The small European island of Malta is becoming a blockchain hub. Striving to turn the Mediterranean nation into "Blockchain Island," the government is opening its doors to blockchain and other so-called distributed ledger technologies.
These technologies allow transactions to quickly be carried out between people without interference or control by third parties. Blockchain promises to improve security and reduces transaction costs.
Malta believe the island can become a haven for cryptocurrencies like Bitcoin - the most well-known application of ledger technologies - but it also believes blockchain can help transform the country's transportation and education systems.
Although there are other jurisdictions which have passed laws seeking to regulate the cryptocurrency and blockchain space such as the Isle of Man, no other country has sought to delve in detail on the regulation of such disruptive technologies for a variety of reasons.
Firstly, many states would be more willing to wait until there is a legal framework, which has been tried and tested by other states or approved by bodies such as the European Union.
Secondly, the scope behind cryptocurrencies and distributed ledger technology (or blockchain) was to create a decentralized ecosystem that is not intrinsically tied to traditionally centralized institutions such as banks. Some have reiterated that the aim behind the creation of cryptocurrencies and blockchain was to exclude the involvement of regulators in favor of unfettered technological development and innovation, however, the lack of regulation only managed to create a sense of unease with respect to the use of cryptocurrencies, particularly when offered to the public who would not be fully aware of the risks involved in such transactions.
The lack of legal guidance has set back individuals or entities seeking to set up businesses rather than promoted growth. Thus, it was imperative that a legal framework is created within, which business could operate in a way that is compliant with existing legislation and that certain safeguards are implemented particularly to ensure consumer protection, market integrity and financial stability. At the same time, any regulation could not be so overly onerous that it stifles innovation.
On July 4th of 2018, the Maltese parliament passed three bills to set a regulatory framework and drive innovation in blockchain-like technologies. The government hopes these laws will attract foreign financial tech companies to establish themselves in the country.
- The MDIA Bill - The Malta Digital Innovation Authority Act establishes the Malta Digital Innovation Authority. The Authority’s main role will be the certification of DLT (distributed ledger technology) platforms ensuring credibility and legal certainty for users and investors.
- The ITAS Bill - The Technology Arrangements and Services Act provides guidelines concerning DLT arrangement and sets up a regime for certification for DLT (distributed ledger technology) platforms. The main focus is to create favorable environment for cryptocurrency exchanges and companies.
- The Virtual Financial Assets Bill - The Virtual Financial Assets Act establishes the regulatory regime governing cryptocurrency exchanges, ICO providers and wallet providers.
The regulatory framework is based on 3 fundamental principles:
- market integrity
- consumer protection and
- industry protection.
The important difference is that most of the jurisdictions focus on the financial aspect of blockchain, cryptocurrency and DLT (distributed ledger technology), while the island state is taking a different and innovative approach focused on the technological aspect.
The Maltese officials are carefully dissecting and researching the technology behind the crypto industry. This approach is exactly what makes the 3 acts flexible and adaptive to the constantly changing technology.
The Maltese regulatory framework combines innovation, stability and security making the Blockchain-island a potential future financial center and an attractive destination for investors.