Innovating responsibly: The key to unlocking a safe future for digital assets, Web3, and financial services
One day, all firms will have a “connect wallet” function on their homepages to allow their users to use and transact in digital assets. And, in our minds, Web3 will be the key enabler of this. Web3 provides a seamless way for people to use their funds for everyday activities and offers a way for financial services to be faster and easier than possible today. For example, getting a mortgage requires a lengthy application process with a human on the other side of a desk who will pass judgement on you and your application. In a web3 world, borrowers will connect their wallets, and a decision based on their financial profile and transaction history recorded on the blockchain can be returned instantly without human intermediation. As more people continue to enter the space and interact and transact in digital assets, the more we will see these kinds of innovative use cases emerge as firms are forced to adapt and cater for the needs of their users.
This kind of innovation is a key driver of economic growth, creating new opportunities, reducing costs, and improving efficiencies and effectiveness. But while challenging and questioning the status quo delivers benefits, it also introduces risks. Responsible innovation acknowledges this duality to ensure that with challenge and change comes due consideration of the existing risks it can exacerbate and the novel ones it can create. One risk that besets all forms of finance and web3 is its criminal misuse, whether for money laundering, terrorist financing, or fraud. Digital asset technology and web3 have huge potential to drive this much-needed innovation.
The risk of misuse, step by step
Identifying and acknowledging that digital assets can be used for criminal purposes, much like cash and other forms of financial assets, is the first step towards innovating responsibly (See our annual Crypto Crime Report, which contains our estimate on criminal volumes and the latest data on emerging criminal trends https://go.chainalysis.com/2023-crypto-crime-report.html). Having identified the problem, the second, more difficult step is addressing it and using innovation wisely to think creatively about how to do so.
Digital asset technology, much like electricity, AI, and the internet, is a general purpose technology (GPT), meaning it is pervasive, improves over time, and paves the way for complementary innovations across different sectors and industries. For example, while the technology can improve the existing financial system, altering how value transfers between parties and how ownership is recorded, at the same time, it can be used to address its misuse, leveraging the same core element of transparency.
It is a popular misconception that digital assets are just for criminals, allowing them to operate outside of the financial system with no restrictions, regulation, or possibility of being caught and brought to justice (See our Myth busting report - https://go.chainalysis.com/crypto-myths.html?utm_source=third-party&utm_medium=sponsored-content&utm_campaign=fintech-austrailia&utm_content=2023-crypto-myths-report). As a blockchain analytics company, we hope that as far as criminals are concerned and aware, this misconception continues. However, Chainalysis’ business is built on the fact that digital asset technology is fundamentally transparent by design. Our datasets, tools, and services allow the public and private to take advantage of this, alerting them to and allowing them to manage their exposure to criminal activities and supporting investigations into tracing criminal activity.
Where does the responsibility sit for being responsible?
When it comes to the practicalities of innovating responsibly, there are two parties to consider. Their roles and their interactions with one another are key to a responsible future for the digital asset sector.
The first are the innovators and industry themselves, who are responsible for thinking about a more sustainable, long-term role for digital assets, which elevates the consideration of risks to sit alongside value maximisation. Innovating responsibly does not obviate delivering value, but it asks for a degree of pragmatism from innovators to think about how to appropriately identify and manage risks to safeguard the broader health and survival of the industry. Utilisation of risk management tools, building effective compliance functions, and introducing appropriate security measures and incident response coverage are key, proactive steps towards addressing the risk of criminal misuse.
The second is the government and public sector, more broadly, who have the task of safely removing or streamlining barriers to innovation to ensure that potential benefits are realised. While their role is not to act as the arbiters of innovation, it is to act as stewards to ensure and monitor that innovation develops according to the market and users, contributes to economic growth, and is not detrimental to national or public security.
Good stewardship requires appropriate and smart regulation that is clear on responsibilities and expectations when it comes to minimising economic crime, delivering consumer protection, market integrity, and financial stability. Far from stifling innovation, smart regulation can help the industry achieve this responsibly and have far-reaching impacts on broader financial services. In the past, such regulation can and has helped banks, payment providers, and fintechs improve their user experiences, make way for customisation, and in many cases, reduce costs.
Our solutions, where implemented by innovators in the sector, help to enhance their understanding of risk and directly address exposure to criminal activity. Where used by the public sector, they offer a means to fulfill their role as stewards of responsible innovation in digital assets and drive the crackdown on misuse.
