Experts Defer as UK Considers Blockchain for Post-Brexit- EU Relations

UK’s finance Minister Philip Hammond has hinted that the government may consider blockchain adoption to address UK-Irish border issue post Brexit.

He gave the hint while speaking at the Conservative Party conference. According to Hammond,

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

One way Hammond reckons this might work is by distributed ledger technology (DLT) as a way of facilitating ‘frictionless' movement between Northern Ireland and the Republic of Ireland. The minister's comments appear as a ray of hope that blockchain could help ensure seamless post-Brexit trade between the UK and the EU, and all without requiring Britain to be part of the European Economic Area or the Customs Union.

But opinions on the details of the workability of the idea are divided. While Hammond seems to think it may work, an associate professor and senior research fellow at the University of Oxford, Vili Lehdonvirta, expressed his reservations.

Lehdonvirta said in his assessment there is zero chance that blockchain technology will help deliver a ‘frictionless’ border between Northern and the Republic of Ireland.

He said:

“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 bonus is on the proponents to explain how blockchain tech could possibly help here. 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?”

As for private, or ‘permissioned' blockchains (which are centralized), Lehdonvirta doesn't think they hold out much promise either.

“If it means IBM-style permissioned blockchain, then that’s essentially just a shared database, nothing particularly groundbreaking about that.”

On his part, Gary Barnett, Chief Analyst for GlobalData’s Technology Thematic Research Program says:

“Blockchain technology is not well suited to the processing of cross border trade. It is expensive, complex, and slow.”

He added that,

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

Also, Nick Botton, an expert on trade affairs and digital economies at Landmark Public Affairs (and formerly at the European Center for International Political Economy), said:

“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. 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.”

Digital consultancy group Reply had published a report in December called “Blockchain for Brexit,” in which it outlined the areas in which DLT could help with post-Brexit UK-EU trade.

“The primary contribution of blockchain here is [to] establish a robust and watertight data trail for goods,” the report's authors wrote, arguing that such a trail would “reduce the need for inspections at the border.”

However, in its report, Reply notes that several conditions and challenges must be met before such a role for blockchain could be realized:

“In other words, to use blockchain properly, it’s not enough to maintain a record of the origin of an item. You have to have a complete record of all transactions involving the item, including inspections. This means adding to the blockchain at every link in the supply chain.”

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