Blockchain has seen an immense growth in many sectors across the globe and many countries have decided to invest in distributed ledger technologies and to augment innovation via R&D activities. Universities, private companies and governmental bodies are beginning to realise the value of this new technology and they are at an early, a developing or a maturing stage. While a small percentage of businesses are what the authors consider “maturing”, the overwhelming majority are still in the early or developing stages of the digital transformation journey that will enable them to take full advantage of blockchain technologies.
Companies with a digital focus are striving to retool and prepare for the Fourth Industrial Revolution, a keystone of which will be the implementation of blockchain technology. In the blockchain business era, value will be created by digital trust. This in turn will be ensured through the large-scale implementation of smart contracts that allow automation and transparency of doing business. The trust will concern a conditional software that enhances process optimisation, decentralised data distribution and management, along with transactional efficiency. Countries such as Switzerland, Malta, Estonia and Germany are now the key players in blockchain implementation in business applications. Cyprus is also in a prime position to get ahead of the curve with its newly founded National Strategy on Blockchain and Distributed Ledger Technologies (June 2019; available at http://www.parliament.cy/images/media/assetfile/Blockchain%20Strategy%20English_FINAL.pdf), increased R&D spending and private/public initiatives to embrace blockchain technology.
Cypriot Market Overview
The Republic of Cyprus has long been the home of many international service providers, such as lawyers and accountants, due to the favourable tax conditions and ease of doing business. It features a highly educated multilingual workforce and advanced telecommunications infrastructure. It also benefits from being strategically positioned as a commercial intermediary, connecting Europe with the Middle East and North Africa. The small size of government bureaucracy also allows for quick retooling if needed. The innovation-centric focus of the economy of Cyprus has been evident since 2017 when Cyprus was one of only three member states of the European Union to have met its budget-to-GDP target ratio on R&D expenditure, and to have exceeded its national target on tertiary educational attainment by 11.1 percentage points in 2018 (available at ec.europa.eu/eurostat/statistics-explained/index.php?title=Europe_2020_indicators_-_Cyprus#Overview).
Following up on the above milestones, on 1 March 2020 the newly established Deputy Ministry of Research, Innovation and Digital Policy assumed for the first time legal authority to act as the central body for the co-ordination of the country’s research and innovation strategy, promoting the government’s digital agenda. The innovation shift was also complemented with the Cyprus Startup Visa Scheme to attract and retain tech talent from outside the EU/EEA countries and special tax incentives for innovative companies. A Cyprus National Research and Innovation Fund, which currently totals EUR200 million, will also receive matched funding from the EU, the government of Cyprus and the private sector. This co-ordinated effort is expected to bring the country’s total contribution to R&D up to 1.5% of GDP over the next five years, according to a study on monitoring progress in Cyprus regarding digitising industry mandated by the European Commission’s Directorate-General for Communications Networks, Content and Technology (2019).
One of the first major policy decisions of the Deputy Ministry of Research, Innovation and Digital Policy was to start an open dialogue with businesses, academia, public authorities and other stakeholders to address blockchain technology. The result of this public consultation is expected to set the priority actions and to set the roadmap of the gradual implementation of the National Strategy on Blockchain and Distributed Ledger Technologies. It is worth mentioning that, in the broader context of this public policy initiative, the Cyprus Securities and Exchange Commission (CySEC) was the first public authority to launch an innovation hub aiming to steer in a constructive, official way the dialogue towards the introduction of innovative financial products or services for the benefit of investors, investment service providers and the regulator (https://www.cysec.gov.cy/en-GB/cysec/innovation-hub/).
Business Trends and Blockchain Solutions
Several businesses saw the value and potential of blockchain technology as early as 2015 and introduced innovative and efficient ideas that quickly escalated to blockchain paradigms. These actors had a cross-sector range, which efficiently and unilaterally elevated Cyprus in the blockchain field and prepared it for the digitalisation phase.
Even more importantly, start-ups and established businesses, in alignment with the National Strategy on Blockchain and Distributed Ledger Technologies, have already started developing new applications and services that are taking advantage of the full potential of blockchain to service private customers and governmental authorities. The areas of priority, according to the National Strategy, are implementation in KYC/AML, land registries, gaming, e-invoicing, medical records, customs and taxation, and locally grown or made product provenance/identification.
Interestingly, for instance, producers, food suppliers and software companies in Cyprus are currently looking to formulate solutions to facilitate provenance and identification of locally made products. Such “proof of origin” blockchain-based solutions are seen as particularly useful, if not ground-breaking, for the verification by each and every consumer of biological food.
Similarly, in the medical sector, businesses are working on medical record verification via blockchain to ensure record veracity and integrity. These projects are of considerable importance for the further enhancement of the newly established national healthcare system in Cyprus.
Also, to tame the sprawling land registry record management system, blockchain-verified land titles is also on the business agenda of yet another possible public-private partnership. The fundamental target in this area is the development of a cost-efficient, automated data management platform, or the inter-connection of data platforms, which will provide instant, direct and 100% genuine and verified information to authorised users.
In the broader financial sector, banks are pondering whether to opt in locally created blockchain-based KYC, AML/CFT (countering the financing of terrorism) platforms. This has a dual strategic purpose: the medium to long-term objective to invest in fintech solutions and to gain a competitive edge, and the short-term necessity to carry on and to facilitate distant day-to-day transactions and mainstream services due to the COVID-19 pandemic.
There are also businesses that have already applied blockchain in their operations but have not yet seen publicity outside Cyprus. However, what is really encouraging is the wave of support that has been created for innovative technologies, which in turn has encouraged businesses to invest time and money on workforce digital transformation training and R&D.
