Issue link: https://maltatoday.uberflip.com/i/858250
maltatoday, SUNDAY, 6 AUGUST 2017 10 News PAUL COCKS THE government's plans to turn Malta into one of the first countries to fully embrace blockchain technology and cryptocurren- cies have encountered considerable push- back by the Malta Financial Services Au- thority, which remains particularly leery of the virtual currencies, MaltaToday has learned. In May, Prime Minister Joseph Muscat announced a wide-ranging national strat- egy, which would see Malta lead the race to embracing the new technology and set the standards for other countries to follow. Blockchain is a decentralised and distrib- uted digital ledger that is used to record transactions across many computers so that the record cannot be altered retroac- tively without the alteration of all subse- quent blocks and the collusion of the net- work. Cryptocurrencies – or virtual currencies – on the other hand are digital currencies in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Presently, the best-known and most popular is Bit- coin. Last week, the first Bitcoin ATM in Malta was unveiled in Sliema, introduced by lo- cal start-up Ivaja through a crowd-funding campaign. The parliamentary secretary for the digi- tal economy, Silvio Schembri told Mal- taToday in an interview that the country already had all the elements in place to embrace blockchain – a gaming sector and authority, strong financial services, a reli- able ICT infrastructure and an attractive tax regime. He said that a new authority would be set up to regulate the blockchain industry in Malta. And therein seems to lie the cause of the discord between the government and the MFSA, as many within the authority fail to understand why a new authority is needed to issue licences and regulate the new tech- nology. Sources told MaltaToday that a number of senior officials within the MFSA and working closely with chairman Prof. Joe Bannister – while recognising the advan- tages of the blockchain – are skeptical of the wisdom of Malta taking a leading role in embracing cryptocurrencies, when many other countries seem to have adopted a wait-and-see approach. And while Muscat and Schembri contin- ue to expound on their plans to make Malta the Silicon Valley of the new technology, the MFSA last week issued a stark public warning on the 'risks' inherent in the use of cryptocurrencies. "Unlike traditional money, acceptance of payment in virtual currency depends en- tirely on the voluntary consent of the re- cipient," it said. "Furthermore providers of services in relation to virtual currencies are currently neither regulated by law nor au- thorised by the MFSA." The authority said that people needed to be aware of the risks when buying, holding or trading such virtual currencies, includ- ing the risk of losing one's money. The warning provoked a strong reaction by BitMalta, the first Maltese association advocating blockchain technologies and cryptocurrencies to the general public. Lawyer Jonathan Galea, president of Bit- Malta, told MaltaToday that the MFSA "might have had some relevance if it were issued five years ago". He said that the benefits and potential ad- vantages of cryptocurrencies were widely accepted, with countries like Japan having already gone as far as to accept Bitcoin as legal tender. "Maybe some people are not aware of the developments made in the field, but crypto- currencies are today as secure as you want them to be," Galea said. "This warning by the MFSA was, to put it mildly, misplaced." He said he was disappointed by the MFSA's ultra-cautious approach and its tendency to quote long-since settled is- sues, while Muscat and Schembri were actively advocating the adoption of block- chain technologies and cryptocurrencies in Malta. "Blockchain technology is firmly rooting itself as the next big thing, a disruption which will echo that of the Internet back in the late 90s, and cryptocurrencies are but one single application of such a technology, albeit an important one as they show what can be achieved through the use of block- chain technologies." Galea said that cryptocurrencies were here to stay – even though he personally believed Bitcoin would not end up being the principal player – and it was therefore better to consider measures to educate the public about them rather than scaremon- ger. Sources told MaltaToday that many MFSA officials seem to be of the same opinion as Galea and others but have found it difficult to convince their supe- Mixed messages on bitcoin from government and MFSA WHAT MFSA SAID Money may be lost on the exchange platform Virtual currencies may be obtained from someone who owns them or through an exchange platform. Currently exchange platforms are not normally regulated and in some cases they have failed or gone out of business with the consequence of consumers losing significant amounts of money. Exchange platforms are not banks and if an exchange platform loses any money or fails, there is no specific legal protection. Money may be stolen from your digital wallet Virtual currency is stored in a 'digital wallet' on a computer. Although digital wallets have public and private keys or passwords, they are still vulnerable to hackers. Virtual money may therefore be stolen from your wallet. Consumers losing virtual money have little prospect of having it returned. Furthermore if you lose the key or password to your digital wallet, your virtual money may be lost forever. You are not protected when using virtual currencies as a means of payment When using virtual currencies as a means of payment you are not protected by any refund rights under EU law. Unauthorised or incorrect debits from your digital wallet can therefore not usually be reversed. The value of virtual currency can change quickly, and could even drop to zero Different virtual currencies have different values. Furthermore the value of virtual currencies can easily go down as well as up. Unlike the value of traditional currencies, there is no guarantee that the value of virtual currency funds remains stable. Transactions in virtual currency may be misused for criminal activities Transactions in virtual currencies are largely untraceable and provide a high degree of anonymity. This makes virtual currencies vulnerable to misuse for criminal activities such as money laundering. Law enforcement authorities may therefore decide to take action against or close exchange platforms and prevent you from accessing or using any digital funds that the platforms may be holding for you.