Where Are They Now?: Malta Dazzles with Crypto-Legal Certainty on a Pioneering European Island
Throughout 2018 there have been very few nations like Malta who scoffed in the face of cautious regulatory approaches to particular aspects of blockchain technology, namely cryptocurrencies and initial coin offerings (ICOs), and instead carved out a uniquely accommodating path for the tech.
Compared to China, Malta’s blockchain journey sits on the opposite end of the paradigm not only with accommodating laws for fledgling blockchain startups, industry titans, and those seeking greener pastures but also with an extraordinarily bullish Prime Minister. For the industry at large, Malta has evolved into a pioneering beacon of hope for an emerging sector bursting at the seams with potential and earning the title of “Blockchain Island.”
Setting the Table
April 2017 marked somewhat of a watershed moment for Malta’s journey into the blockchain realm when a “Blockchain Strategy” was formalized, making the island one of the first in the world to do so according to Maltese Prime Minister Joseph Muscat.
In late October 2017, discussions of this nature were becoming more frequent with the Malta Financial Services Authority (MFSA) proposing a fresh set of rules designed to govern cryptocurrency investment funds. A month later saw the MFSA release a discussion paper that sought feedback on how best to create policies and legal frameworks for ICOs, virtual currencies, and services providers who engage with either activity, setting the stage for 2018.
Moving forward, to February 2018, the Maltese government set up a new body named the Malta Digital Innovation Authority (MDIA), an entity established to act as a watchdog for the sector, but also to provide “legal certainty” for new technologies such as Artificial Intelligence (AI) and blockchain. Commenting on the formation of the MDIA, the Digital Economy Parliamentary Secretary Silvio Schembri described the desire for an “eco-system that encourages operators to move here.”
In March, a glint of opportunity on the Maltese shores attracted the attention of Changpeng Zhao, CEO of Binance, who openly stated that Binance would be opening up an office in Malta to start a “fiat-to-crypto-exchange.” This timely move was also down to Binance being ordered to close up shop by Japanese regulators. It should also be noted that on April 12, crypto-exchange OKEx also announced plans to expand to Malta.
Following the November discussion paper, the MFSA published a consultation paper that detailed a three-stage “test” for distributed ledger technology (DLT) assets, and determine whether or not ICO issued tokens could be classified as securities. According to the paper, a virtual currency can be considered a DLT asset should the currency have utility, value, or application beyond the blockchain platform on which it was issued. Further, these currencies are non-exchangeable on these platforms nor with the issuer.
In rapid succession, three bills were introduced and approved by Silvio Schembri titled: “The Virtual Financial Assets Act” (VFA), “The Malta Digital Innovation Authority Act,” and “The Innovative Technology Arrangements and Services Act.”
The VFA will regulate ICOs and require new companies seeking to raise capital via this method to publish detailed whitepapers and be publicly and fully transparent with their financial history.
The bill pertaining to the MDIA calls for the establishment of an industry-specific body to support the deployment of the act, formalizing regulatory procedures for blockchain and cryptocurrency firms. The final bill is there to facilitate the recognition of blockchain-based enterprises, providing the basis for the former measures to operate.
On July 4, 2018, these three bills were then passed into law in what was claimed to be a world-first by Silvio Schembri. The VFA was later published publicly by the MFSA in July. With these bills in force, Malta positioned itself ahead of the world with ICO- and cryptocurrency-friendly laws to facilitate the burgeoning industry, furthermore, the two largest cryptocurrency exchanges in the world by 24hr trade volume are operating on the island.
If blockchain enterprise was already bustling in Malta, then the post-bill environment has further propelled related activities ever onward on the Blockchain Island.
Local media reported that a €300,000 (~$345,000) blockchain scholarship had been announced in a partnership between the University of Malta and the Malta Information Technology Agency (MITA). The fund is to be allocated to ICT, law, finance, and engineering students specifically, allowing them to apply to the scholarship and begin blockchain and DLT related Masters and Ph.D. research dissertations.
Another notable event was the news of state-backed charity organization The President’s Trust, partnering with the Binance Charity Foundation. Another crypto-philanthropy event occurred on the island when both Tron and Binance donated $100,000 each to a Maltese based charity.
Resuming a bullish charge, Maltese Prime Minister Joseph Muscat spoke at the United Nations General Assembly in New York. Here, he described blockchain technologies as an inevitability of the future, he said:
“This is why in Malta we have launched ourselves as the blockchain island. By being the first jurisdiction to regulate this new technology that previously existed in a legal vacuum. Blockchain makes cryptocurrencies the inevitable future of money. [It is] more transparent since it helps filter good business from bad business. But these distributed ledger technologies can do much more.”
The past year of regulatory advances in Malta leaves little to the imagination for 2019; the nation will be steamrolling ahead with every single blockchain innovation and endeavor they possibly can. Most importantly, what the Blockchain Island has done for the world is demonstrate that this sector can be positively and effectively regulated for the benefit of all.