Another victory for Blockchain Island

Jun 5, 2018
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Poland’s loss is Malta’s gain: the country’s largest cryptocurrency exchange, BitBay, recently announced its move to the tiny Mediterranean island, which has become known as one of the EU’s most tech-friendly ecosystems. BitBay’s decision echoes that taken by other well-known cryptocurrency businesses, including Binance, OKEx and DQR, all of whom have recently opted to shift their operations to Malta.

Four-year-old BitBay offers clients the ability to trade in a number of cryptocurrencies and reportedly handles millions of dollars of funds a year. The exchange’s relocation was prompted by the company’s frustration over roadblocks Poland’s national banks were throwing in its path, despite the fact that the country’s largest credit agency uses blockchain technology.

In sharp contrast to Poland’s mixed signals, Malta is welcoming cryptocurrency businesses with open arms. The Maltese government has taken pains to establish an economic climate and a regulatory framework that will underpin the industry and ensure that the country remains at the forefront of cryptocurrency developments.

Malta rolling out the cryptocurrency red carpet

Relocating to the EU’s smallest member state may seem like a surprising choice for some of the world’s most important fintech firms. Binance, for example, left behind more traditional financial centres including Japan and Hong Kong when it moved to Malta in March. Despite its tiny size, Malta has been building a reputation for supporting emerging technologies, following the introduction of a series of initiatives designed to make it easier for tech-based businesses to thrive and grow.

The Maltese government has made turning the state into ‘Blockchain Island’ a policy priority, supporting the sector with a robust regulatory framework that many jurisdictions lack. Following extensive discussion, a trio of new laws are designed to underpin cryptocurrency operations and make the island even more attractive to overseas investors.

This April, the Malta Financial Services Authority (MFSA) produced a consultation paper on the feasibility of a ‘Financial Instrument Test’ which would provide a legal definition for virtual tokens, to the benefit of blockchain and crypto projects. Plans for a Malta Digital Innovation Authority are also in the pipeline, as well as a ‘Virtual Currency Act’ that would lay the groundwork for an innovative auditing framework designed to regulate blockchain-based investment operations.

Swimming against the cryptocurrency tide

Malta’s wholehearted embrace of blockchain technology puts it resolutely at odds with nations that have otherwise been at the cutting edge of other tech advances, including China and South Korea – both of which are cracking down on cryptocurrencies.

China has already outlawed ICOs and cryptocurrency exchanges within its borders and blocked access to online platforms that act as virtual exchanges. Cryptocurrency mining – the energy-intensive process of earning digital coins by helping to verify transactions – has also been banned.

Earlier this year, Park Sang-Ki, South Korea’s Minister of Justice, intimated that the government was planning an outright ban on virtual currency trades. Park’s comment immediately caused a sharp plunge in Bitcoin values. While rhetoric from South Korean officials has softened slightly in subsequent statements, the country has nevertheless taken some concrete steps to cut down on cryptocurrency trading, outlawing anonymous cryptocurrency trades and tightening existing money-laundering regulations.

Carving out a cryptocurrency niche

While other countries are baulking at the challenge of regulating cryptocurrencies, Malta is seemingly setting itself up to serve as a natural base for cryptocurrency exchanges. The small country clearly sees an opportunity to carve out a niche in an emerging sector.

The country’s new regulatory framework, which will be enshrined in law thanks to the three new bills, will establish Malta as the first state in the world to comprehensively regulate cryptocurrency and blockchain. It will place Malta in pole position in a developing – and potentially highly lucrative – market, ahead of much larger competitors.

The Maltese government is further consolidating its primacy by preparing to host a high-profile digital innovation event focused on blockchain technology – the Delta Summit. The summit will be held over a period of three days at the beginning of October, and is likely to attract big-hitters from the global crypto community to share their industry insights.

Creative uses for blockchain technology

With the regulatory framework nailed down, the island nation has turned its sights to finding innovative applications of blockchain technology. The Malta Gaming Authority (MGA) has been particularly involved in exploring what blockchain and crypto can do for the island, going so far as to develop a ‘regulatory sandbox’ in which to test the effect of virtual currencies on the Maltese economy, as well as investigating how the technology could modernise the gambling sector. In March, the MGA released its preliminary guidelines on how to integrate blockchain and cryptocurrency while protecting consumers.

The country is also looking into how blockchain can improve its public transport network. Maltese Transport Minister Ian Borg recently announced a partnership with blockchain ‘middleware’ startup Omnitude with a view to updating the island’s public transport service by establishing a nationwide transport and logistics blockchain platform.

As these initiatives start to bear fruit, Malta hopes to illustrate how addressing, rather than ignoring, technological developments can create opportunities for governments to build valuable niche economies. Cryptocurrencies must be intelligently and comprehensively regulated; Malta’s approach of embrace both the challenges and opportunities presented by this rapidly growing industry could serve as a case study for other countries down the line.