Last week Malta made what can be considered an unprecedented legislative move. Three new laws related to Blockchain and cryptocurrencies were passed in a second parliament reading, easing the way for Malta to establish itself as a crypto-friendly base with regulatory clarity. A third reading this coming week should bring final approval.
The Mediterranean island has long been considered crypto-friendly and business-friendly in general. Now it will be one of the first places on earth to create certainty for investors, start-ups and the whole crypto industry by adapting its legislation to this new technology.
Most blockchain-focused companies with innovative ideas are not scared of operating within a legal and regulatory framework. They are not looking for lenient jurisdictions or tax havens. Their biggest concern is regulatory uncertainty. No-one wants to put all his energy into a business and possibly invest his own life-savings, to later find out about legislation being interpreted against them. What investors and start-ups most desire is clarity. They actually want regulators to make up their minds, preferably in a crypto-friendly way.
Malta’s new Framework
Malta’s three bills will establish a comprehensive framework for crypto-focused businesses. The Malta Digital Innovation Authority (MDIA) bill creates the MDIA as the body responsible for implementing a consistent policy on digital innovation. The organization will also supervise distributed ledger technology and cryptocurrencies.
The Innovative Technology Arrangements and Services (ITAS) bill explicitly includes regulation on distributed ledger technology.
The Virtual Financial Assets (VFA) bill regulates anything related to cryptocurrencies and virtual assets. Importantly, this includes Initial Coin Offerings (ICO) and cryptocurrency exchanges.
Smart Contracts and Decentralized Autonomous Organizations
One very important aspect is that the new regulation supports smart contracts and Decentralized Autonomous Organizations (DAOs). DAOs are on-blockchain organizations governed by bylaws expressed in smart contracts. The MDIA will audit DAO contracts and grant them the status of “Technology Agreement”. This new arrangement could be described as a limited company without management board.
This is the first time a legal framework for DAOs has been established and opens up many business opportunities.
Malta is one of few jurisdictions that have a reputation for being crypto-friendly. American companies frequently pursue legal status in the Cayman Islands for crypto-related business. Singapore could be seen as an Asian equivalent for this role.
In Europe, several countries provide favorable conditions for blockchain start-ups. Estonia has a tradition of blockchain adoption, with the government supporting various initiatives. One example of this the country’s blockchain-based health record management.
Switzerland’s Zug valley is also considered a good place to run a blockchain company. However, in Switzerland’s case, this may not be due to a particular legal framework, but rather due to the lenient interpretation of the existing framework.
Gibraltar is another jurisdiction that, like Malta, tries to provide a favorable environment by removing regulatory uncertainty.
The Need to Catch Up
Smaller countries are taking the opportunity to become world leaders in Blockchain and other technology-related fields. The world’s big economies have taken a backseat in this space and are at risk of losing their technological advantage. Malta is one example of forward-thinking legislation that will make innovation possible.