The Malta Independent 18 June 2024, Tuesday
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Blockchain, Bitcoin and VFA saga

George M Mangion Wednesday, 3 March 2021, 12:25 Last update: about 4 years ago

The announcement in Bloomberg three years ago that Binance, a top Cryptocurrency Exchange company, was heading to Malta sent many practitioners to join the band wagon for new business opportunities in the DLT sector.

With hindsight, we recall that in 2018, the Minister for Economy, Investment and Small Business, Silvio Schembri called a press conference to announce the publication of a consultation document entitled The Establishment of the Malta Digital Innovation Authority; the Framework for the Certification of Distributed Ledger Technology Platforms and Related Service Providers and a Virtual Currency Act.

In a much-hyped Malta Blockchain conference in 2018, government remarked that after successfully positioning Malta as the Blockchain Island by being the first in the world to regulate DLT (distributed ledger technology) products and services, we now would like to position Malta among the top 10 countries in the world with an artificial intelligence policy.


This was later reflected in a website for the national AI strategy. According to official statements, AI projects will be monitored by the Malta Digital Innovation Authority, the same organisation that monitors DLT. Then, the good news was announced about a collaboration with SingularityNET, a decentralised marketplace for AI services, in a pilot project to "explore a citizenship test for robots in the process of drafting new regulation for AI".  

SingularityNET is working with renowned robot Sonia (see picture) built by Hanson Robotics. Sonia was showcased in a presentation attended by local Castille dignitaries and was expected to rubber stamp the birth of the digital age.

It is a fact that our DLT legislation matches the European Parliament resolution of October 2018, which launched directives on distributed ledger technologies and blockchains. Critics pointed out that Malta must be careful not to gold plate its own laws in an overzealous approach to safeguard its reputation. Industry sources had pointed out that such advice was not heeded as in fact MFSA standards for VGA service providers had been high. Even Binance, the cryptocurrency exchange giant, which lent its face to Malta's crypto dream, having considered all options, in the end never requested VFA licensing and only set up back-office activities.

Another missing ingredient is access to local banks, which so far have not endeared themselves to the sector. Regrettably due to such constraints, the noble aim to help businesses in their quest for funds via ICO was not achieved. SMEs discovered the cost of registration for DLT structures is not proportionate to their size and complexity. In an ideal world, one lauds the potential of Initial Coin Offerings (ICOs) as an alternative investment instrument in funding SMEs and innovative start-ups. It aims to accelerate technology transfer.

Needless to say, there is an overriding scope to identify criteria that enhance investor protection and obligations for the initiators of ICOs. Having briefly discussed the EU directive on the DLT sector, let us comment on operation of three laws promulgated in 2018/9 to regulate operation of VFA agents, issuers, system providers and IT auditors. Applicants are faced with a stiff finance instrument test (FIT) and other obligations to invest substantial paid-up capital.

This test is exclusively administered and signed by accredited VFA agents, of which so far there are about two dozen authorised and fully licensed. Back to the FIT, this is the starting point, as it is only in the event that the token in question qualifies as a Virtual Financial Asset that subsequent steps for recognition can proceed. More onerous compliance tasks are heaped on issuers, who are obliged to draw up an annual compliance certificate in relation to business. It is not a walk in the park for any foreign investor who decides to set up an ICO in Malta.

The ICO management has to engage a number of functionaries who are experienced professionals in the field of information technology, DLT assets and have a good understanding of the issuer's business. These requisites include a system IT auditor, a certified VFA agent, a custodian, a statutory auditor and a money laundering reporting officer. Finally, there must be approval of the "White paper" signed by the issuer which makes adequate disclosures including any deployment of smart contracts.

On a positive aspect, government supported a number of local conferences which served as a foundation stone but the industry is still in its infancy. Independent media has not announced any flooding of MFSA's corridors applying for licenses. It is not clear why, three years down the line, Malta has not caught up with Estonia.

The latter is crowned as the Baltic Blockchain queen, which registered over 700 Crypto/Blockchain companies. The particular blockchain technology used by Estonia - KSI Blockchain by Guardtime - has been proven to work and is today even used by NATO and the US Department of Defence. Today, government boasts that it is home to more tech unicorns, private companies valued at more than $1bn per capita than any other small country in the world. Estonia, with a population of just over one million, prides itself of 15 to 20 crypto-friendly banks. Moving to crypto news, one notes the bullish mood in the Bitcoin market due to a revival in the sector.

Many ask if the rally will last. Bitcoin's recent price surge pushed the largest cryptocurrency past $1 trillion in market capitalisation, a threshold that might prove to be a catalyst for higher prices rather than a barrier or peak. The biggest question mark surrounding cryptocurrency's future is regulation, which we all know had led to cryptocurrency prices sliding three years ago. Hailing Malta as the pseudo Blockchain island has a feeling of déjà vu.

Yet, blaming our lack of progress in the VLA sector on the pandemic is easy. Party apologists say the virus has sapped the energy from Castille's trio in their drive to succeed in Blockchain/Crypto arena. Perhaps we miss the sheer sophistication of "Sonia", a female robot, which graced our islands during the 2018/9 Blockchain euphoria.

Can she revisit the Blockchain island to try charming a host of top DLT evangelists to revive the dream?


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George Mangion is a senior partner of an audit and consultancy firm and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have seen PKF instrumental in establishing many companies in Malta and placed PKF in the forefront as professional financial service providers on the island.

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