Blockchain Island by Content House

T O M O R R O W ’ S

W O R L D .

T O D A Y .

BLOCKCHAIN

ISLAND

¤8 (where sold)

F I N T EC H . ART I F I C IA L I N TE LLI GE N C E . E S P O RTS .

COVER STORY The latest on the Blockchain Island – how is Malta faring?

OFFICAL PARTNERS

INTERVIEW MDIA CEO Stephen McCarthy on the growing industry of innovative technology

FOCUS A spotlight on the Artificial Intelligence revolution in Esports

Summer 2019

contents 48

Focus

THE ONES TO WATCH As interest in the blockchain and crypto sectors continues to grow, Jo Caruana highlights some of the organisations laying down their roots in Malta to keep an eye on.

Cover Story BLOCKCHAIN ISLAND – A WORK IN PROGRESS Marie-Claire Grima speaks to industry stakeholders to find out about Malta’s prospects as a hightech hub.

CHANGING THE GAME: THE AI REVOLUTION IN ESPORTS How is the power of AI transforming Esports? Rebecca Anastasi speaks to stakeholders to learn more.

62 Policy

Interview

CREATING THE BLOCKCHAIN ISLAND Sarah Micallef catches up with the Parliamentary Secretary for Financial Services, Digital Economy and Innovation, Silvio Schembri, for the latest updates on the implementation of Malta’s Blockchain Strategy.

“BANKS THAT HAVE ADOPTED THIS TECHNOLOGY FOR THEIR OPERATIONS HAVE THEIR OWN PRIVATE BLOCKCHAIN FOR INTERNATIONAL TRADE FINANCE” CEO of the MDIA, Stephen McCarthy, brings Martina Said up to speed with the latest developments in the innovative technology industry. 24

META LUMINOR: THE FINTECH CONNECTOR Jo Caruana meets Philip Maurice Mifsud, Founder of Meta Luminor, to find out about his expectations for the blockchain industry in Malta.

Business

82 76 Legal

MALTA NEEDS TO “WALK THE TALK” TO SUCCEED AS A BLOCKCHAIN ISLAND Head of Legal at Ellul & Schranz, Anton John Mifsud, tells Vanessa Conneely how the firm is staying ahead in the legal landscape.

In Depth THE NEXT BIG DISRUPTIONS IN THE BUZZING WORLD OF BLOCKCHAIN Helena Grech chats to industry insiders on their predictions for the future of DLT in Malta.

FinTech THE FUTURE OF MALTA AS AN INTERNATIONAL FINTECH HUB Hot on the heels of its recently-published Vision 2021, Rebecca Anastasi catches up with the MFSA Chief Officer responsible for Strategy, Policy and Innovation, Christopher P. Buttigieg, to find out the Authority’s plans for the FinTech industry.

102 Business

112

KEEPING UP WITH THE PACE OF CHANGE As the world shifts towards a more digitalised approach, can businesses afford to stay behind? Helena Grech speaks with GO’s Arthur Azzopardi to find out.

Focus

SMART CONTRACTS: WHERE ARE WE NOW THAT MUCH OF THE HYPE HAS DIED DOWN? Helena Grech digs in to understand what smart contracts can deliver, and where they pose a challenge.

Business HELPING MALTA ACHIEVE ITS FULL TECH POTENTIAL KPMG’s Matthew Scerri and Mark O’Sullivan chat with Marie-Claire Grima about Malta’s success in the tech sector and the road ahead.

123 Spotlight

INTO THE CURIOUS WORLD OF BLOCKCHAIN TECHNOLOGY AND POSTAPOCALYPTIC SURVIVAL GAMING Fracture Labs’ Stephen Arnold discusses blockchain technology and survival video games with Helena Grech. 25

EDITORIAL

At the forefront of

a brave new world

Malta made waves last year as the first country to establish an official set of regulations and the necessary framework for operators in blockchain, cryptocurrency and Distributed Ledger Technology – a space that, until that point, was only familiar to those who already operated in it. Fast forward a few months, and you’d be pressed to find someone who hasn’t at least heard the word ‘blockchain’, ‘crypto’ or ‘DLT’, making all this a little less alien than before. In light of this ever-changing and fast-paced space, we’re proud to introduce the first issue of Blockchain Island, a high-end industry publication that aims to unpack and understand how Malta, local businesses, as well as the rest of the world, will be impacted by changes and developments in the tech sphere. Despite its name, Blockchain Island goes beyond the realm of blockchain and DLT. This publication, which will be published twice a year, will dig deep into developments in the crypto space, Artificial Intelligence, FinTech, ESports and more. Blockchain Island aims to understand and uncover where all these industries are heading, the opportunities they present, as well as the challenges that Malta has to overcome in order to help them succeed. Following an influx of applications for FinTech companies to operate from the island, can Malta live up to its name as the blockchain island? Will banks encourage the industry to move ahead, or stop it in its tracks? Having prided itself for so long on being a reputable jurisdiction in this sector, can Malta nurture these new industries in a way that enables them to flourish and prosper in the medium and long term? Industry experts, insiders and stakeholders share their views on all this and more in the first issue of Blockchain Island. Enjoy the first edition of Blockchain Island. We will be back with a bumper second edition in Autumn! Martina Said Editor

Publisher

Content House Group Mallia Building, 3, Level 2, Triq in-Negozju, Mriehel BKR3000 Tel: 2132 0713 info@contenthouse.com.mt www.contenthouse.com.mt Editor Martina Said Director of Sales and Business Development Matthew Spiteri Corporate Sales and Business Development Executive Angele Buscemi Operations and Client Relationship Manager Elena Dimech Creative Director and Design Nicholas Cutajar Content House Ltd would like to thank all the protagonists, contributors, advertisers and the project team who have made this publication a success. Articles appearing in this publication do not necessarily reflect the views of Content House Ltd. All rights reserved. Reproduction in whole or in part without written permission of the publishers is strictly prohibited. Blockchain Island is distributed to all iGaming companies operating in Malta, to all blockchain companies setting up in Malta, as well as to relevant business and commercial stakeholders in Malta, including all law firms, banks, financial services companies and business consultancy firms, as well as to all local auditors, accountants and accountancy firms. It is also distributed to all Government ministries and departments, to leading hotels and cafés, as well as to the waiting areas of all private and public hospitals. Beyond the free distribution network, Blockchain Island is sold at all leading newsagents around Malta.

