If you have been following banking, investing, or cryptocurrency over the last decade, you will already no doubt be familiar with it.
Unless you have been living under a rock, you will likely – at the very least – have heard it mentioned. In fact, such is the hype around its revolutionary potential for the global economy, The Guardian labelled it as its “buzzword” of the year in 2018.
We are of course talking about blockchain: the record-keeping technology behind Bitcoin and other Digital Ledger Technologies (DLTs).
While Bitcoin is a type of cryptocurrency that allows transactions to quickly be carried out between people, without interference or control by third parties, blockchain is the technology that underpins it and promises to improve security and reduce transaction costs. Although DLT is, effectively, the technology that underlies blockchain, it’s important to note that not all DLTs are blockchain – a key differentiation, as besides cryptocurrency and finance, blockchain is touted for adoption in any number of industries to make them more secure and more efficient.
Now, Malta – the tiny Mediterranean nation that has in recent years become known as a leading international hub for the iGaming sector (a booming industry worth around $1.4 billion, or 12 percent of Malta’s GDP), is taking decisive steps to become a haven within the blockchain and Distributed Ledger Technology space, having even earned the name “The Blockchain Island”.
Besides looking to blockchain to help further diversify its economy (one that has increasingly looked toward digitally-disruptive technologies for innovative development), Malta also believes the application of blockchain technology could potentially transform the country’s services as we know them now.
Last year, the Maltese government became the first in the world to launch three new Acts that would regulate in favour of blockchain, cryptocurrency, and related industries, under the newly-formed Malta Digital Innovation Authority. Since then, its crypto sector has boomed, and it has found itself chosen as a jurisdiction of choice for many crypto businesses, including the world’s largest exchange, Binance.
The massive scale of the Malta Blockchain Summit, which brought together 8,500 delegates and industry stakeholders in November 2018, reflects this new-found momentum. Shortly after the summit, six other EU Member States – namely, France, Italy, Spain, Portugal, Greece, and Cyprus (which collectively, with Malta, represent the South EU Summit countries) – followed the initiative taken by Malta, and together signed a declaration to promote and share information and knowledge on the use of DLT in a range of sectors, including shipping, education, healthcare, and company registry.
The Malta Blockchain Summit came on the heels of the Delta Summit, in September, 2018 – the island nation’s official blockchain and digital innovation summit – which attracted 5,000 attendees from across the globe.
However, Malta’s impetus did not stop here. A few months later, the Maltese government announced its Registry of Companies would become the first blockchain-run agency in the world, along with the unveiling of a new 2,000 square metre campus on the island intended solely for blockchain or DLT businesses.
“We have propelled our country to the forefront of the blockchain sphere; reaffirming our position as a main point of reference for other countries that will inevitably follow.”
Commenting on the list of pioneering measures taken over the past twelve months, Silvio Schembri, Malta’s Junior Minister for Financial Services, Digital Economy and Innovation within the Office of the Prime Minister (and the man responsible for implementing the country’s blockchain strategy), said: “Within a very short time frame, and through our tireless commitment to incorporate, use, and embrace this new, emergent technology, we have propelled our country to the forefront of the blockchain sphere; reaffirming our position as a main point of reference for other countries that will inevitably follow.”
However, despite Malta’s government being very vocal in its cheerleading of blockchain and crypto, it has not been without its criticism. In February 2019, the International Monetary Fund stated that the promotion and growth of blockchain in Malta posed a significant risk of money laundering, and the financing of terrorism, and recommended that that the Maltese authorities apply stricter regulations and sanctions.
This comes after the country had already been put under the spotlight for a number of money laundering scandals, with many – including Malta’s opposition party – having expressed concern that the use of blockchain and crypto would further facilitate this.
However, Schembri says that it is unfair to stigmatise DLT for the failings and problems associated predominantly with the traditional financial system, adding that the government is taking steps to ensure more peace of mind and protection around cryptocurrencies, including a framework implemented by the Cyber Security Steering Committee to ensure transparency in the sector.
“When it comes to certain challenges such as money laundering, I would just look at the recent scandals that came to surface”, he says. “These scandals didn’t happen through cryptocurrencies but through hard cash. It’s easy just to blame it all on crypto when we have other real situations with fiat money and big banks – institutions that come from countries normally associated with the best practice when it comes to money laundering. So, I don’t think it’s an issue of crypto or DLT.”
Instead, believes Schembri, more attention should be placed on the potential of blockchain to actually make Malta more risk-averse when it comes to its economic issues.
“We’re doing this in order to future-proof our economy. By diversifying in this way, we are also adding more resilience. In order to future-proof, we must look into new economies. For instance, we were very successful in providing a regulatory environment for the iGaming industry, so it’s only natural for us to look to other related or similar areas, and blockchain was a natural choice.
“We immediately recognised that the industry was crying out loud for sensible regulation. We know that, basically, these operators were operating all across Europe, and in other regions and other continents, but there was no country that provided sensible regulation in a holistic way.”
Building on its successful strategy of making Malta a hub for DLT and iGaming through an enabling environment, the Ministry for Financial Services, Digital Economy and Innovation now wants to further enhance Malta’s reputation as a sandbox for new and advanced technologies, and follow a similar approach for the area of artificial intelligence (AI).
To this end, the Maltese Government’s aim is to develop a National AI Strategy and put the country amongst the top 10 nations for the technology globally. Schembri acknowledges however, that this will present its own unique challenges.
“AI is so broad that I think it would be very, very difficult to produce a regulatory framework such as what we have dealt with [with] DLT”, he says. “We would most probably go for a light touch regulation in terms of certification of AI. Just recently, we have launched the first details of the strategy, which will be based on three particular pillars. These are: to attract foreign investment and start-ups to Malta; to adopt AI in government services; and also the same to be replicated for our private industry.”
In order to implement this, Malta must first develop what he calls industry “enablers”, which include the upscaling of its human capital through education and scholarship initiatives, and the provision of “test-bed opportunities” for AI innovators.
“Malta is considered the top job jurisdiction in Europe and one of the most respected jurisdictions in the world.”
Through such a strategy – as has been the case with the DLT and iGaming sectors – Schembri explains that Malta wants to continue to play a leading role within the European Union when it comes to embracing new technology, and driving digital disruption forward.
“The question that we posed at an EU level was whether the European Union wants to lead or to follow in this area. And our answer to that question was, we want to lead”, says Schembri.
“It’s a question of mentality and it’s a question of whether you are ready to embrace change or not. As a country we are in a situation where we have no other choice but to embrace change. We are a small country, and we cannot dictate international politics simply by our size. But by embracing change we can do that.
“If we look for example, at the iGaming industry, Malta is considered the top job jurisdiction in Europe and one of the most respected jurisdictions in the world. That happened because we embraced change. The same happened with DLT, and the same will happen in other areas. Whereas bigger countries may think otherwise before going treading into areas of unchartered territory, we have the political will to go in that direction, and that is something that we will continue to do.”