Though the price of Bitcoin has fluctuated wildly since its inception – with some economists expecting it and other cryptocurrencies to be speculative bubbles – that uncertainty has not dampened the momentum of the technology that underpins cryptocurrencies: blockchain.
In recent months, blockchain companies have been popping up on a nearly daily basis. As an increasing number of blockchain entrepreneurs look to develop their ventures from startups to successful companies, they are looking for business-friendly jurisdictions where they can raise funds and develop their products. The Cayman Islands is aiming to be one of those jurisdictions.
To that end, the jurisdiction is off to a nice start: Cayman Enterprise City CEO Charlie Kirkconnell said at a January “d10e” blockchain conference that some 50 blockchain companies have established or are in the process of setting up shop at “Cayman Tech City” – the recently branded branch of the special economic zone that caters to tech-related entities.
Now, about 25 percent of the total Cayman Enterprise City tenants are companies developing or using blockchain technology.
But Cayman is not without its competition. Other low-tax jurisdictions are also attracting crypto companies.
For instance, a New York Times article last month reported on a number of blockchain entrepreneurs flocking to Puerto Rico.
“Dozens of entrepreneurs, made newly wealthy by blockchain and cryptocurrencies, are heading en masse to Puerto Rico this winter,” the article states. “They are selling their homes and cars in California and establishing residency on the Caribbean island in hopes of avoiding what they see as onerous state and federal taxes on their growing fortunes, some of which now reach into the billions of dollars.”
However, Cayman officials are confident that this jurisdiction has more to offer than others.
“Not only are you in the gem of the Caribbean, but the Cayman Islands is one of the foremost financial centers, as well as the hedge fund capital of the world,” Premier Alden McLaughlin told attendees of the “d10e” blockchain conference. “We have a cadre of professional people servicing our financial services sector that is second to none.”
For Sensay co-founder Crystal Rose, the choice to domicile her company here was a no-brainer.
“We’re taking Bitcoin from places around the world, and America would tax that instantly as income … but that money is going to be circulated back into the company as an investment,” said Rose, whose company creates blockchain-based smart contracts.
Additionally, Cayman’s straightforward regulations made the jurisdiction more attractive than staying in the United States, she said. Blockchain companies are subject to know-your-client and other anti-money laundering rules, but Rose said that the U.S. Securities and Exchange Commission issued two conflicting statements about fundraising rules within the span of five months.
Kirkconnell said that Cayman Tech City is trying to make setting up businesses here as easy as possible. Cayman Tech City officials will help entrepreneurs obtain all necessary licenses and permits, and can usually have them ready to do business from the territory within four to six weeks of an application, he said.
That was the experience of Hercules SEZC President Cynthia Blanchard.
“[Cayman Enterprise City] helps guide you through the process, and makes it easy as possible,” said Blanchard, whose company uses blockchain for supply chain management. “Now, we have a community here.”
Cayman Enterprise City’s rules are also flexible in that entrepreneurs can travel and do business around the world while still maintaining a legal presence here.
“There’s no requirement to spend a specific number of days in the jurisdiction,” Kirkconnell said. “We want you to spend as many days as you can here because we want the knowledge transfer and your expertise in the jurisdiction, but the requirement to be here [for example] 6 months – that doesn’t exist.”
This is good news for many blockchain entrepreneurs who prefer the hustle and bustle of a metropolis over the island lifestyle.
“It’s wonderful to be here, but to be here six months, I would go crazy,” said a blockchain entrepreneur who raised the issue with Kirkconnell during the conference. “A week or two is fine, but I need New York, I need London.”
Given that the influx of blockchain companies has occurred just within the past six months, Kirkconnell said he expects dozens more to come here in the near future. The one thing the territory needs to prepare for that migration is more workers with technical skills, he said.
To that end, Cayman Tech City is setting up a training academy to teach residents coding and other tech skills. Kirkconnell said that Cayman Tech City has signed an agreement with the U.S.-based school Code Fellows to use its curriculum and that more information should be made public about the arrangement in the near future.
“One thing we need to respond to is many of these companies are looking for qualified, trained technical people, and that’s a bit of an issue here,” he said. “So we’re aiming to create a locally available critical mass of technical talent from the local community.”
Like other jurisdictions, Cayman is still trying to iron out details about how a blockchain industry might be regulated.
“That’s the kind of thing we’re going to have to build this year,” said Department of Financial Services Senior Legislative Policy Advisor André Ebanks, referring to the regulatory issue. “There are going to be some issues that we have to work through and think about.”
Among the issues policymakers are grappling with is how to make sure “tokens” (a common word for a single unit of cryptocurrency) aren’t used as bearer shares (shares that belong to whoever physically owns them, which allows for anonymity).
To illustrate his point, Ebanks said that he was recently on a conference call with five major law firms who were discussing legal issues surrounding blockchain and cryptocurrencies.
Normally, these fiercely competitive law firms would not be working together on legal matters, he said. But when it comes to an undeveloped industry, Ebanks said that doing so is for the benefit of all.
“Because this space is so new, it’s going to take education and collaboration to grasp,” he said.