COVER STORY

A work in progress 28

Illustration by Nadine Noko

COVER STORY

THE TERM ‘BLOCKCHAIN ISLAND’ STARTED BEING USED IN THE PRESS TO DESCRIBE MALTA IN THE MIDDLE OF LAST YEAR, AS IT INTRODUCED ITS GROUND-BREAKING LEGISLATION REGULATING CRYPTOCURRENCY, BLOCKCHAIN AND DISTRIBUTED LEDGER TECHNOLOGIES, BUT WHERE WILL IT GO FROM THERE? MARIE-CLAIRE GRIMA SPEAKS TO SOME OF THE LEADING INDUSTRY STAKEHOLDERS, WHO WEIGH IN ON MALTA’S PROSPECTS AS A HIGH-TECH HUB FOR INNOVATION.

t’s not certain who coined the term ‘blockchain island’ in reference to Malta, but it’s a catchy term that quickly gained traction, especially after Malta passed three bills regarding cryptocurrencies, blockchain and distributed ledger technology (DLT), marking it as one of the first jurisdictions in the world to pass specific legislation around the tech. From local media to international news outlets, it became a catch-all phrase that captured Malta’s forward-thinking vision in this technological realm. But what has happened since then, and what else has Malta done to deserve the title?

businesses in this field to flourish,” says Stephen McCarthy, CEO of the Malta Digital Innovation Authority (MDIA), which is Malta’s serving regulatory body for new emergent technologies. “Arriving to where we are today, that is leading the charge in the blockchain and cryptocurrency sphere is thanks to talented brains and visionaries Malta nurtured over the years. Investment and sustaining our only resource, that is human resources is of utmost importance, and that is what we intend to do. Malta already has a strong ICT infrastructure, a thriving economy and a strong economic and innovative technology ecosystem, the ideal ingredients that paved the way to make Malta a hub for digital innovation. Its geographical size and position are great assets, with the island having the potential of serving as a test-bed for new technologies.”

“Malta was one of the first countries to tap into the DLT and crypto sphere, and the framework was positively received from the industry, bolstering us as a ‘blockchain island’,” says Ian Gauci, Partner at advisory firm Afilexion Alliance. “Usually operators wanting to operate in Malta, however, do not only look at the DLT/crypto regime. They would assess the whole ecosystem and the country’s potential from that angle. On the DLT front, Malta builds on its excellent reputation and track record in gaming, maritime and financial services. Hence, in my view, the value is already there, further augmented by the country’s predisposition to DLT and crypto. This year, we will hopefully bear the fruit of the hard work and planning behind the legislative framework.”

Mr McCarthy firmly believes that the DLT industry will become an important contributor to Malta’s economic growth, offering a complete ecosystem which pays operators to operate from here. “Malta has taken an innovative approach in the new legislation – building a regulatory structure which does not limit innovation and technological growth, but rather protects the users of the technologies, thus creating new business opportunities. The feedback of companies working in the field is overwhelming and this can be seen from the high numbers of such companies already opening operations here in Malta, even before they apply for certification with the national competent authorities,” he asserts.

“Malta took a proactive stance by understanding the benefits of this technology and providing a holistic legal framework to allow this technology and

“The Malta Financial Services Authority (MFSA) received around 340 notifications, of which 259 are being processed as we speak. This further 29

COVER STORY

shows the commitment and resolve of foreign operators to establish themselves within the Maltese legal framework, besides the added incentive of being located with the top players in this field. Given these numbers, the size of trading in cryptocurrency and token trading in and from Malta is expected to match the volume of trading registered by the gaming local industry within a few years,” Mr McCarthy adds. Silvio Schembri, Parliamentary Secretary for Financial Services, Digital Economy and Innovation, adds that a significant milestone has been reached in recent months when the MFSA certified the first VFA agents, and soon after, the MDIA certified the first system auditors. “Both the Virtual Financial Assets (VFA) agents and the system auditors will act

On the DLT front, Malta builds on its excellent reputation and track record in gaming, maritime and financial services. Hence, in my view, the value is already there. Ian Gauci, Partner, Afilexion Alliance

major problem,” says Dr Gauci. “But I am sanguine that with the licensing regime kicking in, as well as the hard work being done by the MFSA to give more information as well as comfort to the banking industry in this area, things will get better.”

as gatekeepers and assist the authorities during the licence process,” he says. “A major achievement to be marked later on this year is that Malta will be the first jurisdiction to issue licences in this field. This will elevate the prestige and true meaning of a company to acquire a Maltese licence in a jurisdiction which provides legal certainty and peace of mind for operators in this space.” Naturally, paving the way for such a new and relatively unknown technology came with its own challenges, including reports that banks were politely declining crypto and blockchain-related business, saying it was outside their ‘risk appetite’. “Banking in my view was the

