Why is Malta the blockchain island? Did you know that Malta is in pole position for this title? Indeed, so confidently and determinedly is Malta adopting blockchain that has by now won global recognition as the Blockchain Island. At first glance, it appears the oddest of marriages. Malta has a history of seven thousand years, while blockchain is a technology that leapt into existence less than ten years ago. But perhaps it may not be so odd after all. For the driving force of evolution is adaptation. Without adaptation, Malta would not have notched up seven thousand years of history. And with adaptation firmly ingrained into its way of doing things, Malta recognised the peerless potential of blockchain and sought to embrace the next wave of the future with as much ardour as it did in the past.
Malta is a tiny archipelago right in the middle of the Mediterranean, exactly between Sicily and Libya. Time, in Malta, fades away deep into the furthest recesses of human history and beyond. Malta is a country of monuments so majestic that some hold it to be Plato’s Atlantis. At the same time, it has worked out the solution to the problem of living in great numbers on a tiny, resource-poor island while tweaking the noses of the hegemonies that surround it on all sides. For hundreds of years, Maltese merchants, inventors, explorers and scholars, with carefully constructed legislative support, actively disrupted the plans of hostile Mediterranean empires, while serving as a base of operation for any individual or corporation interested in exploiting this unique location and the talents of its inhabitants.
What is the blockchain and why is it so revolutionary? Blockchain is one of a set of four interrelated technologies that come together to form the structure for a decentralised, cryptographically protected payment system. Such a system is called “cryptocurrency” and the first such is Bitcoin, which was released in 2009. Bitcoin was both enormously innovative and exceptionally disruptive, not only for providing perhaps the first practical example of a peer-to-peer currency in history, but also for introducing immensely innovative technologies whose potential is as yet unimaginable.
Blockchain itself is a ledger that is distributed, shared and synchronised across a peer-to-peer network, which is essentially a network of individuals connecting to each other with no central authority to govern their interaction. For this reason, it is also sometimes called a Distributed Ledger Technology (DLT). The ledger contains immutable records that are saved in a block that is added to a chain of previous blocks, thus creating a blockchain, by cryptographic hashing. Each member of a particular blockchain’s network has a copy of the entire blockchain saved on his machine, and any attempt at adding new blocks needs to gain the consensus of the entire network.
The genius of the system is that, for the first time in history, it allows for the existence and maintenance of an immutable and guaranteed set of records independent of any central authority. It therefore removes from the state one of the central functions through which it justifies its existence, and it is for this reason that blockchain is so disruptive and innovative. The first blockchain was deployed as part of the Bitcoin cryptocurrency, and, indeed, all the subsequent early uses of blockchain were of this type. However, in 2013, Vitalik Buterin proposed a blockchain-based distributed computing system that allows for the scripting of smart contracts. This system, now called Ethereum, was launched in 2015, and if DLT-based cryptocurrencies shook the foundations of state control, Ethereum promises equally far-reaching disruption and innovation through its ability to generate automatic contracting for any imaginable purposes, and for a numberless host of unimaginable ones.
Malta cuts its moorings from its former colonial master in 1964 and forty years later joined the EU. In the intermediary period, it rose to the challenge of building a new economy independent of colonial priorities. At first tourism and manufacture were the twin columns of the new economy. However, after Malta joined the EU, broad political and national consensus took the island in the direction of finance and digital technology. To say that Malta made a success of these sectors is an understatement. These two sectors now comprise over 10% of the island’s economy. Malta owes its success to a number of factors. In the first place, these sectors are underpinned by a friendly legal infrastructure built on EU practice and oversight. The country has a highly talented, young, and English-speaking workforce that is specialising to an ever greater extent in finance and technology.
Given this climate, it is no surprise that numerous individuals and authorities took a keen interest in cryptocurrency and DLT practically from inception. Interest of Young Turks originally involved in mining and trading led to the formation of two vibrant and highly active associations, Blockchain Malta Association and Bitmalta. These two associations have also been instrumental in bringing cryptocurrency and DLT to the attention of the local authorities and lobbying for the creation of an appropriate legislative framework for this new industry.
It is therefore due to burgeoning local interest, as well as to the strong vision of its early adopters, that the Government of Malta revealed in April 2017, before the fabled surge that shook the world, that it was working on a national strategy to promote blockchain. As the Prime Minister pointed out, the strategy was not intended only to focus on cryptocurrency but to embrace all the potential that the technologies of cryptocurrency, including blockchain, offer. Meanwhile, in late 2017, the Malta Financial Services Authority (MFSA) started to publish proposed regulatory frameworks, first for cryptocurrencies, or virtual currencies (VC), as it called them, and then later on for initial coin offerings (ICOs). The community provided enormous feedback and the MFSA is currently working to bring everything together into a coherent framework, while liaising with the government to ensure that all proposals have the adequate backing needed to make it into the law.
These initiatives apart, the jewel in the crown of Malta’s Blockchain national strategy is the tripartite legislative framework comprising three bills: the MDIA, the TAS and the VC. The Malta Digital Innovation Authority bill (MDIA) sets up an authority to regulate digital innovation specifically centred on DLT. This bill will work in tandem with the Technology Arrangements Service Bill (TAS) that will provide for the registration of Technology Service Providers and the certification of Technology Arrangements. The third part of this framework consists of the Virtual Currencies Bill (VC) that will set out the framework for Initial Coin Offerings (“ICOs”) and the regulatory regime on the provision of certain services in relation to VCs. Together these three bills form part of an overarching framework that will give Malta probably the first legally regulated environment for DLT in the world.
Malta’s trailblazing efforts in the field of DLT have not gone unnoticed. Some of the biggest names in DLT, including Binance, now the biggest crypto-exchange in the world, have praised Malta’s initiative and announced their intention to set up shop on the island. And with a legislative ecosystem of this calibre, these are certain to be the first wave of an incoming flood. Malta truly appears to be on the cusp of becoming the Silicon Valley of the most disruptive technology in recent history.
Zeta is a lean, highly flexible and ambitious financial services company that has been looking into the world of VCs and DLT for a number of years. It has assembled a multi-disciplinary team focused on providing high quality services for anyone interested in these technologies and keen to take advantage of the world’s first truly regulated DLT environment. If you are keen to join this technological and financial revolution at launch, talk to Zeta to find out how we can facilitate your goals.