A stakeholder that has put Cyprus on the map of blockchain innovation is the University of Nicosia. The University has been delivering courses on blockchain and digital currencies since 2017 and started accepting bitcoin as a payment in 2015. It was also the first to offer an MSc in Digital Currency. Moreover, it constantly organises seminars and events with leading figures in the industry that enable the community to engage and adapt. While also providing education, the University of Nicosia helps in the building of the infrastructure and the lobbying for regulatory transformation regarding blockchain in Cyprus.
Despite the relatively slower pace observed in the legal industry, blockchain has become attractive for the majority of the biggest law firms in Cyprus, which understood that in order to survive in the digital world, they must learn to see things differently, do things differently and provide services differently. The example of share certificates on Ethereum blockchain, which is a service already provided by Stelios Americanos & Co LLC to every corporate client, is a decent starting point towards this direction. Of course, there are many steps to be taken, but knowing where you are is a prerequisite for knowing where to go; and the competitive edge shall be new technologies with a customer focus.
Blockchain justice, as part of the wider e-justice process and development, is arguably not going to happen any time soon, but there might be a place for a back-end application for supporting systems. There have been no cases in the Cypriot justice system to test any of the current blockchain concepts (such as smart contracts). This, however, does not preclude Cypriot attorneys from providing legal consulting services to blockchain-related projects. Legal conundrums in the blockchain field can be solved by going to the roots of legal principles and trying to re-interpret time-tested legal principles in today’s legal needs.
Digitalisation in a Challenging Era
The 2020 pandemic has had a profound effect on digital transition in Cyprus,with effects that will boost a post-COVID-19 business world. Some companies have already realised the benefits to employers and employees in an effective and cost-efficient manner. The COVID-19 pandemic has made already existing technological tools mainstream and violently pushed businesses to transform digitally. Enterprises are realising that they can receive the same output from their employees even when performing remotely. The challenge will be to figure out how every business will execute its own digital leap forward.
But what blockchain is promising to offer is trust in the provisions of such deal. Both in the ante and post-pandemic period, innovation, either illustrated via mobile technology solutions or a sharing economy model (see medium.com/@frederikbussler/dr-charis-savvides-on-uber-for-lawyers-and-more-174188f1db9f), has many obstacles that need to be tackled. Big businesses might deal with the economic effects by either decreasing the workforce or by limiting unnecessary expenses, while awaiting public aid funding mechanisms. But small companies and start-ups, which naturally serve as the economic powerhouse of innovation in Cyprus, might suspend their activities. The challenges will undoubtedly focus (more than ever) on labour, technological infrastructure deficiencies, technology and innovation financing in contrast with more essential needs that take into consideration a devastated market with uncertain demand (see the “Innovation in Cypriot Enterprises” report prepared by the Statistical Service of Cyprus (2019), available at https://www.mof.gov.cy/mof/cystat/statistics.nsf/science_technology_92main_en/science_technology_92main_en?OpenForm&sub=2&sel=1).
Primarily, blockchain will prevail if the aim is an economy without intermediaries. Digital transformation brought a need for skilled workers to retrain and stay competitive in the digital era. Especially for service providers such as lawyers who need to keep up with clients, cases and court appeals, digital transformation went from being “nice to have” to “need to have”. All non-digital judicial systems will be strained in trying to perform digital transformation. The same goes for the judicial system of Cyprus. Legal professionals have been advocating for digital transformation for some time, but it seems it took a pandemic to see its real value.
Secondly, the infrastructure of distributed ledger technologies is often misunderstood, lacking maturity and staying undeployed, despite its potential to act as a game changer. The key issues are related to scalability, privacy and confidentiality, whilst regulatory uncertainties and legal risks continue to exist. Nevertheless, the value is now understood by both individuals and institutions who place significant investments in a trusted, secure and efficient way of data storing, locating and sharing. Arguably, this justifies the crucial role and the high public expectations for the Deputy Ministry of Research, Innovation and Digital Policy. This is a much needed central role that, despite its contrast with the “decentralised” concept of blockchain, is expected to raise public awareness, steer the discussion with all stakeholders, including the academic community, and, more importantly, deliver results by preparing future generations to engage with digital technologies.
It is commonly accepted that blockchain is a disruptive technology and the wider recent market trends and developments in Cyprus and abroad have already confirmed the manifold impacts of the technology across all sectors. Perhaps slower than elsewhere, but with the expectations being certainly higher than anywhere else, the legal industry is now embarking on this tech journey. Despite the concerns that naturally arise due to the absence at this time of a regulatory framework and of a supportive broader legislative reform, the groundwork is done, and Cyprus is now prepared to take the next concrete steps ahead.
The recently launched National Strategy on Blockchain and Distributed Ledger Technologies – which is a solid, long-standing governmental strategy on R&D – empowers, stimulates and elevates private investments in innovation. This is even more challenging for the legal sector in Cyprus, which is called now to channel its attention towards two directions. The first is to learn and use the blockchain technology in daily legal practice. Such self-use, through blockchain-based applications for lawyers, can reveal in the most tangible way the benefits that we can derive as service providers when we engage with the technology; to make legal services better for our clients in terms of quality, speed and cost. The second direction is regulation per se. Blockchain technology is already alive and established across many market sectors. Blockchain-based data recording is an ipso facto trend and development, shifting now the attention and the interest on the legislator and the judiciary in Cyprus to shape and shine this new digital era with the right legislative steps and interpretative tools accordingly.
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