The MDIA’s Mr McCarthy says that Malta is addressing the increasing need for platforms to be certified. “Innovative technologies bring challenges and opportunities within the market both for the economic operators and Malta’s current economy, and regulating these technologies will enable a safer market and a more regularised atmosphere which protects both consumer and investor. Whereas traditional regulation focuses on the transactions and the parties involved in these transactions, the MDIA ensures that due diligence is also applied to the underlying

COVER STORY

technology itself, ensuring safer infrastructures and software ecosystems. In this manner, the MDIA also plays a vital role in supporting other national competent authorities such as MFSA and MGA in their licensing process through the certification of the software.” Dr Gauci adds that the dip in the global market cap has had a world-wide effect on crypto-related projects. “This was also felt in Malta. The world financial market is not alien to dips, crashes or fluctuations and from every dip or crash, aside from the negative connotations, there are also positive ones. The more robust and grounded projects in my view will survive, the weak ones will be weeded out. With a reduced barrier to entry for new projects, we can expect some more interesting and robust projects to materialise this year.” The onset of the blockchain industry on the island has raised a number of questions about Malta’s capabilities to supply the labour that this highly specialised industry needs. “The local workforce is already spread thin while boasting one of the lowest unemployment rates in Europe,” says Ben Pace Lehner, co-Founder and Director of specialist recruitment company Broadwing. “Current statistics by Eurostat and the NSO show that Malta expects the need for 35,000 foreign workers within the next five years to sustain its current economic growth rate. We are faced with a severe shortage of labour across all industries and more so in skilled jobs such as those required by the iGaming and financial services industries. As a matter of fact, only 25 per cent of jobs within the iGaming industry are being filled by Maltese nationals.”

The size of trading in cryptocurrency and token trading in and from Malta is expected to match the volume of trading registered by the gaming local industry within a few years.

“Promoting the blockchain island aims to increase Malta’s popularity as a hub for the FinTech industry and its success will most certainly increase demand for specialised workers. Unfortunately, STEM graduates are already scarce in Malta, however the increase in popularity of remote working is allowing companies to utilise experts in different jurisdictions. However, with an estimated three to 10 years for the industry to be integrated into our daily lives, we are still in time to implement solutions to address 32

Stephen McCarthy, CEO, Malta Digital Innovation Authority

COVER STORY

these challenges and close the skills-gap,” continues Mr Pace Lehner. “Without a doubt, the FinTech industry has a large skills overlap with the finance and iGaming industries, and will pose a threat in terms of HR while opening up many other opportunities which will see blockchain and crypto being adopted within these industries.” “Strengthening the skills of current graduates and future generations is key,” remarks Parliamentary Secretary Mr Schembri. “Hence the University of Malta has already made some changes in its curriculum to include credits related to this field. We have also launched a ¤300,000 scholarship fund aimed at students to pursue their studies in DLT at Master’s and PhD levels.” Mr Pace Lehner concurs, saying that one of the ways to solve the skills gap is to provide specialised IT-oriented training opportunities, not just for young people in Malta but anyone looking to take their first step into the industry. “It is essential for companies to offer continuous training to their employees to keep abreast of technological advancements or changes to the industry and this is being supported through various initiatives such as the ‘Skills Development Scheme’, the EU-funded Investing in Skills (IIS) scheme, and other initiatives to promote up-skilling. Additionally, in February, it was announced that the Blockcerts pilot project, which started in September 2017, to put educational certificates on blockchain, will be scaled up in the coming years to encompass all schools in the education sector. Under the new contract, all education certificates will be issued on blockchain, including secondary school certificates issued by state, church and independent schools. “Since Malta is a pioneer in adopting Blockcerts as an open standard for academic credentials, this will surely impact the educational system at different levels. This will revolutionise the way both academics and other educational institutions issue certifications, enabling individuals the capacity to possess and share their own official records,” Mr McCarthy shares. “As a country, Malta will benefit from adopting Blockcerts for educational and training credentials that will offer a reliable and resilient infrastructure that will bring a lot of advantages. These advantages include a

A major achievement to be marked later on this year is that Malta will be the first jurisdiction to issue licences in this field. Silvio Schembri, Parliamentary Secretary for Financial Services, Digital Economy and Innovation

COVER STORY

more personalised individualistic approach to the user in terms of giving them access to their digital assets.” “Blockcerts within Malta will enable recipients and relying individuals to use different digital records in various contexts using different platforms and offering versatile solutions to current limitations. Institutions and companies will be more vendor independent in terms of verifications, since certifications will remain verifiable for longer periods of time. This will also enable more portability and transparency across the whole infrastructure, allowing for more data interoperability.” Mr Pace Lehner says that the adaptation of the Blockcerts open standard for academic credentials is, without a doubt, another step in the right direction for Malta. “It is an exciting time for the HR and recruitment industry, with the technology offering a tool to save time in processing and vetting candidates’ credentials and qualifications. However, the real potential of such technology can only truly come to light once other recruitment tools and networks integrate these academic credentials into their workflow.” “Over the past few months, Broadwing has been working with an international partner on an HR and blockchain project building on the Blockcerts concept. We look forward to the benefits that can be achieved through this integration.” When discussing such a young industry, one cannot help but speculate about what the future might bring. “In these early stages, Malta is already showing that it is leading as a country the current market and industries in terms of blockchain,” Mr McCarthy comments. “A five-year forecast is very difficult to obtain in a never-changing landscape of technology. 36

Current statistics by Eurostat and the NSO show that Malta expects the need for 35,000 foreign workers within the next five years to sustain its current economic growth rate. Ben Pace Lehner, co-Founder and Director, Broadwing

However, Malta is positively showing a positive approach and already leading in the forefront. This will continue to be evident as more and more companies will get onboard and countries will follow. In these early stages, countries are already watching closely the work that is being done. This will enable a head start in different industries especially FinTech and blockchain emerging technologies that will develop further and will support different areas of society. As long as we continue to ensure that our legislation remains as innovative as the technology it is meant to regulate, making the technology and its use safer yet without stifling growth we can maintain the head start we already have in the game.” And some have even broader aspirations for Malta, beyond the blockchain island. “Malta’s framework and vision are not exclusively tied to DLT or a particular technology but to innovation. I hope that Malta in five years’ time will be the mecca of digital innovation,” Afilexion’s Dr Gauci concludes.

