Experts’ take: Can Blockchain Adoption Help With UK–EU Relations Post-Brexit?

Philip Hammond, UK’s finance minister said at the Conservative Party conference said that blockchain—and other distributed ledger technologies—may help solve the UK-Ireland border issue after the Brexit.

His exact words were:

“There is technology becoming available…I don’t claim to be an expert on it but the most obvious technology is blockchain.”

When he made the statement at the start of the month, it raised no small dust, especially around blockchain and cryptocurrency enthusiasts.

As the dust begins to settle, we decided to look deeper into Hammond’s suggestion. Can blockchain really ease the friction on the UK-Ireland border? How can blockchain help maintain a seamless trade relationship between the UK and the EU, post Brexit?

“Yes and No” is the answer that nobody wants to get but it seems the most appropriate for a question about blockchain’s ability to solve the border issues arising from the Brexit.

Yes, blockchain holds a lot of promise and can address a lot of cross-border concerns.

No, blockchain, as we know it today, is not mature enough to be scaled to address these concerns.

Secondly, in this case, blockchain solution in its most transparent and immutable form will still rely on the accuracy of data fed into them.

Cryptocurrency News outlet, Cointelegraph quizzed stakeholders within an outside the cryptocurrency space on the matter. Following their responses, we better understand why blockchain may or may not be the technology to solve the fallout of Brexit

Vili Lehdonvirta, an associate professor and senior research fellow at the University of Oxford insists “there is zero chance that blockchain technology will help deliver a ‘frictionless’ border between Northern and the Republic of Ireland.”

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Having studied blockchain so well, Lehdonvirta knows when blockchain is carelessly thrown in as the solution to any problem and he suggests this happens a lot.

He takes on Hammond’s comment:

“Blockchain has become this magical buzzword that people like Philip Hammond who don’t know what they’re talking about are pinning all kinds of hopes and dreams on. I think the onus is on the proponents to explain how blockchain tech could possibly help here.”

He continued:

“For starters, we would need to know what exactly is meant by “blockchain” here. If it means a Bitcoin-style peer-to-peer proof-of-work system, then obviously throughput and latency will be big issues, against what expected benefit?”

Why Blockchain Cannot Help the Brexit Situation

  1. Scalability Issues

As sad as it is, Lehdonvirta is right about the challenges blockchain adoption face today, notable among them scalability.

Major public blockchains still use the energy-consuming, and hard-to-scale PoW consensus algorithm. The list includes the most popular ones like Bitcoin [BTC], Ethereum [ETH], Litecoin [LTC], and Monero [XMR]

In reality, it doesn’t seem possible that these blockchain networks (in their current states) can manage the level of daily traffic across the borders between the EU and UK. Bitcoin, for instance, manages 7 transactions per second (tps), ethereum 25, Litecoin 56, Monero around 4tps. Put in perspective, Visa claims it can handle over 50,000 tps.

Lehdonvirta also argues that permissioned or private blockchain like the ones developed by IBM offers nothing out of the ordinary. He notes, “If it means IBM-style permissioned blockchain, then that’s essentially just a shared database, nothing particularly groundbreaking about that.”

  1. The Nature of Blockchain

Another reason blockchain may not live up to Hammond’s expectations lie in the nature of blockchain and where it is can be leveraged. Gary Barnett, Chief Analyst for GlobalData’s Technology Thematic Research Program does not believe that blockchain is a panacea to all types of problems currently faced in several industries.

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He explained that “blockchain technology is not well suited to the processing of cross-border trade.” adding that it is “expensive, complex, and slow,” in this area.

He goes further:

“Blockchain only becomes useful or interesting in domains where no single participant in a network can take the role of transaction coordinator…whether importers like it or not, the border authorities can take on that role and mandate that importers use whatever system they choose.”

  1. Political and Social Considerations

It has been argued that no matter how well the UK prepares, post-Brexit will be a difficult period simply because the people have grown used to the former system.  Nick Botton, an expert on trade affairs and digital economies at Landmark Public Affairs explained that blockchain will not address the political and social aspects. He explained:

“The Northern Ireland issue is sadly not one that will likely ever be solved via technology, it’s strictly a political issue at this stage. Even if a blockchain customs border were something that could be developed in the next 5 years, which would be able to handle all customs matters perfectly, a border in either Ireland or between Northern Ireland and the rest of the UK would still be impossible to sell to Ireland and Northern Ireland.”

He emphasized:

“A border, whether soft or hard, is still a border, which would require policing, so as to prevent fraud and smuggling. Such an arrangement, whether in Ireland or in the sea, would be rejected by both sides of the Irish Island.”

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In January, Burton described blockchain technology as a “red herring” in the Brexit talks saying that it brings “unwanted transparency” to the global supply chain.

Summary

The buzz around blockchain technology makes it easy to forget that it is still a nascent technology. Whether or not it will eventually meet the lofty expectations from it is one that can be ascertained some years from now as the technology matures.

And it is maturing fast.

However, it is very unlikely that the technology will play a major role in the Brexit transition given the March 29, 2019 deadline. The UK Government seems to understand this as there are indications it has proceeded with other options. According to Gary Barnett, Chief Analyst for GlobalData’s Technology Thematic Research Program, UK’s tax service is releasing the first phase a major digitization program. He explained that bringing in blockchain now could be risky.

Nick Burton shares the same point. He explains:

“…the UK’s situation is essentially too severe even to begin experimenting with such a project, both in regard to time constraints and the current technological characteristics of the UK’s customs border. Even if the deadline of March 2019 is pushed back through a transition period, the UK would be forced to find the quickest “off the shelf” solution.”


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