Commitment and collaboration
As the UK looks forward to a more web3-enabled financial service sector and financial services-like regulatory framework for digital assets, it will be pivotal to see how innovators adapt to these new regulations, how comfortably the government shoulders its stewardship responsibility, and how far the two prioritise collaboration. These, and a commitment to responsible innovation and proactive support for it, will be key to unlocking a safe future for digital assets.
techUK – Unleashing UK Tech and Innovation
The UK is home to emerging technologies that have the power to revolutionise entire industries. From quantum to semiconductors; from gaming to the New Space Economy, they all have the unique opportunity to help prepare for what comes next.
techUK members lead the development of these technologies. Together we are working with Government and other stakeholders to address tech innovation priorities and build an innovation ecosystem that will benefit people, society, economy and the planet - and unleash the UK as a global leader in tech and innovation.
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Activity includes workshops, roundtables, panel discussions, networking sessions, Summits, and flagship reports (setting out recommendations for Government and industry).
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This campaign explored how the UK can lead on the development, application and commercialisation of space technologies and ultimately realise the benefits of the New Space Economy.
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Rory Daniels
Rory Daniels
Rory joined techUK in June 2023 after three years in the Civil Service on its Fast Stream leadership development programme.
During this time, Rory worked on the Government's response to Covid-19 (NHS Test & Trace), school funding strategy (Department for Education) and international climate and nature policy (Cabinet Office). He also tackled the social care crisis whilst on secondment to techUK's Health and Social Care programme in 2022.
Before this, Rory worked in the House of Commons and House of Lords alongside completing degrees in Political Economy and Global Politics.
Today, Rory leads techUK's emerging technologies activity across everything from immersive, web3, AI and robotics to space, gaming & metaverse.
This involves co-running techUK's flagship Innovation campaign, managing four series (including the 'Meet the Innovators' interview series), and launching 4-6-month 'sprint campaigns' on transformative technologies and sectors.
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This campaign has explored how the UK can lead on the development, application and commercialisation of the technologies set to underpin the Gaming & Esports sector of the future.
These include AI, augmented / virtual / mixed / extended reality, haptics, cloud & edge computing, semiconductors, and advanced connectivity (5/6G).
Activity has taken the form of roundtables, panel discussions, networking sessions, Summits, and thought leadership pieces. A report featuring member case studies and policy recommendations is currently being produced (to be launched in September 2024).
Get in touch below to find out more about contributing to or collaborating on this campaign.
Report
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Get in touch
Rory Daniels
Rory Daniels
Rory joined techUK in June 2023 after three years in the Civil Service on its Fast Stream leadership development programme.
During this time, Rory worked on the Government's response to Covid-19 (NHS Test & Trace), school funding strategy (Department for Education) and international climate and nature policy (Cabinet Office). He also tackled the social care crisis whilst on secondment to techUK's Health and Social Care programme in 2022.
Before this, Rory worked in the House of Commons and House of Lords alongside completing degrees in Political Economy and Global Politics.
Today, Rory leads techUK's emerging technologies activity across everything from immersive, web3, AI and robotics to space, gaming & metaverse.
This involves co-running techUK's flagship Innovation campaign, managing four series (including the 'Meet the Innovators' interview series), and launching 4-6-month 'sprint campaigns' on transformative technologies and sectors.
- Email:
- [email protected]
- LinkedIn:
- https://www.linkedin.com/in/rorydaniels28/
Running from July to December 2024, this campaign will explore how the UK can lead on the development, application and commercialisation of web3 and immersive technologies.
These include blockchain, smart contracts, digital assets, augmented / virtual / mixed / extended reality, spatial computing, haptics and holograms.
Activity will take the form of roundtables, workshops, panel discussions, networking sessions, tech demos, Summits, thought leadership pieces, policy recommendations, and reports.
Get in touch below to find out more about contributing to or collaborating on this campaign.
Event round-ups
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Get in touch
Rory Daniels
Rory Daniels
Rory joined techUK in June 2023 after three years in the Civil Service on its Fast Stream leadership development programme.
During this time, Rory worked on the Government's response to Covid-19 (NHS Test & Trace), school funding strategy (Department for Education) and international climate and nature policy (Cabinet Office). He also tackled the social care crisis whilst on secondment to techUK's Health and Social Care programme in 2022.
Before this, Rory worked in the House of Commons and House of Lords alongside completing degrees in Political Economy and Global Politics.
Today, Rory leads techUK's emerging technologies activity across everything from immersive, web3, AI and robotics to space, gaming & metaverse.
This involves co-running techUK's flagship Innovation campaign, managing four series (including the 'Meet the Innovators' interview series), and launching 4-6-month 'sprint campaigns' on transformative technologies and sectors.
- Email:
- [email protected]
- LinkedIn:
- https://www.linkedin.com/in/rorydaniels28/
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Tech and Innovation Summit 2023