While many countries are rather strict on cryptocurrency, Malta is quickly becoming a blockchain hub. It has even been dubbed as a “blockchain island” after becoming the first country to implement blockchain regulations. The small island has already attracted the two largest cryptocurrency exchanges OKEx and Binance. ZBX, a Chinese crypto exchange, has also recently set up offices in Malta.
The government of Malta believes that the island can become a haven for cryptocurrencies like Bitcoin. It also assumes that blockchain technology will be crucial for infrastructural projects like shaping the country’s transport system. However, recently, there have been certain signs that the crypto projects may not be as enthusiastic about Malta anymore.
So, is Malta still a blockchain island or a crypto Atlantis? What is the present status of the crypto industry on this beautiful island? Let’s dig in and explore!
Where is Malta?
Malta is a small island in the middle of the Mediterranean Sea, between Sicily and Libya. It is a country of majestic monuments that have led some people to refer to it as Plato’s Atlantis. Although it is a tiny island with limited resources, Malta has learned to live with a large population.
For many years, Malta has used carefully constructed legislative support to actively disrupt the plans of hostile Mediterranean empires. In the meantime, it has been serving as a base for any entity interested in exploiting its unique location and numerous talents of its people.
There’s other important point to note about this tiny island with an ancient history of over 7,000 years. The adaptation has always been ingrained in its culture. It is also through adaptation that Malta has recognized the potential of blockchain and has sought to embrace the next wave of the future with as much fervor as it has done in the past.
Why is Malta dubbed the blockchain island?
After Malta joined the European Union, its broad political and national consensus shifted to the areas of finance and digital technology where it amassed great success. Currently, finance and digital technologies make up more than 10% of Malta’s economy.
With this climate, we are not surprised that the country took a keen interest in blockchain and cryptocurrency practically from inception. The Maltese who were originally involved in mining took interest in cryptocurrencies, as well as the underlying blockchain technology, and formed two vibrant and highly active associations: Bitmalta and Blockchain Malta Association. These two associations have played a vital role in bringing cryptocurrencies and blockchain to the attention of local authorities and urging for the formation of a favorable legislative framework for the industry.
In April 2017, the Maltese government announced that they would work on a national strategy to promote blockchain. The acting prime minister of Malta then, Joseph Muscat, pointed out that the strategy was meant to embrace all the potential that blockchain and cryptocurrencies have to offer. In the last few months of 2017, the Malta Financial Services Authority (MFSA) started to publish the proposed regulatory frameworks for cryptocurrencies and initial coin offerings.
Since most countries have not yet regulated the crypto and blockchain industry, Malta wanted to have a first-mover advantage by offering operators the assurance of legal certainty. In October of 2018, Malta became the first country in the world to offer a comprehensive DLT (distributed ledger technology) regulatory framework. The three laws passed by the Maltase parliament were:
- The Malta Digital Innovation Authority Act (MDIA Act)
MDIA is the driving force behind the Malta Digital Innovation Authority as well as certifies DLT platforms. This act brings order in internal governance arrangements, and also outlines the duties and responsibilities of the authorities that certify DLT platforms. The law was also set up to provide legal certainty and provide credibility for the companies that use the platform.
- The Innovative Technology Arrangement Service Act (ITAS Act)
The ITAS act is concerned with the arrangement and certification of DLT platforms. It therefore regulates operators in the cryptocurrency market such as crypto exchanges.
- Virtual Financial Assets Act (VFA Act)
The Virtual Financial Assets Act (VFA act) regulates cryptocurrency exchanges, ICOs, and wallet providers. It also gives companies that would like to launch an ICO six months to comply with the law, while cryptocurrency exchanges are given up to a year to comply.
Although the government of Malta has taken swift measures to become a crypto and blockchain hub, critics claim that the blockchain island dream is not about to come true. But how right are they?
End of blockchain island hype?
Despite the friendly regulatory framework set up by the Maltese government, 70% of the companies that set up operations in the country in 2018 are yet to ask for licensing despite the six-month deadline elapsing. Only 26 companies have sought licensing, and most of these are cryptocurrency exchanges. Industry experts have suggested that the requirements set up by the MFSA were too high. Even industry giants such as Binance, which is the largest cryptocurrency exchange did not request for licensing but only set up back-office activities.
So, does this mean that Malta’s blockchain island dream is dead? We don’t think so.
In addition to regulating the environment for crypto and blockchain companies, Malta has a value proposition that is underpinned by several crucial pull factors. Besides the regulatory authority MDIA, the Malta Financial Services Authority is known for being thorough and business-friendly. Malta also has a highly developed operational infrastructure that supports innovative businesses. This is evidenced by the presence of the top four and medium tier audit firms as well as professional legal firms.
Silvio Schembri, Malta’s Junior Minister for Financial Services, Digital Economy and Innovation, said that Malta enjoys a highly stable economic and political environment. He also noted the following advantages that create a solid foundation that deepens Malta’s first-mover advantage in the blockchain world:
- The government supports investments in innovation which further boosts the growth of the blockchain industry.
- Malta already has a strong 5G ready ICT infrastructure.
- The country boasts of massive human capital that lies in the talented Maltese population.
- They have a robust financial services sector.
- An ever-growing gaming industry.
- The country has a strong drive to be innovative.
What is more, Malta has gone a long way in making the country a leader in DLT regulation. This was achieved through publishing the government’s consultation paper on the establishment of the MDIA, VCA, and the certification of DLT platforms. The Malta Financial Services Authority has gone a step further and published a Fintech strategy based on six pillars: security, ecosystem, knowledge, regulation, international links, and architecture.
Malta has made a significant effort towards becoming a “blockchain island”. Although most of the companies that had settled in the country and agreed to be part of this journey have not asked to be licensed, there are at least 13 VFA registered agents, and there are still numerous companies operating under the transitory period. Blockchain summits held in Malta have also attracted numerous industry delegates from every corner of the world. This puts Malta as an attractive jurisdiction to a significant number of operators in this space. In other words, the government of Malta believes that the regulatory frameworks they have put in place will set the country towards a bright future as the blockchain island.