Look at news on blockchain, crypto, and distributed ledger news for just a few days, and a couple of countries begin to stand out. Bermuda and Malta, among others, have been leaders in building regulatory environments that encourage blockchain innovation and investment.
The U.S., by contrast, has been lagging badly.
This week Tech Beach Retreat has been holding “Fintech Innovation Island” at the Hamilton Princess Hotel in Bermuda. It’s a part of Bermuda Tech Week, focusing on fintech, crypto, and blockchain-based technologies.
There, I had the pleasure of doing a fireside chat with the Premier of Bermuda, the Honorable E. David Burt.
He’s a former developer – yes, he can still code – a startup founder, entrepreneur, business leader and executive, and the youngest national leader in Bermuda’s history. He also holds a Master of Science degree in information systems development from George Washington University.
And he deeply understands blockchain, cryptocurrency, and fintech … as well as other topics that big tech has made relevant to our lives: privacy, data security, platform effects, and the continual need for democratization of the powers that technology offers.
My biggest takeaway?
If only the world in general had leaders half as intelligent, articulate, and educated as Premier Burt, we’d be in a much better place to surf the massive coming change of automation, AI, robotics, financial innovation, and everything else that is coming along with the fourth industrial revolution.
Here is a transcript of our discussion, lightly edited for readability. Judge for yourself.
John Koetsier: Let’s start off with the news. You announced two pretty big things yesterday. One of them is being able to pay your taxes with a stablecoin.
Premier David Burt: One of the things I think are key towards the adoption of digital currencies is to make sure that governments are on board. And in order to see them function here locally, the government has to take the lead. So from that perspective, if there’s any stablecoin, a one-to-one US dollar stablecoin that is regulated, it will be accepted for payments for goods, services, and taxes.
That means the government will also start being able to use those stablecoins as well insofar as vendors want to accept payout in these coins to use around our domestic economy. So we’d love to transition this in the future to things such as payments coming from the government, financial system, social system, etc. …
The strategy some governments have taken is it that they’re going to build it themselves. Such as they’re going to create their own digital version of their currency. But from the regulatory perspective, we are a small country. And there are risks that are involved in doing your own personal digital currency. You have to worry about exchange rate risk … or security risk.
Whereas if private companies who do this for a living, who are well established … our view is that it’s better to let the private sector do these things and have the government go ahead and sign off. And our approach is actually backed up by the International Monetary Fund.
John Koetsier: You also announced, with a couple of partners, that you’re creating the possibility of having a blockchain-based national ID program … and building the technology so that potentially any country could use it.
Premier David Burt: Absolutely. And the approach which we’re taking is the exact same: we can design our own solution — we can go through the process of government of designing its own solution, or we can strive to speed adoption of what we are want to adopt.
We can approach this as a technology problem, or we can approach it as a regulatory problem.
So the proof of concept which we’re running through, in combination with Shyft and Perseid, is to start that process and demonstrate how this can actually work. But we don’t want it to be limited to a particular company. We want multiple companies that are inside the identity space. This is all about making sure that we’re that center of innovation, allowing private companies to come here and to test these things that they don’t have the ability to do in other places.
John Koetsier: You’re making Bermuda a center of fintech innovation. Why?
Premier David Burt: Because it’s the future. Because I don’t want young men and women to not have a future and hope.
There’s a reason why five of six largest companies in the world are technology companies. And 90% of our foreign exchange earnings come from international business … and largely that is financial services. So if the essence of your economy is based on financial services, and if the future of financial services is technology — just like the future of shopping being taken over by technology — if we do not have the ability to innovate our financial services here … then our financial services industry will innovate somewhere else, and our country will be poorer for it.
So it’s something that is a national strategic imperative.
And that’s the reason why we have to continue the push and the drive. Insurance is our main industry. Insurance is one of the things that is going to have one of the largest impacts when we talk about distributed ledger technologies, smart contracts, and automated settlements. I want to make sure that happens here. I don’t want that happening somewhere else. We need to make sure it happens here.
We have a long history of innovation. The reason why we have a large insurance industry is because we’re able to solve problems here from a regulatory perspective that they were not able to solve in other countries. And we need to just continue to push, and I think we’re making progress. And I think that people who visit the island and actually see that, hey, there is actually something going on here.
John Koetsier: Bermuda has a history in finance and insurance. What has made Bermuda suited for these industries? And how do you see that continuing in the future?
Premier David Burt: I call it the Holy Trinity. That is the regulators, the governments, and industry. And in Bermuda, the regulators, the government, and industry work together very well to bring products to market very quickly. So that’s what happened in our insurance industry. That’s what’s happening in fintech. And that’s what has happened in other places.
