Turkey will become a global blockchain hub

 

For Turkey’s nascent blockchain ecosystem to thrive, it will need regulations that do not stifle innovation alongside public-private sector cooperation to secure the country’s digital future.

“Disruptive.” “Transformational.” “Revolutionary.” These are some of the terms often used to describe blockchain and distributed ledger technology (DLT) in recent years.

Since its conceptualisation in 2008, blockchain first gained widespread recognition as the infrastructural backbone underlying cryptocurrencies like Bitcoin. But the use-case for blockchain is now being implemented in various industries, from education and finance to digital governance and agriculture. Blockchain technology has the power to make radical changes to public and individual life, and above all, the business world,

Harnessing this power involves much more than using this innovative technology as a tool, it requires a fundamental change in the way we think about and define work processes. Still in its early stages, Turkey’s burgeoning blockchain ecosystem is at the forefront of educating and promoting the technology’s revolutionary potential to the public and private sectors.

 

The future is blockchain

 

Fundamentally, blockchain is a digital record of transactions backed by cryptography. Each block of information is added to the chain and validated through a decentralized, peer-to-peer network. The chain falls in a specific sequence, with each block carrying a unique fingerprint making the database. The technology is essentially a global consensus system – it allows people to coordinate and cooperate around a neutral source of information without trusting each other or a central administrator. Being decentralized means that all data exists on the network instead of one place, which is how the internet operates today. With data siloed in costly private servers, the challenges of our centralized online infrastructure – security, privacy, transparency – are what block chain solutions propose to solve. It doesn’t require a third party to conduct exchanges.  it's transparent  and prevents one person or group from being in control of the system.

This technology enables secure data recording without centralized structures for the first time in human history,  This innovation turns blockchain technology into a trust protocol. While cryptocurrencies were the first platform developed using blockchain, there is no limit to the technology’s application. Crypto projects like Ethereum and Ripple have taken its principles in new directions, while organizations across the spectrum like Unilever and Maersk to HSBC and the UAE government are in the early adoption phase.

Work by a growing number of entrepreneurs and developers aside, financial institutions were the first to dip their feet in. Now academia, public institutions and consulting firms have begun dedicating resources to researching blockchain’s various use-cases. In the wake of the Covid-19 crisis, the case for blockchain implementation has grown even stronger, as reflected in the World Economic Forum’s publication of a deployment toolkit designed to assist governments, enterprises and organizations to develop more resilient value chains.

 

A vibrant ecosystem

 

In Turkey, like elsewhere, blockchain is primarily linked with cryptocurrencies, and it has been among the leading countries in crypto adoption for years. There is a significant growth in the attention towards understanding the basics of the technology and trying to discover the ways to implement it in business models. Popular conception of this technology is still through people who are using it to get rich as soon as possible.

Established in 2018 as Turkey’s first ever university-level blockchain research unit at Bahcesehir University, BlockchainIST aims to close the blockchain expertise gap and encourage deployment of the technology across the public and private sector.

Operating as part-incubation-part-consultancy, the research center offers education and training services including an innovative Master of Science program in Financial Technology. Turkey’s young and tech-savvy population can provide the country with a competitive edge in the global blockchain race. But while many young Turks are enthusiastic about starting businesses in the space, they require mentorship and a solid grounding in the technology's fundamentals. At the moment, BlockchainIST is among the only certified options that can offer them that.

BlockchainIST is equally focused on offering advisory services, having partnered with local crypto exchanges, Turkish government bodies, higher education institutions, private enterprises, and NGOs.

The center also broadcasts content online, with open lecture series on Crypto Economics and ‘Fintech for Everyone’ on its YouTube channel, and interactive sessions on Clubhouse discussing topics like Bitcoin and Decentralized Finance. Through a combination of workshops, seminars, publications and consortiums, the platform endeavors to increase awareness around blockchain and bring together relevant public and private stakeholders to determine its strategic priorities for the future.

Encouraging women from C-and-mid-level executives to academics and lawyers, as well as developers on active blockchain projects, women’s participation and presence in the ecosystem should not be ignored. The community hosts regular events and online meetups broadcasted on their YouTube channel, in addition to conducting research and producing content. At the moment,  the appetite for blockchain-driven solutions in Turkey is steadily growing.

In addition to FinTech start-ups that seek to implement blockchain for payments, online settlements or wallet solutions, there is an increasing corporate demand to develop proof of concept use-case specifications into their business models.  Isbank became the first Turkish financial institution to guarantee payment transactions in foreign trade using blockchain, by purchasing machinery parts from a German supplier. One exciting homegrown start-up is Colendi, a decentralized credit scoring and lending platform that uses an algorithm that rates creditors in terms of their credibility based on factors like social media data and smartphone analysis.

 

Balancing regulation and innovation

 

Lawmakers have so far appeared supportive rather than restrictive, highlighting how the Digital Transformation Office recently started to raise awareness on social media with several detailed blockchain-related posts. Indeed, there’ve been some reasons to be optimistic that the government has been taking active steps towards blockchain adoption.

In 2019, Turkish authorities announced plans for a national blockchain infrastructure, along with a detailed roadmap for the blockchain-based central bank digital currency (CBDC), the digital lira. Around the same time, the financial watchdog Capital Markets Board of Turkey announced plans to design a regulatory framework for cryptocurrencies, which until then had escaped oversight.

Following an extraordinary cryptocurrency boom over the past year, regulatory scrutiny swiftly came into effect in April, shortly before two Turkish crypto exchanges proceeded to go bust. While a payments ban was legislated on crypto being used for goods and services, investment was still permitted. Expectations are that a tax regime will be drafted to cover crypto transactions and assets.

While the intervention took many in the blockchain space by surprise, they agree clarity over the legal definition of cryptocurrencies is a positive step and ultimately helps government, business and individual stakeholders operate in a safer environment. Securing Turkey’s place as a digital hub But if the authorities aren’t careful, crafting layers of stifling red tape is likely to end up having disastrous effects on Turkey’s race to become a digital hub in the region. Global blockchain and crypto companies would simply re-evaluate their investment plans and go wherever regulations are more favorable. This becomes especially important considering how valuable human capital is in the industry.

Turkey is not the only country grappling with this issue,  as the global pool of talent which can code in the field is sparse. As a result, blockchain software specialists are often lured by jobs with higher salaries, predominantly in the West.

It is obvious that the public-private sector and universities should cooperate to establish technology hubs to train more people, and provide sand-box environments for startups or entrepreneurs who are willing to develop their ideas that will add value and the state should allocate more resources to provide better investment opportunities and offer tax remedies if needed.

If proper legislative moves are taken with the view to support technological development instead of imposing high taxes, then Turkey can become a technological hub for blockchain and crypto.