The Malta Independent 22 March 2019, Friday

The launch of Bit-Pod – welcome to the club

George M Mangion Sunday, 17 February 2019, 09:31 Last update: about 2 months ago

December 2017 saw a spectacular surge in the price of bitcoin, and of other cryptocurrencies, which burgeonedthanks toa craze for initial coin offerings (ICOs). All this prompted a commensurate explosion in the number of stories and conversations about this new kind of money and about the blockchain technology behind it.The bitcoin rally started collapsing at the start of 2018 and for most of the year bitcoin (and other virtual currencies) was heading for more humble valuations.

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Perhaps this was one of the reasons why banks and monetary institutions were wary of the new challenges posed by the dawn of virtual currencies, but like the internet which was resisted in its early days, the revolution is here to stay. 

Since the global banking system exited the Gold Standard,billions of transactions are made usingfiat currency which is not backed by any intrinsic value yet we trust in such paper currency. We know that following a string of Quantitative Easing in EU and USA, the world has seen the printing of billions of paper currency by Central Banks aimed to calm the markets and wipe off excess liquidity.

Notwithstanding this volatility, holders of fiat currency have no qualms to trust in its exchange value. If someone asks how Blockchain technology solves this trust dilemma,the answer is that Blockchain deciphers the trust issue. One mightremember Jamie Dimon, CEO of J.P. Morgan saying that ""Bitcoin is a fraud".Recently, he must have changed his opinion when he announced his bank's own blockchain-based currency, JPM Coin, making it the first major US bank to issue a coin. JPM Coin functions very similarly to a stable coin, ie a coin thatalthough powered by blockchain is tied to an asset like the dollar. Instead of existing independently from state-backed currency, every JPM Coin converts to one US dollar, effectively eliminating the sudden value swings in value of other cryptocurrencies.

The uniqueness of JPM coin is that unlike Bitcoin, it is not rooted in anonymity and its most immediate use is in international payments. When investors deposit money with J.P. Morgan, they can ask to be issued JPM Coins, which allow them to conduct transactions around the world quickly-no more waiting on wire transfers. Therefore, one may wonder why local banks are so cautious about opening accounts for virtual currencies.

The answer is that there is too much hype blaming the proliferation of such coins and the latent fear of cybercrime associated with them. However, Malta cannot expect to become the Blockchain island in the Med unless we embrace the industry and attract banks which understand the emerging industry and as a result are friendly to it. For a start, we should ask ourselves - Are we ready for the challenge?

Do we have home-grown experts who are familiar with the technology such as qualified MLRO's, system auditors and IT engineers? Unless these human resources are in place, we are placing the cart before the horse.

It goes without saying that experienced engineers who have worked on cryptocurrency projects are in high demand, but in the meantime, we need more graduates who have an interest in studying blockchain technologies. The government also needs to make sure practitioners become familiar not only with VFA and AML regulations but are also trained in marketing, business development, operations, customer support, and other job functions that the nascent sector demands. Start-ups do not flock to domiciles just because the tax is friendly or the climate is temperate but choose jurisdictions where they are able to engage staff at job functions across the entire organisation.

It is of some comfort to note that last November, over 300 practitioners sat for the VFA exam after attending a series of intense public lectures conducted by MFSA. This shows there is a willingness among practitioners to invest time and effort to join the lucrative crypto bandwagon.

The government was advised to take the bull by the horns and, with the assistance of technical advisers, it enacted the Malta Digital Innovation Act together with a robust framework raising the bar to admit only qualifying IT auditors.

In a speech the Prime Minister gave to thousands of delegates attending the Delta event last year, he said he has a vision to regulate Artificial Intelligence (AI), the internet of things in an all-encompassing regulatory framework. Malta just about climbed the slippery slopes of blockchain, and is now daring to scale the next mountain of AI - a technology that USA tech giants pour billions of dollars annually into research and development. Mindful of the legal and technical minefields that lie ahead,the MFSA called for experts to help design and draft parameters leading to a sound framework and good governance. Therefore, it is opportune for PKF Malta in to launch The Bit-Pod concept.

This is a meeting place for informal discussions among practitioners, engineers and DLT enthusiasts to network and discuss latest topics on the vast subject of this technology. This is a non-profit organisation, where we help connect entrepreneurs (mainly start-ups) to people in the know, programming engineers and other resources across the DLT and virtual currencies domain.

Additionally the spirit is to identify in an efficient matter weaknesses or suggested enhancers to the implemented systems as perceived in practice by practitioners and short-circuiting their conveyance to the competent authorities. Whether you are looking to connect, learn, share, or work, PKF offers a selection of opportunities to network with other start-ups.

This could help applicants wishing to scale the slippery slopes of licensing and running an ICO or a virtual wallet. It is undoubtedly true that last year cryptocurrencies went through a volatile period. Even so, one hopes that this year there will be a rally that can regain past losses. Once this happens, banks in Europe and the United States which so far have banned the use of credit cards to buy Bitcoin and other "crypto currencies", may start allowing customers to trade in such coins. To conclude, one hopes that participants in future Bit-Pod activities will pave the way to build a stronger DLT ecosystem.

This way, the far-sighted vision of the Prime Minister will become a reality and the entire island will gain.

 

George Mangion is a senior partner at PKF, an audit and consultancy firm.

He can be contacted at [email protected] or on +356 21493041

 

 

 


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