Back in 2018, Malta became the first country on Earth to introduce comprehensive cryptocurrency laws. Since then, Malta has been trying to become a “blockchain island,” and not without success — the country has become home to world-leading crypto exchanges Binance and OKEx; A Chinese exchange ZBX has also relocated to Malta.
The Maltese government pronounced itself keen on blockchain and cryptocurrency, it even has plans to build a blockchain-based transportation system. However, the concept of the “blockchain island” is currently at risk: many crypto companies based in Malta are not seeking the governmental license, and those that are, still can’t get it. The first company was licensed in Malta only in November 2020.
In this article, we will explore why Malta is dubbed the “blockchain island,” and what are the constraints for implementing this concept in real life.
How ancient wars helped Malta spot the potential of blockchain
Malta is a tiny island in the middle of the Mediterranean sea, a land with limited resources but one that has learned to take profits from its unique location and the talents of its people. With its sublime monuments that remind of mysterious Atlantis to many, Malta was successively confounding the plans of unfriendly Mediterranean empires throughout its 7,000-year history.
Adaptation to new conditions has been one of the key success factors, and it has gained ground in the Maltese mindset. These days, in 2018, the ability to adapt helped Malta recognize the potentials of blockchain and introduce the new policy friendly for anyone involved in this new technology.
What makes Malta the blockchain island?
Soon after Malta joined the EU, the public interest in fintech rose significantly. This followed with the concrete results: 10% of the Maltese economy today lives off of finance and digital technologies.
While the interest in innovative finance was rising, blockchain technology has drawn much attention in Malta from its very early days. Maltese blockchain and crypto enthusiasts formed two associations — Bitmalta and Blockchain Malta Association, which further helped lead the government towards adopting the world’s first crypto laws.
As early as 2017, the Maltese government got very enthusiastic about blockchain and cryptocurrencies. Then-acting prime minister Joseph Muscat pronounced himself keen on embracing all the possibilities that the new technologies offer. A few months later, the Malta Financial Services Authority (MFSA) introduced the first versions of the legislation for crypto and ICOs.
Malta had a huge advantage: the world’s first clear legal framework was meant to attract entities seeking regulatory certainty. In October 2018, the first comprehensive distributed ledger technology (DLT) legislation was passed in the Maltese parliament. These were three laws that complement each other:
The Malta Digital Innovation Authority Act (MDIA Act)
MDIA was established in 2018 to promote blockchain technology. The MDIA Act regulates how DLT companies should be registered and governed, and describes the responsibilities of the certifying authorities. MDIA act seeks to ensure investor protection and regulatory oversight in the DLT field.
The Innovative Technology Arrangement Service Act (ITAS Act)
This Act aims to bring certainty to the process of registration of technology service providers and certification of technology arrangements. In 2017, everyone was skeptical about cryptocurrency and heard about scams in the industry, so the goal of the ITAS Act was to reassure everyone that any Malta-based crypto company is secure and is a legit investment.
Virtual Financial Assets Act (VFA Act)
This act gives cryptocurrencies (i.e. virtual financial assets) a definition and states that they are “used as a digital medium of exchange, unit of account, or store of value.” The VFA Act contains regulations for crypto exchanges, ICOs, cryptocurrency wallets, and other types of entities involved in digital coins’ exchange. According to VFA, a crypto exchange seeking registration in Malta has a year to comply with the regulations.
The Maltese efforts to create a clear crypto regulation were received warmly in the community. While the idea of establishing a legal framework caught on with other countries, many major crypto companies announced migrating to Malta.
However, things don’t look as brilliant in 2021. While many other countries already have their crypto-friendly laws, the adoption of blockchain in Malta seems to be in stagnation: so far, only a few companies have received an official license from the Maltese authorities. Is this the sign that the “Blockchain Island” saga is to turn into the story of “Crypto Atlantis?”
Blockchain island hype faltered
It started in April 2020, when we saw on the news that only 70% of crypto companies already operating in Malta had applied for governmental licensing (26 entities), and even Binance was not among them. Some experts claimed that the requirements for licensing set by the MFSA were too high. Moreover, by April 2020, none of the companies had got a license from the authority by the laws that had been introduced in 2018.
In December 2020, Malta’s Finance and Employment Minister Clyde Caruana admitted there’s much skepticism in local banks towards crypto. “Traditional banks have written off blockchain at its early stages,” said Caruana, as they don’t see it as a technology of the future. Also, the Minister pointed on the lack of local skills for new industries in Malta that distracts investors.
In November 2020, the Crypto.com cryptocurrency payment platform became the first company to be granted a license by the MFSA.
What next for the blockchain island?
Although the blockchain strategy faltered in Malta, it doesn’t mean that things look bad in the long-term perspective. Several fundamental factors suggest that the cryptocurrency industry in Malta will ultimately find its way towards wide adoption:
- Although many find Maltese crypto laws sophisticated, the government of Malta is very crypto- and innovation-friendly after all. The governmental intent to foster blockchain technology promises to overcome the current difficulties.
- The stable economic and political environment of Malta is to attract many companies that seek predictability. As an example here, the new government of Malta elected in 2020, has reaffirmed its commitment to the development of the blockchain industry.
- Malta has to offer robust infrastructure in all crypto-related fields. The advanced financial services sector, gaming industry, 5G coverage don’t make up the full list.
Having introduced the world’s first crypto legislation in 2018, Malta promised to become the “blockchain island” that would attract major crypto companies from around the globe. The campaign, however, encountered unexpected difficulties: many companies didn’t want to license, while the local banks were skeptical about blockchain. Very few licenses have been issued to date.
In November 2021, the AI & Blockchain Summit is to take part in Malta. At this world’s largest crypto forum, enthusiasts from 5 continents are to discuss the future of the industry. We can’t know if the Maltese “blockchain island” dream will come true — but hosting huge events like this can’t leave no impact on how things go in Malta. We will follow the news and keep you updated.
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Blockchain Island or Crypto Atlantis? Crypto Adoption Struggling in Malta was originally published in The Capital on Medium, where people are continuing the conversation by highlighting and responding to this story.
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