit for purpose.

How to grow a blockchain incubator on an island

Some jurisdictions, like the Isle of Man, have developed a regulatory sandbox which allows them to put companies into temporary licensable environments, where we can look at how the regulations can be changed to suit a business – or whether they should be changed at all. For businesses, it’s a collaborative space to live-test products, services or delivery mechanisms and it helps to create a
robust but agile regulatory framework that should benefit all sectors.
But blockchain companies do create plenty of regulatory challenges. With the emergence of STOs (security token offerings), for example, suddenly you have a whole new asset class that the regulators don’t understand.

In this case, there are new challenges to overcome. Smaller jurisdictions must ensure they have secondary market trading, which the Isle of Man and Malta now do, albeit specific to certain other regulations such as those for crowdfunding. But the biggest challenge is that a lot of the smaller jurisdictions don’t yet have the capacity for market oversight within their regulator, which meant if you had an STO token you couldn’t actually create a market for it there.

Ultimately regulators must ensure that they are acting to protect the consumers and investors participating in these activities and it requires a suitable amount of manpower to oversee the transactions. Because of blockchain, jurisdictions have had to move with the pace of change much more quickly than ever before.

There are logistical challenges too. We’re in a bit of a boom period for blockchain but it’s still in its infancy as a technology, which means it can be difficult to find developers in this space. That, however, doesn’t mean the jurisdiction is not for you just because you can’t find developers. It’s not uncommon for companies to have external development teams in another country. We’re living in a
global economy and you don’t need everyone cooped up in the same office.

Lack of office space is not generally an issue but the lack of the ‘right’ environment can be. For example in the Isle of Man, the Hubb exists as a physical incubator with office space that also provides a supportive environment — Hubb’rs are supported by experts who actually understand the blockchain sector.
There’s a big boom in co-working and serviced office space at the moment.

A lot of tech start-ups don’t want to take a five-year lease on a 3,000 square-foot office, they want to move somewhere that’s short term and flexible. That’s why jurisdictions need to also provide a focus on the availability of short term, flexible space for these start-ups to operate from. Companies can come in for a short
period of time and participate in the sandbox to test their ideas. If what they’re trying to do just doesn’t work, they can just go back to the drawing board without the worry for future liabilities.

Many of the blockchain companies we’re seeing are at a fundraising stage. The Isle of Man government has a very supportive grant structure, which means it can support up to 40 percent of first-year costs covering multiple categories of expense. In addition to grants, there is also the opportunity to apply to the Government for equity investment. In terms of success stories, it’s early very days for the Hubb.

We had a crypto-only egaming operator when we first opened in May that started off with two people, and now they’ve just moved to a
bigger office to facilitate growth. They’re now fully licensed and regulated by the Gambling Supervision Committee. That’s a crypto success, but we’re still waiting for a purely blockchain company to do something big in this space.

We are seeing an increasing number of them landing in the Isle of Man at the Hubb and believe that will happen and that blockchain will gradually achieve credibility and direct relevance for mainstream businesses. The Hubb is doing everything it can, alongside Blockchain Isle of Man (the Government’s Blockchain Office) to ensure that businesses – not only at start-up phase – look to the Isle of Man as the jurisdiction to be in.

From a B2B perspective, it’s going to be a massive part of growth and how businesses transact with each other going forward, whether that’s through the execution of smart contracts, or the use of tokenisation to ease accounting for businesses, for example. But for most people, blockchain will be something that just happens, something that’s introduced into their lives without them being aware of it – whether that’s how their banks are working in the background, or how their personal information is stored by health services. Most people won’t even know they’re using systems that are blockchain driven.

By Jason Scales

The Isle of Man has emerged as a leader in helping blockchain businesses establish themselves and grow. While it is still early days for blockchain, it is undoubtedly the future, says Jason Scales, Chief Executive of the island’s Hubb, a supportive incubator environment for blockchain and technology businesses.

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