It was the last day of the World Economic Forum in Davos and Wayne Caines, Bermuda’s minister of national security, was about to head home after an exhausting week. But before leaving, he told a group of blockchain enthusiasts, “If you are really serious about advancing this space and working with us, meet us in Bermuda on Monday.”
Then it actually happened. A handful flew to the British territory on their own dime with the same suitcases they had brought to Switzerland, and spent the day with Bermudian government officials laying out a road map to embrace the nascent industry.
“It was the coolest thing I’ve ever been involved with,” Caines said in an interview at Bloomberg’s New York headquarters on Thursday. “There was just so much brilliance in the room and people were so passionate. What I like about people in the blockchain space is they actually want to change the world.”
Less than three months later, Bermuda’s lower house of parliament approved rules to regulate initial coin offerings, and the government signed an agreement with Binance, the world’s largest cryptocurrency exchange, promising investments in blockchain companies, jobs and education for Bermudians.
Bermuda is already at work on a new law, the Digital Asset Business Act, to encourage and regulate investment in the distributed ledger technology and cryptocurrency businesses. There are so many projects in the works that Bermuda Premier E. David Burt jokingly refers to Caines as the “minister of blockchain.”
“We are building an ecosystem here,” Burt said. “Bermuda is already an innovation hub, thanks to the reinsurance industry.”
At the meeting with the group from Davos, the focus was on the technical aspects of blockchain and how it could fit into regulation, said John Narraway, an emerging technologies consultant at the Bermuda Business Development Agency.
“It was just markers out with the smartest people I’ve ever been in a room with,” he said. “We mapped it out within, I think, probably five hours.”
Bermuda already is putting property records on the blockchain, and counts about another dozen businesses underway or looking at investing. Patrick Byrne, the chief executive officer of Overstock.com Inc., an online retailer that accepts payment in Bitcoin, also signed an agreement with the government, to set up a blockchain “laboratory” there.
The key to turning Bermuda into an incubator for fintech companies is to build on the country’s legal and regulatory structure, which is key to the success of its reinsurance industry. The government’s “sandbox” will allow companies to work on emerging financial technologies, while communicating directly with regulators.
Bermuda’s strategy isn’t without risk. Regulators worldwide are struggling with how to handle ICOs, which raised about $6 billion worldwide last year, often with little or no documentation and frequently providing no return to investors.
Binance, founded last year in Hong Kong, has had troubles of its own. The company is opening an office in Malta after pulling out of Japan to avoid a clash with local regulators, Chief Executive Officer Zhao Changpeng said in an interview last month. Japan’s Financial Services Agency issued a warning to the exchange for operating without approval.
The exchange’s troubles mirror those faced by other crypto firms that are trying to figure out how to operate without concrete guidance from regulators. The U.S. Securities and Exchange Commission has said that platforms serving as trading venues for digital assets deemed to be securities will need to register with the agency as a national exchange, or qualify for an exemption. The regulator also subpoenaed firms and individuals behind coin offerings it believes might be breaking the law, a person with direct knowledge of the matter said earlier this year.
Binance signed a pact with Bermuda, agreeing to spend as much as $15 million to offer college classes on blockchain and invest in companies working with the technology. The courses will start as early as this summer and will focus on compliance and software engineering, Burt said. Professors will be paid to come teach in Bermuda.
“We’re hoping this fintech push mirrors the success we had with the insurance industry in the eighties,” said Sean Moran of the Bermuda Business Development Agency. “You have to continue to find what’s next.”
(Corrects third paragraph to attribute quote to Caines, not Burt.)