Over the past few months, the Bermuda Government has been busy in its quest to build a third economic pillar to complement Bermuda’s re/insurance and tourism sectors. And the Government should be commended in its desire to diversify the economy.
There is no doubt that there is a heavy overreliance in Bermuda on re/insurance which is facing increasing regulatory and competitive pressures. As such, it makes sense to explore options that could guarantee Bermuda’s relative wealth and economic security. As with most things is all this what it claims to be?
Like most people, I cannot say I am a fintech expert, or a blockchain professional or a cryptocurrency specialist and as such I’ve had to research and learn quickly about this so-called brave new world. It is easy to get confused. The most simple way of putting this (and to the experts forgive me for being deliberately simple) is that references to fintech can be references to both blockchain technology and cryptocurrency. It is essentially the phrase used to describe the “brave new world” in its entirety.
Blockchain is “an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value” (Don and Alex Tapscott — Blockchain revolution, 2016). In other words, it can record land transactions as well as keep a record of cryptocurrency ownership. As one person explained to me — cryptocurrency needs blockchain, but blockchain does not need cryptocurrency.
Cryptocurrency is “a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrency is a kind of digital currency, virtual currency or alternative currency” (Wikipedia). In short, blockchain technology is used to record cryptocurrency transactions and fintech is the work used to encompass all technology in this arena.
As we all know, there is a lot of hype in the fintech world. The Government has made a number of grand pronouncements and fast and furious signings of Memorandums of Understanding (not real definitive contracts) to try and position Bermuda as the leading light of fintech-friendly jurisdictions.
There are promises of investment in Bermudians (and these days I am unsure what that means given the Government’s view versus the rest of the world) and undertaking by various start-up companies of huge funds to be spent on infrastructure and jobs.
It all seems to be rather immediate — a suggestion that somehow the fintech sector in Bermuda will develop hugely tomorrow with a massive number of jobs for Bermudians the day after tomorrow. Such suggestions seem too good to be true. Why do I say that?
Well when the respected Harvard Business Review says “it will take decades for blockchain to seep into our economic and social infrastructure. The process of adoption will be gradual and steady, not sudden, as waves of technological and institutional change gain momentum”, then we should accept that the effect will not be immediate. Indeed, surely as blockchain takes off the necessity for traditional intermediaries diminishes?
Lawyers, bankers, fund managers and all their support staff could be adversely affected by the technology due to the way transactions are automatically verified. And for Bermuda that is the biggest issue. Why? Because the professional-services industry is filled with Bermudians at all levels of employment. And more to the point, blockchain technology requires highly skilled people to make it work.
On this issue we need to face the facts — we simply don’t have the numbers of highly skilled Bermudians to fill the space, or for that matter enough students graduating in the next few years from our failing education system to get into the space. Promises of fintech funding sound good, but until the education system is fixed, I fear that we are setting up our young people to fail.
Don’t get me wrong. I am not against innovation. And I am in favour of Bermuda becoming “fintech” savvy, in as far as it relates to the phrase generally. I am, however, concerned that if the gun is jumped, the effects on local industry and the effects on Bermudians (the true legal definition, not the current Government’s) could be profound.
What about cryptocurrency given my support for fintech (with caveats)? Well on this I am totally sceptical. Why? Quite simply:
When the chairman and CEO of JP Morgan says: “[Cryptocurrency] is worse than tulip bulbs. It won’t end well. Someone is going to get killed.”
When Warren Buffett, chairman and CEO of Berkshire Hathaway, says: “I can say with almost certainty that [cryptocurrency] will come to a bad ending.”
And when numerous respected commentators compare cryptocurrencies to “fraudulent pyramid schemes” then it seems to me you have to pay attention to the warnings.
It is deeply concerning to me when companies make grand pronouncements with offers of donations to the Government and make promises to develop and support various programmes to get a place at the negotiating table. It all sounds, well, desperate especially when cryptocurrencies cannot be reliably valued.
It gets worse when you understand that China banned cryptocurrency offerings in 2017, the US SEC has sent out subpoenas to numerous entities offering cryptocurrencies and supposedly legitimate outfits creating their own cryptocurrency, like the Swiss-based entity Envion, are in meltdown.
The Bermuda proponents of cryptocurrency will point to teething problems in unregulated jurisdictions and will point to the legislative frameworks being put in place by our legislators (how many actually understand it is also an issue).
The question that must be asked, however, is “who is drafting this legislation” and “why”? There is no such thing as a free lunch.
My minds swirls daily about matters like these and whether there is long-term financial viability for Bermuda and Bermudians in being linked to cryptocurrency (watch carefully to make sure the pension funds are not invested in this).
By all means invest in fintech — as for cryptocurrency, however, beware of snake-oil salesmen both locally and from abroad.
• Michael Fahy is a former Minister of Home Affairs, Minister of Tourism, Transport and Municipalities, and Junior Minister of Finance under the One Bermuda Alliance government