Redrawing the Global Financial Map: How Cryptocurrencies and Blockchain are Changing the Balance of Power.

. 4 min read

Regular readers here are part of a global movement of early adopters in cryptocurrency, and will have no doubt of the impact that crypto is making on an individual, peer-to-peer level. But for those of us whose local communities remain relatively unengaged in this new paradigm, whose interactions in the crypto space occur mostly online, it’s easy to feel like the wider world hasn’t really been impacted at all.

However nothing could be further from the truth, and with a new wave of regulation and legislative frameworks beginning to respond more effectively to the threats and opportunities the new economy brings, it’s interesting to note one massive change: it’s the smaller, nimbler countries, which are punching above their weight - and redefining themselves as the crypto-innovation hubs of the future.

London in its throes of political isolationism, New York with its stifling BitLicence. China with its early dominance in crypto trading exchanges, now fearing capital flight as exchanges and mining operations head for the borders...  Centuries of dominance of world-renowned stock exchanges are starting to count for less and less, as more responsive jurisdictions rise to the challenges and possibilities on offer.  And the behemoths of the past are increasingly in danger of being consigned to exactly that, as the financial world - and those investing in it - move on to pastures new.

At the Malta Blockchain Summit last week, a lively debate called ‘Battle of the Jurisdictions’ pitted representatives from Malta, Estonia, Zug (Switzerland) and South Korea in a friendly debate about the best location to choose for launching a start-up based on distributed ledger technology - but there were plenty of other locations which could also have claimed representation in this discussion, including the Marshall Islands, Israel and Gibraltar.

Whilst the host nation Malta was proudly unveiling its new legislative framework with three detailed bills supporting all aspects of blockchain and DLT at the event, all delegates agreed that global discrepancies hindered adoption and growth in the sector overall. Right now the scene is very fragmented, but legislative arbitrage benefits nobody in the long run - or as S. Jasmine Jung, Senior Foreign Attorney at Jipyong LLC and considered one of the foremost experts on cryptocurrency, blockchain and cybersecurity in Korea put it, recent bans on ICOs in her country didn’t stop them happening, it just meant lots more money for lawyers in Singapore!  The South Korean Won was once the most widely-traded currency against Ether, and there were hints from the platform that revised legislation might soon be forthcoming from Seoul.

Regional benefits accrue to local networks of smaller countries, and the Baltic states of Estonia, Lithuania and Latvia can all be described as blockchain hubs in their own right. Estonia leads the way, of course, given that they were testing blockchain tech before the Bitcoin whitepaper was published, and their innovative e-residency scheme has enabled this tiny country to embrace the global community of tech businesses and entrepreneurs from around the world.

And whilst countries which are small in size and population are quick to get things done in terms of bureaucracy and legislation, perhaps suffering less red tape and fewer vested interests, the prominence of Japan as an outlier in this new world map demonstrates that size isn’t everything.  They learned their lessons early and publicly about regulating exchanges, but with a cultural history of embracing technology from gaming to AI, it’s not surprising that 88% of Japanese people are aware of Bitcoin and 47% have actually used it - making it quite unlike most other countries, large or small.

It’s about a range of factors, and as Malta and Gibraltar prove, a history in legislating at the cutting edge of financial tech in similarly challenging sectors like gambling and gaming, can certainly prove an advantage when it comes to responding to the opportunities of blockchain.

All the speakers at the Blockchain Summit were clear that regulation should follow the technology, not the other way around - and indeed given the orders of magnitude difference of speed and friction these two systems represent, that is surely inevitable. Plenty of countries can barely manage to tax corporations like Amazon and Google effectively even though they’re now entering their third decades of existence, and similar lags in updating follow the first wave of the ‘sharing economies’ like Uber and Airbnb.

Surely though if history teaches anything, it’s that change and progression is not optional. Banning, blocking and choking things off by one government will only send start-up investment elsewhere, and in the case of crypto it will simply send consumer use more and more underground. Legislation which attempts to hinder adoption by making each transaction a taxable event, for example, hinders only the completeness of reporting. As CNBC reported in April, of the most recent 250,000 filers on the Credit Karma Tax platform, fewer than 100 people reported capital gains on their cryptocurrency investments. "If I had to guess, there's probably a lot of underreporting," said Elizabeth Crouse, a Seattle-based partner at law firm K&L Gates. Yep, no kidding.

And on the other hand we have forward looking countries like Malta, offering specific tax breaks for blockchain start-ups, and low personal taxation deals for skilled workers migrating to the island to take up roles in these new businesses....

It’s not hard to see how the gradual penetration of crypto uptake amongst individuals as well as businesses, is going to completely shift the centres of power in the financial world, across all continents and hemispheres. When we look back a second decade on from the financial crisis of 2008, what will the world look like then, in terms of where the power and influence lies? Because I suspect it’s all going to seem very different.