Malta took a huge leap into the unknown this afternoon, as the government unveiled its plans for the island to become the first country in the world to fully regulate companies which operate on the blockchain technology.
“There is huge interest in the blockchain industry from all across the globe and it has the potential to be even more beneficial to the Maltese economy than igaming,” said digital economy parliamentary secretary Silvio Schemrbi as he launched the government’s plans for a consultation period.
What do the plans entail?
First of all, the plan is less about embracing Bitcoin and other cryptocurrencies but more about embracing blockchain, ie. the technology that makes cryptocurrencies possible in the first place. Often described as the “new Internet”, blockchain’s allure is in how it assigns unique and incorruptible digital signatures to individuals, essentially allowing the permanent storage of entire identities. Private keys in turn form part of network ‘chains’, with every transactions public to everyone in the network. With transactions irreversible and no central network nodes to hack into, governments and businesses worldwide are starting to seriously view blockchain as an ideal technology on which to conduct transparent and quick transactions. This has in turn created a market for companies and platforms which operate on blockchain.
Such companies range from cryptocurrency exchanges like Coinbase to companies that facilitate swift cross-border payments to companies which offer smart contracts.
As it stands, these companies are largely operating in legal limbo. And that’s where Malta comes in.
An authority called the Malta Digital Innovation Authority (MDIA) will be set up to both regulate companies that operate on blockchain and to promote Malta as a destination for these companies.
To do this, the MDIA will entrust a select group of IT systems auditors to analyse the companies and certify whether they are being truthful in their application – similar to how Transport Malta uses surveyors to register yachts.
Registration with the MDIA will be fully voluntary, but companies are expected to queue up for a license on the grounds that regulation by an EU member state will ease international scepticism about their operations.
The MDIA will initially focus solely on companies which operate on blockchain and which offer smart contracts, but the ultimate plan is for it to also branch out into the regulation of Artificial Intelligence and the Internet of Things.
As for virtual currencies, while Malta has no intention of following Russia’s lead and developing a national cryptocurrency, it does intend to regulate initial coin offerings – which have recently surged in popularity as a way of raising large sums of money in a short span of time. The details of this regulation will be laid out at a future date by the Malta Financial Services Authority, but the intention is to only regulate security tokens – ie. cryptocurrencies backed up by external, traceable assets, and not utility tokens, which represent future access to products or services.
Monitoring this entirely new market will be a national technology ethics committee composed of up to 15 experts in ethics, law enforcements, science, religion, human rights, law and other related subjects.