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The ones to watch WITH KEY LEGISLATION IN THE PIPELINE AND COMPLEMENTARY FRAMEWORKS IN PLACE, MALTA HAS POSITIONED ITSELF AS ONE OF THE BEST PLACES FOR BLOCKCHAIN COMPANIES TO LAY DOWN THEIR ROOTS – AND MANY HAVE DONE EXACTLY THAT. AS INTEREST IN THE SECTOR CONTINUES TO BOOM, JO CARUANA HIGHLIGHTS SOME OF THE ORGANISATIONS TO KEEP AN EYE ON.

s Malta continues to cement its role within the global blockchain sphere, certain companies are positioning themselves as leaders within that space – whether they are cryptospecific or otherwise.

In fact, the island is a-buzz with entrepreneurs that have chosen the island as their business base for a variety of reasons, including the low corporate taxes, supportive administration, clear regulations and the Mediterranean lifestyle (oh, and the weather probably doesn’t hurt either!). Here are some of the ones on our radar. 39

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1 Kyber Network If you’re looking for a way to securely exchange crypto in an instant and at minimal cost, Kyber is definitely a company to consider. By providing a decentralised, on-chain exchange, this ‘network’ connects secluded token ecosystems to make them all usable in a variety of ways. They call this ‘taking things to the next phase in the tokenised world’ – and we can certainly see how their service will make it much easier for their clients to use tokens any way they want. It’s interesting to watch how they bring speed, security and liquidity to the exchange process, along with their combined use of a reserve warehouse with on-chain exchanges. In this way they provide the best of both worlds. Now, they have set their sights on making a truly decentralised world a reality, and are certainly that little bit closer thanks to the recent releases of their KyberSwap and KyberDeveloper updates.

OKEx Having chosen to make Malta their foundation for further growth, OKEx is continuing its rise as one of the top digital asset exchanges in the world – and was recently ranked fourth in the world for trading volume, on Coinmarketcap.com. First launched in 2014, the company now serves millions of users in over 100 countries, and plans are in place for it to launch its own blockchain (the OKChain) by the middle of 2019. The company is continuing to position itself at the forefront of blockchain technology’s impact on the global economy.

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3 Bittrex When it comes to getting ahead of its competitors, Bittrex is front and centre, with its own secure platform, custom-built trading engine, fast deposits and withdrawals, accessibility and transparent fee structure. The platform provides quick access to a vast number of cryptocurrencies, in addition to a high trading volume, and has done away with cross order books or any delays in the processing of trades – which is important given its 24-hour trading volumes of just under $300 million (¤270 million). Beyond all this, in 2018 the company also became one of the members of the Virtual Commodity Association Working Group, which is cited to be a precursor to the formation of self-regulatory activity for digital currencies. Later in the year, Bittrex also invested in Malta by acquiring a 10 per cent stake in blockchain company Palladium, which previously launched the world’s first socalled initial convertible coin offering (ICCO).

4 Bitbay Considered one of Europe’s largest exchange websites, Bitbay is based in Poland, with an office in Amsterdam, and another one in Malta. One of this award-winning company’s key features is its ability to turn online currency into actual money through the use of a physical card, while its flexible deposit options are also appreciated by its users. First established in 2014, Bitbay has been very active in the CSR world, with many events dedicated to raising funds for charity and educating people on how best to take advantage of the crypto world.

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5 Binance The crypto community certainly took note when Binance – the world’s largest crypto exchange – moved its headquarters from Hong Kong to Malta. Although it was only established in 2017, Binance quickly became one of the industry’s hardest hitters, by trading in more than 100 cryptocurrencies. In a key move for 2019, Binance partnered with Israel-based payment processor Simplex, which has enabled it to process crypto purchases with debit and credit cards. Next in its development, Binance will launch its new custom blockchain, Binance Chain, designed to operate its $3 billion (¤2.7 billion) Binance Coin (BNB) cryptocurrency.

ZB.com Now ranked among the top 20 crypto exchanges out there when it comes to volume, ZB announced the opening of its Malta base in 2018, along with $20 million (¤18 million) in investments. ZB co-Founder Jimmy Zhao called Malta the “most progressive forward-thinking nation in DLT, crypto, and FinTech”, and added that the company plans to employ over 150 people here. Although it currently only operates crypto-to-crypto exchanges, the company’s focus is to also grow its services with crypto-FIAT pairs in the future.

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7 Iconomi As one of the first blockchain-based companies to be blockchain audited by a ‘Big Four’, Iconomi is dedicated to making it easy for its users to invest in cryptocurrencies. 2018 was a year of landmarks for Iconomi, with the long-awaited release of euro transactions enabling its users to buy into digital portfolios and individual cryptocurrencies directly with euro. It’s not surprising, therefore, that this company has also been named among the best scale-up companies in Southeast Europe.