Once you get past our regulator, that means this company is legit.
Companies which have come here have been challenged more strongly than they thought they would be, by the scrutiny that our regulator applies. But people know that once you get past our regulator, that means this company is legit, and that’s the reputation which we want. That’s been the secret of our success. Bermuda would not be where it is without the work of the team of the monitoring authority.
And they have been very cooperative with us in the government in advancing our fintech ambitions.
John Koetsier: Let’s talk about the ultimate promise of fintech and the social benefit that can have. What’s the social promise broadly? And what does it look like when we approach the future of fintech?
Premier David Burt: It’s hard to say because … it’s the future.
And … I’m going to tell everyone how old I am. Apparently, 20 years ago – I checked this the other day – I made my first Amazon order. It was 1999 and if you can imagine, it was actually a VHS tape of a movie. Nobody would have imagined back then where the technology is now. There was this article that someone had posted on Twitter — the only social media I actually engage in — it was a story about the fifth anniversary of Amazon … about how they were challenged, and problems, and how it didn’t have a future.
But the thing is … no one except for visionaries could actually see and understand how the internet would change the way in which we interact on a daily basis.
In the same way, no one can actually accurately predict what the proliferation of distributed ledger technologies will have on society. But what I know is that it will make society fairer, to be more equal, and will provide more power to those who do not have power.
Distributed ledger technologies … will make society fairer … more equal, and will provide more power to those who do not have power.
That is the premise of decentralization.
And it means something. These are things that we just were never able to have … what it means to citizens is that they will have more control of their destiny. And they will not be as beholden to large corporations or even the government as they are now.
John Koetsier: What are we missing today in fintech that we really need? What’s missing in Bermuda?
Premier David Burt: Banking, banking, banking, banking.
There was a time in Bermuda history where big industry and the government were essentially one. There was a time when decisions about political futures were made in the boardrooms of the bank, right there on the Front Street. There was a point in time when the Minister of Finance was also the head of the largest bank.
No one is actually going to approve their own competition.
When we go to a place where there’s more innovative technologies, the fact is that our local banks are not prepared to take the risk appetite and put their massive book of business and their corresponding bank relationships at risk just to serve a new and emerging industry … which may be larger than what they have right now. But that’s our particular challenge here.
I know that there are companies that are looking to set up their banks and that there are people who have put in applications to work as a monetary authority … so progress has been made.
But from our perspective, that’s the biggest drawback. Last year, there was a lot of talk when we had one of the largest fintech companies in the world, Binance coming … and the fact is they had picked out office space and all the rest, but they couldn’t get a bank account at any of our banks, and if you can’t pay staff, there’s a challenge.
Fast forward 18 months later, we’re in a different space. And we we have relationships with overseas banks that are trying to do more things here. And there are other banks here that are starting to get a little bit more comfortable with the industry. So once we solve that we’re going to have, I believe, a greater pace of adoption.
We welcome any companies, but they must get past our regulator. And I assure you that our regulator is going to make sure that your AML (anti money laundering) and KYC (know your customer), cyber security, compliance, and custody are all in place. And if you’re not ready for that, I would strongly encourage you to have discussions with a law firm and have those initial discussions with our regulator, so you can understand the standard of which you must be in order to be a part of this wonderful ecosystem.
John Koetsier: We’ve seen the ICO craze of a few years past, we’ve seen Libra from Facebook. We also see that governments very quickly got concerned about Libra, and many companies have pulled out. Where do you see that we are in crypto and fintech and how do you see that evolving?
Premier David Burt: It’s not surprising that governments are probably not the fastest moving organizations on the planet. And those persons who make laws are probably not the most visionary that exist.
And so it’s the natural trepidation that you will get from governments when you realize that one of the largest measures of control that large governments have is controlling the money, controlling the currency. And the thought that a government will lose control of its currency is widely viewed as a national security risk, a risk to the economy.
The thought that a government will lose control of its currency is widely viewed as a national security risk, a risk to the economy.
It’s going to happen. The Internet can’t be shut off.
It’s going to happen. The Internet can’t be shut off. And there are going to be things that are built on top of the internet that are going to continue to create that level of innovation. And you’re not ever going to stop the pace.
I think the best and most productive way for governments is to engage. Clearly there’s a way that my government has engaged in accepting what the future will be, and trying to be a part of shaping what that future will look like. And so when we talk about whether it’s Libra, when we talk about ICOs and different things, the fact is that it’s no different from when stocks and bonds were startup financial services.
