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,” Ahmet Usta, chief editor of the Blockchain Turkey Platform and author of Blockchain 101, told TRT 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, in preparation for what is being called “Web 3.0”.
The future is blockchain
Fundamentally, blockchain is a digital record of transactions backed by cryptography. Each “block” of information is added to the “chain” (a public ledger) and validated through a decentralised, peer-to-peer network. The chain falls in a specific sequence, with each block carrying a unique fingerprint (or hash), making the database tamper-resistant and immutable.
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 decentralised 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 centralised online infrastructure – security, privacy, transparency – are what blockchain solutions propose to solve. It doesn’t require a third party to conduct exchanges (leading to lower costs and speedier transactions), it's transparent (anyone can track the flow of goods or services), and prevents one person or group from being in control of the system.
“This technology enables secure data recording without centralised structures for the first time in human history,” says Usta. “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 organisations 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 organisations 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.
Speaking with TRT World, Ebru Guven says the majority involved in the space are more interested in cryptocurrency trading than exploring the technology behind it.
“Having said that, 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,” she says.
Founder and director of the BlockchainIST (Blockchain Istanbul) Center, Dr Bora Erdamar told TRT World that educating people on the potential of the technology beyond the realm of cryptocurrencies is essential for the space to evolve.
“Popular conception of this technology is still through people who are using it to get rich as soon as possible,” he says, which tends to elicit suspicion from capital investors and regulators.
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 centre offers education and training services including an innovative Master of Science program in Financial Technology (FinTech), which Erdamar leads.
He believes that 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.
“Our main goal is to use the potential of this technology, starting with the financial sector, but also those like health and logistics to help Turkey’s start-up system to flourish,” says Erdamar.
Many who graduate from the centre bring their expertise to banks or start their own tech companies, forming their own blockchain study groups in corresponding institutes and firms.
BlockchainIST is equally focused on offering advisory services, having partnered with local crypto exchanges, Turkish government bodies, higher education institutions, private enterprises, and NGOs.
One of its collaborations is with DenizBank. Last July, it established a ‘Blockchain Lab’ with the Deniz Aquarium Innovation Center, aimed at increasing the number of blockchain experts and FinTech projects in the Turkish market.
Also last year, BlockchainIST partnered with Cornell University’s Ava Labs to develop various blockchain projects. One of them, CertifyIST, is an open-source infrastructure for issuing, verifying, and sharing educational documents like degrees and certificates.
The centre 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 Decentralised Finance (De-Fi).
Non-profit Blockchain Turkey Platform (BCTR) also occupies an important position in the space.
Established as an initiative of the Turkish Informatics Foundation, Usta says BCTR’s vision is to “secure Turkey’s regional leadership in a decentralised system” and to build “a sustainable blockchain ecosystem aimed at removing all obstacles to new modes of business that this technology will give rise to in the period ahead.”
Through a combination of workshops, seminars, publications and consortiums, the platform endeavours to increase awareness around blockchain and bring together relevant public and private stakeholders to determine its strategic priorities for the future.
“We see tremendous potential,” Usta declares. “Business models will need to be rethought and redesigned in many areas, especially in finance and international trade.”
“However, we expect it to be a transformational process, not a destructive revolution.”
Recognising the need for greater inclusivity in STEM-related environments, Guven co-founded the platform Istanbul Blockchain Women in 2018.
Encouraging women from C-and-mid-level executives to academics and lawyers, as well as developers on active blockchain projects, Guven and her co-founder Basak Burcu Yigit recognised 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, Guven believes 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, she says there is an increasing corporate demand to develop PoC [proof of concept] use-case specifications into their business models.
In a pilot last May, 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 decentralised 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
Guven says that 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.
However, Usta argues that regulation will have to strike a delicate balance, as consumer protection should not come at the cost of hindering innovation.
“Regulations are inevitable and necessary,” he says. “Regulators may choose to act cautiously, and this may slow innovation for a short time.”
“However, we think this is temporary.”
Guven is inclined to agree, saying the expectation is for “inclusive” and “supportive” regulation that clears up any grey areas. She predicts that the Central Bank’s ban on crypto payments will be revised in a more sensible way to support technological developments that prevent any potential losses from occurring for retail users or investors.
Provided with the appropriate legal environment, Guven is optimistic about the industry and blockchain ecosystem growing and more projects being developed.
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 favourable.
This becomes especially important considering how valuable human capital is in the industry.
With blockchain being “the most in-demand hard skill” according to a 2020 LinkedIn report, there will be increasing pressure to attract – and retain – talent.
Erdamar mentions that a number of developers who’ve trained at BlockchainIST end up working on international projects, and many end up seeking opportunities abroad where payment incentives are greater.
Turkey is not the only country grappling with this issue, Usta explains, 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.
Erdamar advises that a national strategy focused on technological investment is imperative to counter brain drain.
“While opportunities were missed earlier, new ones are emerging. An objective evaluation of what is happening now and focusing resources on technologies like blockchain need to be on the agenda.”
Erdamar discusses the government’s involvement with FinTech Istanbul as a step in the right direction, which intends to facilitate collaboration between both Turkish and regional tech ecosystems. Still in the implementation stage, it plans to attract funding opportunities for start-ups and court venture capital.
After public institutions and research centres, Erdamar believes university clubs have a significant role to play too, like the Blockchain Technology Club that sprung up in Istanbul University’s Faculty of Economics.
As the space evolves, he emphasises the ecosystem “must continue to reflect blockchain’s decentralisation ethos” and any entities that emerge should be managed with that philosophy in mind.
Guven reiterates the need to target the youth in any digital strategy, and for tech players to particularly focus on higher education to raise more blockchain developers.
“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,” she says.
Furthermore, Guven believes 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,” she concludes.