On 4 July 2018, Malta officially passed three bills into law
which establishes it as one of the first countries to enact a regulatory framework
for blockchain technologies and cryptocurrency. While other nations have
decided to wait for a tried-and-tested
legal framework to base their regulations on, Malta has pioneered legislation
into the industry to make them the biggest name in blockchain and
cryptocurrency technology. As shown by the new laws, this move has been made to
make Malta a hotspot for the industry. It is a huge move from the small nation,
earning it the title of the ‘World’s First Blockchain Island,’ and it is
expected to have many repercussions in Malta and across the world.
A new age is dawning
Bitcoin, the world’s first cryptocurrency, found recognition
among the general public in the second half of 2017
when its price ascended rapidly from close to $1000 to over $19,000. However,
people have known of the cryptocurrency for a long time; and while some may not
have bought into the ideology of a decentralised digital currency, experts saw
the potential buried in Bitcoin’s foundations.
The blockchain, which is a public transaction ledger that is
managed by a peer-to-peer network, records everything that happens in the
Bitcoin network and stores the records in a way that cannot be copied or
altered. It was built to stop the possibility of double-spending the
cryptocurrency, and it also built
unequivocal trust within the network without the need for a central authority.
Blockchain technology may have first been used
for Bitcoin, but its applications are far
spreading beyond cryptocurrencies. It could allow the media industries to limit
a single copy of a song or movie to a single purchaser, or be used in all forms of business in the form of
Etherium’s self-executing contracts. If it is allowed to, blockchain technology
could change the way that day-to-day activities are
performed. But to do that, companies in the industry will need
Malta steps forth to
inspire blockchain advances
Malta made history with the three bills that it enacted as the regulatory
framework for cryptocurrency and blockchain technologies, becoming the first
world jurisdiction to provide the industry with legal certainty. Other
jurisdictions have passed laws on cryptocurrencies and blockchains, but Malta’s
regulations are the most detailed and comprehensive, delivering true certainty.
The EU member has been keen to innovate and govern online industries, with the
Maltese Gaming Authority being one of the most trusted regulators in the online
gaming industry. Now, Malta has become a regulated haven for companies in the industry.
The primary purposes of the three bills are three-fold: to
provide legal certainty for the first time in the industry; to support the
growth of the increasingly important industry; to guide the government on how
to embrace blockchain and cryptocurrency technology and forge Malta into an
Now in power and governing the industry’s actions in Malta
are the Innovative Technology Arrangement and Services Act (ITAS), the Malta
Digital Innovation Authority Act (MDIA), and the Virtual Financial Assets Act
(VFA). Herein, blockchain technology is referred to as distributed ledger
technology (DLT), while a cryptocurrency is
termed as a DLT asset. The purposes of each bill are as follows:
ITAS: Primarily concerns the
establishment of exchanges and companies based within the cryptocurrency
market. It details the registration and certification of DLTs and provides
technological arrangements for companies.
MDIA: This bill establishes the MDIA
as the regulatory body and formalises the internal regulatory procedures for
the industry. As the regulator, the MDIA is also
tasked with providing legal certainty to potential DLT platform users.
VFA: The third bill regulates initial
coin offerings, forcing new companies seeking to raise capital through an ICO
to publish detailed white papers and make their financial history public. The
VFA also governs cryptocurrency exchanges and wallet providers.
The three bills have been brought in by Malta to allow a safe
place for the industry to grow, but they also ensure that potential users are protected under the new laws. The new
legislation prohibits market manipulation, insider trading, and misleading
white papers. ICOs in the industry have been
accused of such foul play in the past, so Malta has decided to prohibit
it without question. A person found guilty of such offences can face: a fine of
up to $15,000,000 or three-times the losses avoided or profits made due to
committing the offence, whichever is greater; incarceration for a term of up to
six years; or suffer imprisonment and a
fine. These staunch punishments will help Malta to legitimise the industry
while also nurturing it as it grows to meet its immense potential.
The impact on Malta and
the rest of the world
The desire to create the bills first was to help present Malta
as a blockchain hotspot: the nation is already bearing
the fruits of its bravery. Binance, the
largest cryptocurrency exchange in the world, has already opened up an office
in Malta, and OKEx has also followed suit. The Maltese government has
investigated various ways to implement blockchain technology into public
services, while the MGA sees the technology as a way to regulate online gaming
services looking to accept cryptocurrency payments. They also plan to explore
its applications alongside games, as it could provide transparency by proving
the fairness of games via operators’ use of DLT.
Malta’s new regulations could also work as the much-desired
framework for legislation in other nations. In the USA, investors have
encountered frustration when trying to invest in certain ICOs, due to
government accreditation being required
for ICOs that offer securities. Malta’s VFA can assist with this issue as The
Financial Instrument Test within the VFA details a three-step method to
decipher whether an ICO’s asset could be deemed
a virtual token.
Malta has opened as the world’s first regulated jurisdiction
for blockchain and cryptocurrency technology. The favourable and clear-cut
legislation will attract many of the biggest names in the industry to the
island nation which will, in turn, provide a haven
for the potentially world-changing industry to develop.
The lack of legal
action has created uncertainty
Blockchain is being hailed
as the greatest invention since the internet. Despite this, there is a great
deal of variance in the regulation of the technology across the world. In the
United States of America, blockchain technology has
been mentioned as potentially being able to change how security is upheld during transactions online. Despite
this, the US federal government has left the states to their own devices for
regulating blockchain technology, which has resulted in at least eight states
working on bills to accept or promote the use of the blockchain technology or
the cryptocurrency Bitcoin, as of 2017.
In Europe, there is a more positive, active, and welcoming
approach being taken to regulating
blockchains and cryptocurrencies. Earlier in 2018, the European Commission
revealed its planned vehicle to exchange expertise for the launch of blockchain
applications across the European Union, known as the European Blockchain
The issues that many jurisdictions have encountered when
seeking to regulate the industry are defining the uses of blockchain,
understanding what cryptocurrencies and blockchains are, and the willingness to
commit and give the technology a stamp of approval. The industry has also come
under scrutiny concerning the legality of cryptocurrencies. Some have disputed
that cryptocurrency does not constitute legal tender, which brings about a lot
of uncertainty in many areas of the world for the companies.
In research committed by Malta, one of the main concerns
brought up by those in the industry was the legal uncertainty in many
jurisdictions and the fear that their activities could be deemed unlawful at
any time. The serious operators sought legal certainty above all else.
by Denitza Dimitrova
LL.B., LL.M., Mag.Jur.