Chili’Z Completing the list, Chili’Z is a digital currency for sports entertainment platforms. Inspired by traditional sports, the team here is working towards an Esports landscape that is shaped by the games, teams and leagues that can effectively activate and monetise their fan base. Partnership discussions are already underway with existing Esports leagues and the professional gaming community is taking note. Plus, with Chili’Z’s Blockchain Campus in Malta operating as an accelerator and sector hub connecting some of the industry’s largest stakeholders across Asia and Europe, there is a lot of potential for big things.

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Changing the game:

the AI revolution in

ARTIFICIAL INTELLIGENCE HAS BECOME INCREASINGLY SOPHISTICATED IN RECENT YEARS, UPENDING TRADITIONAL APPROACHES IN HEALTHCARE, E-COMMERCE AND EVEN THE CREATIVE INDUSTRIES, AS MULTI-NATIONALS LIKE NETFLIX AND SPOTIFY ADOPT THEIR TOOLS TO FIND OUT WHAT THEIR CUSTOMERS CRAVE. BUT, HOW IS THE POWER OF AI TRANSFORMING ESPORTS? REBECCA ANASTASI SPEAKS TO FOUR STAKEHOLDERS TO FIND OUT.

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Esports from gaming analytics firm Newzoo stating that global Esports revenues will hit ¤980 million in 2019 – the use of cutting-edge technology is expected to draw in more interest, viewers and profits.

n a warm spring day in mid-April this year, in the hilly city of San Francisco, artificial intelligence (AI) played a competitive video game against the best Esports professional team in the world. And won. The event, organised by OpenAI, a research company aiming to ensure artificial general intelligence “benefits all of humanity” (according to their website), saw their machinelearning-driven bot beat the reigning Dota 2 champions, in a nail-biting show which proved how technology could surpass the capabilities of humans.

It might be a scary prospect for some, but what happened in California is just the most recent culmination of years of research and development, which started when IBM’s Deep Blue beat the famed chess champion Garry Kasparov at chess in the 1990s, with an algorithm which is considered primitive by today’s standards. And, with the global Esports industry growing yearon-year – Reuters recently quoted data

“In this growing sector, enhancements to technology translate to more players and spectators, so it was only a matter of time until tech and Esports converge,” says Ivan Filletti, HCOO at Gaming Malta Foundation. “And, from a strictly AI perspective, Esports is the perfect playground for these technology companies to develop and train their systems and test their approaches.” Mr Filletti underlines the myriad ways AI is being utilised in the arena of Esports, including in the prediction of game outcomes, through the use of “AI-driven prediction algorithms to predict the result of the next game”; the take-up of training bots as sparring partners; and the adoption of AI technology to identify “irregular playing behaviour” and prevent cheating. “All successful sport disciplines move forward. And, since Esports is a growing market – and since it is already based on technology – progress can be implemented even faster than at regular sports events,” he says.

Photo by Alan Carville

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We want to harness that power and potential to ensure that Malta is put on the global Esports stage very much in line with our Home of Gaming Excellence credentials. Ivan Filletti, COO, Gaming Malta Foundation

Locally, the fast-changing technology is expected to be implemented in Malta’s “bustling ecosystem”, Mr Filletti explains. “We want to harness that power and potential to ensure that Malta is put on the global Esports stage very much in line with our Home of Gaming Excellence credentials,” he notes. However, this necessitates also looking at the broader picture, through an understanding of the implications such technology may have on our world and our lives. “The key is that AI can change strategy in a way that makes it extremely complicated for human players to react. On the other hand, seeing AI win against the best of the best, not only in chess or in complicated games like Starcraft II, means we need to think about how this impacts society itself.”

Eman Pulis, Group CEO of SiGMA, Malta’s yearly iGaming summit, and the Malta AI & Blockchain Summit, a biannual event dedicated to emerging tech, also sees the island’s investment in new sectors as indicative of the success it can garner in the use of AI in Esports. “If Malta’s track record for attracting and nurturing new and upcoming industries is anything to go by, then I would say the future is bright for anything we set our mind to. There’s a real energy and passion for innovation, and that’s always great motivation to get the ball rolling,” he states. Indeed, he sees AI as key to the increased profitability and attractiveness of Esports, saying that the involvement of this technology “and its convergence with other tech, such as IoT and Big Data, has led to an increase in players and spectators.” The ability of AI and machinelearning to handle and process ever-increasing tracts of data lies at the heart of any advances. “Its ability to discover and predict behaviour has produced invaluable lifestyle data which has been a contributing factor to increased engagement from Esports audiences,” he underlines, specifying that deep-learning tech is also being used to make Esports viewing more of an interactive experience. Moreover, as machine learning continues to expand into new strategies, and allows for “more unconventional moves” within an Esports scenario, “it will widen the scope for competition and inevitably lead players to consider the game in a different light when it comes to new ways

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to play.” These new ways may include pitting bots against human adversaries – as OpenAI routinely do – or against other bots, which could prove to be a new source of revenue for the industry. “Continued advancement in AI programming has certainly increased the scope for business. We’re seeing new possibilities unfold and not just for players. There are initiatives which are pushing for the creation of smarter AI-based bots by pitting developers against each other in competitive games. If this proves popular with an audience, we could be on the horizon of a brand-new sector of Esports gaming,” Mr Pulis explains. These possibilities, he adds, have recently led to investors “tapping into the potential behind audience monetisation, spectator experience, player training and AI developer competitions.” Malta’s Government has also invested in the area, according to the CEO of SiGMA, though further work needs to be done to ensure continued interest and profitability within Esports, in order to lead to the use of AI within the sector. “The 2019 Budget revealed plans to make Malta a desirable destination for the Esports industry. While the island has been enthusiastically embracing emerging

