The concept of a financial or technology sandbox, popularized over the last decade, is gaining sway around the world, particularly as regulators try to put cryptocurrency, blockchain and technology genies back in the bottle and under observation (perhaps even starving them of oxygen). For some regulators in mature jurisdictions, such the UK’s Financial Conduct Authority, FCA, fintech or insuretech sandboxes and the entrepreneurs that populate them are largely coming from positions of strength and, as a result, may promote innovations that “fit the mold” or marginally improve status quo. Lloyd’s, the world’s oldest specialty insurance market, for example, has recently launched Lloyd’s Lab under similar pretense and with great fanfare. However, when scanning the world’s self-identified crypto-friendly jurisdictions, the idyllic beaches of the Caribbean basin offer not only the most promising options, they are also among the most prolific when it comes to breakthrough innovation and the occasional epic failures attendant with all great waves of change.
The storied history of small island states, particularly those in the Caribbean, is one in which people have had no other choice but to innovate to break the “curse” of being water-locked, sun-soaked and “too-small-to-matter” in the global economy. This has invariably consigned many Caribbean nations to being single-cylinder economies, with the waning (and often extractive) tide of tourism being one of the principle economic drivers. There are, however, emerging examples of the right balance of political leadership and regulatory prudence containing unbridled greed-driven innovation, while not stymying the creative process that can serve as examples to the world. For this, look no further than Bermuda and its future-ready leader and Premier of government, David Burt, who was heralded at the recently concluded Blockchain Central co-hosted by Concordia and the Global Blockchain Business Council as an archetype for the world.
On Bermuda’s idyllic shores and under its newly-passed digital asset legislation, Premier Burt’s administration has embarked not only on defending Bermuda’s long-held leadership in insurance innovation, with more than $100 billion of risk capital formed on the island, he aims to take Bermudans on an inclusive journey of digital transformation. One that yields better, safer and more efficient outcomes when it comes to citizen services, from the base layer of identity, to irrevocably recording people’s principle asset, land, to the requisite education ensuring the island’s citizens are not left behind in a rapidly changing world with an increasingly complex social mobility ladder. Blockchain and becoming a digital state are at the core of this strategy, as much as Bermuda has fiercely rejected any oncomers that would jeopardize the island’s hard-fought reputation as a principled financial hub, on par with the most stringent in the world, such as New York, London or Geneva. For this reason, unlike other investment destinations that have more registered businesses than citizens, Bermuda has struck equilibrium and eschews the narrative of being a post office box in the Atlantic or merely a tourist destination.
Further south from the Atlantic Outpost, that other Caribbean crypto-statesman, Gabriel Abed, the founder of Bitt, has made inroads where other blockchain technologists dare not tread, namely with central banks – the sentinel guardians of the analog, friction-laden economy that so many crypto-utopians (and anarchists) rail against, but so few have the courage or ideas to confront, let alone bring into the fold. Indeed, in no small measure due to Mr. Abed’s impassioned diplomacy and mastery of blockchain’s opportunity in central banking, Barbados will play host to one of the world’s first economy-wide digital twins of a fiat currency, the Barbadian dollar. Barbados’ newly-elected Prime Minister, Mia Amor Mottley, has announced this initiative as one of her chief pillars ensuring the island’s economic competitiveness and attractiveness to a growing cadre of technologists and financial innovators seeking a home.
Bitt’s work in challenging central banking and the web of international settlements that leaves many behind is perhaps the most serious proof that blockchain can change finance for the better. A consistent complaint among Caribbean nations about the global banking system is that prohibitively expensive and exclusionary anti-money laundering (AML) and know your customer (KYC) rules that came into vogue to counter terrorism and criminal finance arrangements are in effect a double-jeopardy. On the one hand, Caribbean banks want to comply with these rules to make the global banking system safer and more traceable. On the other hand, the cost and complexity of doing so negates banks’ social utility of providing affordable capital to households and economies. Yet, not all cases of crypto-innovation in the Caribbean basin are as successful, nor are all the leaders as inspiring. Indeed, a couple of islands over on the beleaguered U.S. territory of Puerto Rico, one of the largest and most diverse economies in the region, the arrival of crypto-utopians is largely viewed by nativists with skepticism as yet another wave of foreign invasion only to be repelled.
When there are needs as great as Puerto Rico’s, there can be no monopoly on helping the island. However, doing so under the guise of long-term commitment, while trying to rebrand an island with more than 525 years of post-Colonial history as “Puerto Crypto,” is not only offensive, it makes newcomers and their motives questionable. The real challenge in Puerto Rico, given the size and complexity of the economy and the deep crater left behind by Hurricane Maria, which claimed more than 3,000 lives and more than 150% of the island’s GDP, are perhaps bigger than the leverage technology aspirations can create by today’s standards. Puerto Rico’s case demonstrates that whole-of-government and whole-of-society turnarounds are hard and require a decades long vision. Nowhere is this truer than in Venezuela, a borderline failed state, whose crypto false-start with the launch of an oil-backed cryptocurrency, the Petro, was the equivalent of an economic Hail Mary pass with no receiver in the end zone.
Few regions in the world have tested the limits of cryptocurrencies, blockchain and technology with as many advances and setbacks as the Caribbean basin – herein lies the true value of trial and error and sandboxes. While there are bright lights like Bermuda and Barbados, which the world should emulate, larger islands like Haiti, the Dominican Republic, Cuba and Jamaica have the opportunity to learn from others and spring ahead. Meanwhile, as an emblem of peak crypto, the Cayman Islands played host to the world’s second largest initial coin offering, ICO, with Block.One raising $4 billion without even having a viable product, which was eclipsed by Venezuela’s controversial Petro offering, which reportedly raised $5 billion.