You’ll have shady characters, you’ll have good characters, you have companies that are big, you’ll have companies that go out of business, you’ll have industries and business that are in transition. But in the end, things will shake out. Products and services which work best will succeed, the products and services that don’t keep up will fail. And we will continue to see improvement as far as efficiency. And that will bring value and benefits to citizens.
I don’t particularly trust Facebook.
So from a government perspective, I know what people are afraid of, and yes, what I’m afraid of. I don’t particularly trust Facebook. It’s just the fact … I had a talk last night about when someone sent me a message or I gave some information away. I said, just know that people in Langley and on the River Thames are reading it. That’s just the nature of it. This is the way that technology is.
But you can push back against it because it’s going to continue to evolve.
John Koetsier: Let’s talk a little bit personally about you. You’re the youngest Bermudian premier in history. You’re extensively trained in both business and technology. What would you say to young Bermudians, maybe entrepreneurs, who are looking at their career options and where they want to go.
Premier David Burt: I, for a long time, have always preached it: technology is the way of the future.
But what I also recognize is that not all technology is the same. And so individuals can find themselves with technology degrees from twenty years ago which are not applicable now. So you know, computer hardware repair is not exactly a booming industry, just like refrigerator repair forty years ago.
So the skills that I tell people to focus, like the skills which I had, on those which are difficult to be outsourced.
For example, I can write code, if I have to write code. I started programming and wrote my first computer program, my first real computer program at the age of 13, actually, and it was a payables program for my father’s construction business. Every day my mom and my dad had these little brown envelopes. And we’d have to tabulate how much people got paid and have to write on the sheet and take it to the bank and get all the hundreds and tens and fifties and then come back and put them in the envelopes. So I did this thing, put in the hours, and it had the people’s rates and it just automatically did that whole sheet.
I loved doing that stuff that but when I went away to university, I focused more on the business side, and the systems design. If you look at construction, there are architects who are the ones who actually design how everything works and fits together. And the fact is that with technology and things that are able to be outsourced so quickly … there’s a lot more people that can build that can design. So I actually focus on the design aspect.
John Koetsier: Technology lends itself to platform effects. And that lends itself to winner-take-all or winner-take-most ecosystems within the economy. In adtech, for instance, Facebook and Google have won 80% of the value. How do you want to shape the technology space in Bermuda, whether in fintech or insurance or crypto, to spread the benefits more broadly?
Premier David Burt: I think that’s one of the great promises of crypto.
Right now companies such as Facebook and Google make money because they have your data, but they don’t pay for access to your data. However, when you talk about the ability to have infinitesimally-sized pieces of value so someone can pay you maybe one-billionth of a cent for using your data … over time that can add up.
I think that crypto actually serves as a great equalizer.
And the promise of cryptocurrency is to actually take power away from those large companies. To say that, if you’re using my data, you have to pay to use it. You just can’t use it for free. And you can actually measure and track that and have control over your data and your particular information.
And so I think that crypto actually serves as a great equalizer.
I think that it will actually help to broaden those effects to take away from, as you say, those platform effects where you have to have this massive concentration and big startup costs. Once these things are more decentralized, easier for individuals and persons, just like the internet makes it easier to start businesses even though there’s a platform affect, it makes it easier for alternatives to pop up.
Because the fact is that you can use a social network which is paying you nothing. Or you can use a social network which is paying you something. And individuals are more likely to use a social network that’s paying them something than one that’s paying them nothing.
And crypto will enable that to happen.
John Koetsier: Why should entrepreneurs, business people, and investors come to Bermuda?
Premier David Burt: Even before I got into government, I always said that it was just an ideal place to build a test lab for the products and services for the world. We are twenty square miles, 60,000 people. But inside of inside of all of that is an entire ecosystem, whether it be financial services, healthcare, transportation, seaports, imports, everything.
And so from that perspective, Bermuda is the ideal place to test your goods and services inside of a contained ecosystem to get them right so you can scale and sell them to the best.
Make sure that you have your ducks in a row … our jail does have ocean views … but it’s still a jail.
The fact is that you can do it in other places. But the fact is that in other places, likely you can’t touch the government, you can’t actually touch the regulator. Here you can be in close contact … you can say, this is what I’m doing, how do you think we can make this work inside your ecosystem?
So you can actually develop that product or service with the government. And my test is very simple. My test is: does it create jobs, and does it create ownership opportunities for those who have not previously had the opportunity? That’s it. And if it ticks one or two of those boxes, then we are good and the government will work with whomever it is.
But I always have to give a caveat. Make sure that you have your ducks in a row, because as I said in my consensus speech in 2018 … our jail does have ocean views … but it’s still a jail.
John Koetsier: Thank you for your time!