technology, Esports has yet to make its mark. There are a number of Esports tournaments taking place throughout the year however, so it will be interesting to see how well they do,” he asserts. Concurring, Mark O’Sullivan, KPMG’s Gaming Advisor – and Esports specialist – highlights the way Malta’s willingness to embrace technology can lead to the proliferation, and growth, of new industries in 2019. “Malta has a history of firmly establishing itself as a global hub for particular technological economic niches. It had successfully done so with iGaming over the last couple of decades, and in recent years, this has been the case with the video games and DLT sectors. And, in 2019, Malta has also set its sights on the AI and Esports industries,” he says, emphasising that these “will grow together alongside Malta’s other niches and its wellestablished ecosystem.” AI is an integral part of this growth since every edge counts in Esports, according to Mr O’Sullivan. Indeed, AI technology can raise the bar, giving players “the training competition they need to improve and master their skill,” as well as introducing AIpowered analysis and prediction mechanisms, which can help to identify ways to improve the player’s own strategies.

We could be on the horizon of a brand-new sector of Esports gaming. Eman Pulis, Group CEO, SiGMA

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The use of bots will also push boundaries, resulting in a more gripping, compelling experience, according to KMPG’s advisor. “AIpowered bots are beginning to match, and even surpass, the skill set of human players. There are many advantages: they won’t succumb to the pressures of a live tournament atmosphere, in contrast to human players; they will play to their maximum level every time; and each time the bots play, they should reach higher levels than before through state-of-the-art algorithms,” he explains. However, he is at pains to emphasise that game-events involving bots – such as OpenAI’s Dota 2 and Google’s AlphaStar – are not being created in order to develop the world’s best player – beyond that of human limits – but to develop the world’s best human-like player, thus increasing engagement.

AI-powered bots are beginning to match, and even surpass, the skill set of human players.

Mr O’Sullivan sees this increased interest as likely to strengthen locally, now that Malta has taken steps to invest in creating a national AI strategy and framework, with the country’s AI vision released in November 2018, followed by the establishment of the Malta AI taskforce, whose first public consultation workshop was held just this March. This commitment to implement innovative technologies means that the crossover “between the Esports and AI industries in Malta is inevitable,” and is also due to the island’s “bustling video games industry” which is “beginning to spill over into that of Esports.” He credits the passion of several Esports event organisers on the island – who “have worked tirelessly in recent years to grow interest locally” – with bringing the game to the centrefold. Moreover, this has also piqued the interest of iGaming operators based in Malta who “are looking very closely at the Esports market, hoping to gain the interest of the next generation,” he asserts. Alexei De Bono, Director of Idea Intelligence at Idea Group, echoes these thoughts, but sees the potential for AI to transform Esports as part of its power to revolutionise all sectors. Within the game, however, models harnessing the power of AI can be used to discover future superstar players in a game, the Director says. This is especially the case today, since “potential players are able to stream their games to thousands of people. To take this a step 52

Mark O’Sullivan, Gaming Advisor,KPMG

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further, AI methods can be used to predict the best player out of a list of potential candidates who would best fit the team. This does not simply come down to basic skill assessments, but identifies a gap in the team’s features that can be occupied by the new addition.” Moreover, AI has the capability of helping Esports teams strategise, “by analysing previous game footage from a team and their opponents, and identifying critical moments”; identify the trends of game popularity over time and thus be able to predict the features of the next best game to produce; and even, on a practical level, “find and book the best possible travel and accommodation packages for international players and team staff.” Mr De Bono, reflecting much of what the other stakeholders underline, states the links between AI and Esports in Malta have strengthened – particularly since online activity and tournaments have led to a rise in the latter’s popularity. But there is more work to be done. “I think that the way forward for us to achieve this is to pool together resources of players, team management and coaches with an AI company already possessing an understanding of the competitive scene, so as to implement strategies inclusive of AI models with clear and concise goals,” he explains.

AI methods can be used to predict the best player out of a list of potential candidates who would Moving forward, Mr De Bono believes that best fit the team. “professional teams will each have their own data science and AI related personnel” allowing the two industries to converge and recruit the best players; train them appropriately; detect the best game strategies and work towards the same unified goal, which is “to win tournaments.” He refers to the film Moneyball – in which a baseball manager assembles a team by employing computer-generated statistical analysis – as an analogy, stating that Esports can benefit in the same way through AI technology. “I am very positive that such measures are going to become the norm thanks to private organisations, support from the Government to improve the scene and an increase in interest from Maltese teams and players,” he underlines.

Alexei De Bono, Director, Idea Intelligence at Idea Group

And, if the current advances underway across the globe are anything to go by, it may, indeed, not be long before the transformative power of AI allows local teams, players and fans to indulge in their love of Esports.

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Photos by Alan Carville

“Banks that have adopted this technology for their operations have their own private blockchain for international trade finance” CEO OF THE MALTA DIGITAL INNOVATION AUTHORITY, STEPHEN MCCARTHY, CHATS WITH MARTINA SAID ABOUT THE LATEST DEVELOPMENTS IN THE GROWING INDUSTRY OF INNOVATIVE TECHNOLOGY, WHERE THE INDUSTRY IS HEADING, AND THE AUTHORITY’S ALREADY-EVOLVING SCOPE SEVEN MONTHS SINCE ITS ESTABLISHMENT. 55

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ix months into its establishment, the Malta Digital Innovation Authority (MDIA) – which was set up after the Malta Digital Innovation Authority Bill was approved by Parliament last year – is on a path to place Malta on the map as a centre of excellence for technological innovation, promoting its use and facilitating its advancement in the process, and setting standards and guidelines for the industry.

