Last Friday, Parliamentary Secretary for Digital Economy, Innovation and Financial Services Silvio Schembri excitedly launched a consultative document which would pave the way for setting up the Malta Digital Innovation Authority, among other things.

Such an abstract name has left many members of the public scratching their heads and wondering what the whole thing is really about.

In its proposed form, the Malta Digital Innovation Authority (MDIA) would be centred on the groundbreaking Distributed Ledger Technology (DLT). The now-famous blockchain technology is a type of DLT, or in other words a kind of DLT platform.

The technology has so far not been regulated by any institution or body around the world, however it is now appearing to be a race between a few key countries to set up a legal framework, such as Gibraltar.

DLT technology is an ever-growing list of records, called blocks, which are linked and secured using something called ‘cryptography’. Each record has a link with the previous record, or block, and contains a timestamp as well as transaction data. Massive amounts of data can be crypted onto a single block in just 256 characters, creating massive possibilities when considering the space and processing power it takes to store massive amounts of data such as in national hospitals.

Once the record is issued with a timestamp, it is not possible to alter or tamper with that information. While the majority of people find this new technology difficult to grasp, in practice it could potentially bypass lengthy procedures in day-to-day life.

For instance, a music band could use DLT platforms such as blockchain to eliminate the need for intermediaries to receive royalty payments whenever somebody downloads their music. Transactions would occur across a peer-to-peer network, in this case from the music provider to the consumer, and are computed, verified and recorded using an automated consensus method.

 

Why is blockchain technology useful?

Society and further to this, the economy, is based on a system of trust. From conducting business to grocery shopping, an element of trust exists. DLT platforms for example will allow a consumer to verify the exact information, which is tamper-proof, about a food product they are buying. Companies are developing sensors which would be time-stamped with information about a particular product, allowing a consumer to use their smartphone or tablet, read the sensor through an application on their device, and receive correct, up-to-date and reliable information on that project.

In the financial services sector, where Know-Your-Client and due diligence processes of this day and age are seriously slowing down the rate at which aspiring businesses and companies can set up shop and do business, DLT platforms are playing a huge role. Should an individual have their personal information in a central location on a DLT platform such as blockchain, then banks and other authorities would be able to verify the information presented and proceed in far less time, saving time and money for both parties.

 

How does the Malta Digital Innovation Authority fit into blockchain?

On Friday’s launch, Schembri explained that the purpose of the three Bills which will be presented to parliament, one to set up the MDIA, another to set out a regime for the registration of Technology Service Providers and a third to set up a framework for cryptocurrencies, is to provide legal certainty in a regulatory vacuum.

Companies may be reluctant to rely on DLT platforms when considering how many would have to outsource the technology by hiring a third- party company and rely on their competence to build a tamper-proof, reliable platform.

This is where the authority would come in. By having a national authority such as MDIA set up, companies can engage in a MDIA certified DLT platform, with the peace of mind that they have engaged in the services of a professional company.

The MDIA Bill would work in conjunction with a second Bill on Technology Arrangements – referring to DLT platforms and Technology Service Providers – meaning auditors and administrators or DLT platforms.

While this may sound overwhelming, essentially the MDIA bill identifies two key roles: auditors of DLT platforms and administrators of DLT platforms. The auditor would review and assess the DLT platform against a number of pre-determined criteria to assure its credibility.

The administrator is the person who, under whatever name designated, assumes responsibility to manage or otherwise control the operation of the whole or part of the DLT platform.

The MDIA have a set of policy objectives such as observing Malta’s international commitments on a number of areas such as anti-money laundering, to protect users and consumers within the DLT sphere, assist competent data protection authorities in safeguarding data protection rights and promote legal certainty in the application of laws.

Under its proposed form, the MDIA Bill would provide that it is overseen by a Board of Governors composed of a chairman and a maximum of eight other members. The members will be selected by the minister responsible for the Digital Economy. Currently, Schembri is a parliamentary secretary for digital economy under the OPM, meaning that in the current set up the members of the board could be appointed and approved by the Prime Minister himself.

A joint co-ordination board would be set up with members of various national authorities such as the MFSA and the FIAU to ensure that the technologies being certified are in line with all relevant authorities. A national technology ethics committee would also be set up to ensure that best practices are employed.