The UK as a Web3 innovation hub

And right now, a huge focus is across the Atlantic from our home nation. The UK has been one of our fastest-growing user markets, and the EU is this week set to adopt the Markets in Crypto Assets (MiCA) regulation, which will bring in a new licensing regime across the 27 member states.

In short, things are happening in Europe that are edging the region ahead and, when it comes to embracing the digital economy, the region is preparing for a seismic change in how it uses and thinks about money.

Tomorrow, Tuesday April 18, Coinbase CEO Brian Armstrong is set to be a headliner at UK Fintech Week, an example of just how seriously we are working in the region. Some 22% of UK adults currently own cryptocurrency, with 28% likely to buy or trade crypto in the next 12 months. Demand is increasing. And why wouldn’t it? 84% of UK adults say the global financial system unfairly favours powerful interests and 65% of UK adults agree that the financial system needs major changes or a complete overhaul.*

Brian will be interviewed by former Chancellor of the Exchequer George Osborne about the company’s focus on the UK. Almost a decade ago, Mr Osborne saw crypto’s potential, ordering the Treasury to examine how the UK could become a powerhouse in the sector, and how crypto could strengthen the country’s burgeoning fintech sector while cementing the City’s global position. That work has continued. In 2022 the UK Government committed to introducing a new regulatory regime for crypto assets, with a consultation launched last month.

We want the UK to succeed and to be a big part of that success. That’s why Brian will be discussing Coinbase’s vision for how the UK can turbocharge the sector and cement its place as an innovation hub for the Web3 economy.

This vision is set out in nine recommendations, which we believe if adopted will position the UK as a leader in the sector, ready to capitalise on the next wave of technological and financial innovation.

• Ensure that Banks and FinTechs collaborate to accelerate crypto innovation. We’re currently seeing some retail banks impose blanket bans on transfers of assets to crypto businesses. This runs counter to the UK Government’s ambition to create a global crypto hub. Whilst frauds and scams must be taken seriously in respect of all transactions, including crypto transactions, there are more effective and proportionate steps, such as additional risk warnings or verification for customers. The banks should take a risk-sensitive approach.

• Put Web3 and blockchain at the heart of government, with a cross departmental  strategy that capitalises on the next wave of tech innovation and digitisation of the economy.  Doing so will create a bigger, fairer and more digital economy, and boost UK competitiveness.  

• Quickly establish a regulatory framework on a ‘same risk, same regulatory outcome’ basis, that draws on well established tradfi rules, but adapts these rules as needed to accommodate features of this new technology. You can find our recent blog post on this here.

• Ensure Fin Prom rules balance investor protection, financial inclusion and investment in the sector. A 24-hour ‘cooling off’ period before making crypto transactions has been proposed as a way of protecting consumers, going further than any other jurisdiction in the world. There are more effective ways to protect consumers through disclosure and education.

• Deliver a regulatory framework that promotes stablecoins.  Stablecoins are the entry point to digital finance and promoting the development of  sterling-denominated stablecoins, in conjunction with other new forms of money (e.g. CBDC), plus  allowing issuers to deposit cash reserves at the Bank of England, would put the UK on the map

• Deliver a strategy for the City’s on-going leadership that puts digital assets at its heart and provides opportunities to innovate outside existing markets rules.  Enhance the City’s strengths  by delivering on a “sandbox” for digital innovation. Technological innovation in the 1980s drove the “Big Bang” that powered the growth of the City and this should be repeated.

• Make important changes to the UK legal framework to reflect tech developments and deliver certainty on digital property rights and a crypto collateral regime. English law is the basis for many global contracts. This can be built on by delivering on the Law Commission’s work to reflect developments in tech such as digital property rights, a move which would attract crypto market participants to the UK. 

• Provide clarity on UK tax treatment for crypto assets that puts it on the same footing as traditional financial activities. Further to HMRC’s consultation last year, the UK should publish guidance that it does not treat transfers of assets to Defi protocols and staking pools as disposals for capital gains purposes (which would dis-incentivise users from participating in these markets). 

• Set out a plan to bring de-centralised ID (DiD) to fruition. This includes research into how DiD can deliver benefits in areas such as healthcare and financial services, bringing real improvement to the public in their everyday lives. You can find our recent blog post on this here.

Progress in the UK towards creating a regulated environment that encourages the industry and protects consumers is incredibly encouraging. At Coinbase, we’re excited to go further and faster and look forward to Brian sharing our vision at UK Fintech Week. 

*Morning Consult survey data, April 2023