Since taking on the role as CEO of the newly-established MDIA – the role of which is to certify Innovative Technology Arrangements (ITAs), and to accredit system auditors and technical administrators while promoting technology innovation – Stephen McCarthy says that one of the most exciting developments in this sphere is actually quite a simple one: that Distributed Ledger Technology (DLT), one of which is blockchain, is gaining wider acceptance.

No one is disputing the benefits of blockchain anymore, and it is being embraced by all. This is possibly one of the most important developments we’ve noticed recently. “When I initially started seven months ago, both locally and while attending conferences abroad, the atmosphere was different to now – blockchain wasn’t being widely embraced, the reason being that many still confused blockchain with cryptocurrency. However, things have changed,” says Mr McCarthy. “No one is disputing the benefits of blockchain anymore, and it is being embraced by all. This is possibly one of the most important developments we’ve noticed recently.” Its widespread acceptance and use can be seen through the various companies, hailing from many different sectors, that have adopted it, including banks. Recently, HSBC Malta announced that HSBC Group is already using blockchain technology and actively testing applications with customers in areas such as trade finance and foreign exchange.

“Banks that have adopted this technology for their operations have their own private blockchain for trade payments and international trade finance. They are satisfied with it and are focusing to improve it and widen its use in the realm of international trade finance. This is extremely encouraging, especially as banks tend to err on the side of caution. Banks also appear to be open to companies using blockchain to work with the bank. Again, it’s crucial to emphasise that we are not referring to companies that use cryptocurrencies, but rather companies that operate in non-financial sectors.” 57

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Approximately 183 notifications were received by the MFSA so far for services, which include exchanges, custodians, ICOs and wallets.

Following the approval of the three Acts by Parliament last year – the Innovative Technology Arrangements and Services (ITAS) Act, the Virtual Financial Assets (VFA) Act and the MDIA Act – I ask Mr McCarthy what impact these have had since they came into force. “I must immediately point out that the major impact of the three laws approved by Parliament has been in the FinTech and cryptocurrency areas, with respect to Virtual Financial Assets, which fall under the remit of the MFSA,” he asserts. “Approximately 183 notifications were received by the MFSA so far for services, which include exchanges, custodians, ICOs and wallets. The MFSA is, for the time being, accepting notifications which show a company’s interest to apply for a licence. There were also around 37 Virtual Financial Asset applications.” The CEO says that having major names set up in Malta is significant in many ways. “After these, other exchanges moved to Malta. I often ask companies that show interest why they want to set up an office here – is it just because of our legal framework? Often, their answer is that they want to be with the big players, which is encouraging and fruit of the fact that we were first.” Mr McCarthy says the number of applications received by the MFSA is more than encouraging, and hopes that a similar thirst for technology will be seen in non-financial sectors, such as health and education, which will fall under the remit of the MDIA. “The fact that the technology is not aimed at a particular sector is one of its main advantages. Companies are coming up with software solutions that will be of interest to many different sectors, including health, education, waste management, shipping and manufacturing.”

Moving on to another sphere of innovative technology, the CEO is confident that just as 2018 was the year for blockchain in Malta, 2019 will be the year for Artificial Intelligence (AI), which the MDIA will also be responsible for as another form of innovative technology beyond DLT. “We have launched a consultation paper regarding Malta’s AI strategy, and Government set up a task force, headed by the Chief Technical Officer of the MDIA, Wayne Grixti, to oversee the consultation process. We are using the same system for AI that we used for blockchain, in that we reached out to and consulted with operators and professionals in the industry, and issued a draft strategic plan thereafter. This October, once the consultation phase is over, we will be able to draft a formal strategy for AI.” Mr McCarthy hails this technology as “extremely important. It is the reason behind a reduction in costs and increase in productivity for many companies. Ultimately, it will not only increase the efficiency but also the output of a country, and that is where we want to go,” he explains. “When you take all of these industries together, you can see that we’re creating an ecosystem here: iGaming, financial services, blockchain, and next, we’ll be exploring AI, Internet of Things (IOT) and big data. Esports, which falls under the remit of the Malta Gaming Foundation, also has huge potential, and given that Government has decided to focus on this area as well, we expect that the results will be encouraging here too.” Talk of growth across all of these sectors has raised concerns among many locally that Malta may become a victim of its own success, as it struggles to maintain an infrastructure adequate for a growing population, as well as sophisticated industries such as these. Mr McCarthy asserts that Malta’s economic growth has been possible through diversification, namely the introduction of blockchain and AI.

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This October, once the consultation phase is over, we will be able to draft a formal strategy for AI.

to hold courses relevant to this sector, which are very well-attended and which we are also actively promoting,” he asserts. “The MDIA also accredits system auditors, who can then review and audit software and issue an opinion based on our guidelines, and issues certification directly for technology which is not related to financial activity. Through our certification, we hope to attract serious companies here, who will bring parts of their operations to Malta, thus bringing skilled workers to our shores, whom locals can learn from.”

