Regulatory frameworks concerned with blockchain and other distributed ledgers are crucial to legitimising cryptocurrencies and give users control over their finances. While countries like China and India have taken a prohibitive stance towards cryptocurrency regulation, Malta has completely embraced the Blockchain Technology. Malta has provided blockchain companies with a conducive environment to develop their product by focusing on long-term development instead of short-term financial gains. Here’s a look at the reasons why Malta has gained worldwide recognition for its support of Blockchain Technology.
Malta’s Regulatory Framework for Blockchains
Malta’s Junior Minister for Financial Services, Digital Economy and Innovation, Silvio Schembri claims that passing laws to assure the legal certainty of distributed ledger technology was essential for long-term growth in the sector. Schembri claims that blockchain projects suffer from a fear of government actions which can outlaw their work and even put them in jail.Such concerns are not evident, as seen from the recent arrests of India’s largest cryptocurrency exchanges Unocoin founder, for setting up India’s first Cryptocurrency ATM.
Earlier this year in July, the Parliament of Malta passed three laws establishing the regulatory framework for Blockchain Technology and other Distributed Ledger Technology (DLT) which led to the country being called as the Blockchain Island. Following are the laws passed in Malta:
Malta Digital Innovation Authority Act (MDIA): The MDIA Act establishes the Malta Digital Innovation Authority and certifies DLT platforms. Its primary focus is to promote and develop the innovative technology sector in Malta by using and providing formal recognition and regulation of relevant, innovative technology arrangements and related services. This Act forms the basis of offering legal backing to blockchain projects and ensures that certification is only provided to legitimate projects.
Innovative Technology Arrangement and Services Act: The ITAS Act set up the governmental mechanism through which blockchain companies can get certified as needed. The ITAS Act lists some conditions that can make a company eligible to get certified in Malta. The list of conditions includes software and architectures which are used in designing and delivering Distributed Ledger Technology which can be either distributed, decentralized, shared, or replicated ledger and several others. Hence, the ITAS Act is primarily concerned with the setting up of exchanges and other companies related to distributed ledger technology.
Virtual Financial Assets Act: The VFA Act is concerned with the oversight of regulating ICOs, cryptocurrency exchanges, and wallet providers. An essential aspect of the VFA Act is the provision that grants the Malta Financial Services Authority (MFSA) the power to prescribe a test to be known as the ‘financial instrument test’ (FI Test). The FI test helps establish the legal definition of the token being evaluated to categorize it as a financial instrument.
Blockchain Capital Moving to Malta
At a time when governments around the world are trying to curtail the freedoms of blockchain companies and cryptocurrency exchanges, Malta has taken the exact opposite approach by providing a firm regulatory framework for DLTs. This has led to some of the biggest players in the blockchain space to move their offices to Malta. China-based Binance which routinely tops the overall Bitcoin volume has invested heavily in creating new offices based in Malta which conforms to the framework of the European Union and the Maltese government. Bittrex which is one of the largest cryptocurrency exchanges in the United States has also opened a new exchange based in Malta. Several other high profile exchanges such as OKEx and Bithumb are also evaluating making a switch to Malta as the legal backing can help these companies work more safely in the long term. Earlier this year, South Korean authorities raided the offices of Bithumb, South Korea’s largest cryptocurrency exchanges on the pretence of a regular financial audit. China has also pulled similar stunts with exchanges that operate out of China. With no legal backing in both China and South Korea, the exchanges had no option but to take the losses. Therefore, when thinking of long-term growth, these companies are choosing to move to Malta to develop their products and services.