“Such diversification is reaping fruit in that there is good economic growth. This growth, however, which occurred in a short amount of time, will have its short-term pains, such as a great demand for housing, where, given the way price mechanisms and economics work, if there’s a greater demand than the initial supply, there will be an increase in rental prices and housing costs as we’re seeing now. However, I consider this to be a so-called necessary evil for the short term,” says Mr McCarthy. “In the medium term, it will stabilise. In the case of construction, we know that requests for permits have tripled in the last year, and the effect of this increase will be felt in the coming year, but then stabilise after that.” Through economic growth and the prosperity that companies which moved to Malta have brought with them, the CEO says that certain infrastructural projects, such as the improvement of our roads, have become possible. “We can say that we now have the money to invest in the ¤700 million project to change all of Malta’s roads in seven years. Of course, building roads brings its own hindrances and nuisances, it is a short-term pain, and in the medium term, we all stand to benefit.” On the human resources front, Mr McCarthy is in agreement that finding the right people for the job has become a challenge, even in the innovative technology sector. “As MDIA, we are collaborating with the University of Malta

Mr McCarthy asserts that the advantage of this is two-fold: enriching Malta’s workforce with highlyskilled staff, and offering University students opportunities to gain experience and learn from skilled employees based on the island. “We are also in discussion with large companies that have offered to organise short courses here in Malta, to pass on their experience in this specialised area to local students. This will widen our knowledge tremendously, and also expose Maltese students to valuable job opportunities in Malta as well as beyond our shores.” Looking ahead, the CEO says that the Authority is already growing, even though it is still in its infancy. “When we first set out and published the guidelines of the MDIA, we had nowhere and no one to look to. We had to start from scratch, because there is no other jurisdiction which provides such guidelines in the sphere of technology,” he asserts. “Seven months down the line, I already envision the Authority’s role changing. While we deal primarily with DLT, the probability is that we will also deal with centralised systems in the future. Certifying software is becoming increasingly needed and important, and our remit appears to be widening as we go along. I see huge prospects for this Authority to be one of the strongest in the years to come, given the way technology is growing and the impact it is having on many companies.” 61

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Creating the

TASKED WITH THE IMPLEMENTATION OF MALTA’S BLOCKCHAIN STRATEGY, PARLIAMENTARY SECRETARY FOR FINANCIAL SERVICES, DIGITAL ECONOMY AND INNOVATION, SILVIO SCHEMBRI, HAS THROWN HIMSELF INTO MAKING MALTA THE BLOCKCHAIN ISLAND. SARAH MICALLEF SITS DOWN WITH THE PARLIAMENTARY SECRETARY TO FIND OUT ABOUT THE ISLAND’S PROGRESS IN THIS REGARD, AND EXCITING DEVELOPMENTS WITHIN THE FIELD.

Photos by Alan Carville

Blockchain Island

As a jurisdiction, we’ve looked at this industry in a holistic manner,” explains Parliamentary Secretary for Financial Services, Digital Economy and Innovation Silvio Schembri, who starts by giving a brief background of the legislative framework behind Malta’s Blockchain Island mission.

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“We’ve enacted three pieces of legislation – first, the set-up of the Malta Digital Innovation Authority (MDIA) which regulates the technology arrangements through the second Bill, the Innovative Technology Arrangements and Services (ITAS) Act; and finally, the Virtual Financial Assets Act, which is another piece of legislation which takes care of all activities in relation to cryptocurrencies, and which is regulated by the Malta Financial Services Authority (MFSA),” Mr Schembri begins.

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Going into the process involved in applying for a licence with regards to virtual currency, he breaks it down into a number of steps. “The first step involves what we call VFA Agents, who are the first gatekeepers of the applications. These agents review the application before submitting it formally to the MFSA for their review,” he maintains. Another process follows, which, as Mr Schembri affirms, is the first of its kind in the world. “This process has to do with Systems Auditors, who are similar to regular auditors, but instead of auditing accounts, they audit systems, or technology arrangements,” he outlines, explaining that the auditors are tasked with getting into the nitty gritty of what the platform or technology arrangement actually offers, and whether it provides the necessary robustness. “These would be third parties – that is, not employees of the Authority, who would form part of a list of authorised and registered System Auditors,” he continues. And once an auditor certifies a system, the Authority can then proceed to issue a certification for that particular technology arrangement or platform. “No other authority in the world can offer this,” Mr Schembri says. “It can actually work as a selling point – the certification gives peace of mind that what an operator is offering is backed by a central European authority.” And with these pieces of legislation coming into effect on 1st November 2018, the first set of VFA Agents have now been published by the MFSA, alongside the first set of Systems Auditors, published by the MDIA. “Once the process of the licensing ends, we’ll have our first licences being issued here in Malta,” he says.

When it comes to blockchain, our target was to be the first country in the world to issue that legislation, and we succeeded.

Much has happened since the first Delta Summit, Malta’s official blockchain and digital innovation conference, was held last October. “When we launched the Delta Summit, it was at a time when, as a jurisdiction, we were working on Distributed Ledger Technology (DLT), so the first edition focused on that. But DLT is not the end of our journey. In fact, when the DLT laws came into force in November, we also launched Malta.AI – a taskforce that is working on a strategy similar to what we have done on DLT. This is another area that would fall under the responsibility of the MDIA, so when we drafted the first piece of legislation, we also had Artificial Intelligence in mind,” he says, pointing to an ethics committee set-up which is included in the Bill, and which pertains to AI in particular. Elucidating the Malta.AI Taskforce, Mr Schembri comments, “when it comes to blockchain, our target was to be the first country in the world to issue that legislation, and we succeeded. Now, we’re going to expand that strategy to AI – the target here is to be one of the first 10 nations in the world to have a national AI strategy, yet not just in terms of a strategic vision document, but also pertaining to specific legislative, HR and supportive measures. It will be a concrete document with measures that we can implement.” The second edition of the Delta Summit which will be held later this year, Mr Schembri elaborates, will include several new areas that are being worked on. “The plan is to launch the official AI strategy, as well as focus

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on blockchain and DLT, at a time in which the first licences would have already been issued, but there are other new areas too,” he maintains, pointing to a new strategy relating to the video gaming industry and Esports which Cabinet recently approved. “As the largest jurisdiction in iGaming in Europe, it’s only natural for us to look into other branches of this industry,” he affirms. Speaking of Esports in particular, for which Malta is already home to 15 operators that employ 200 employees, Mr Schembri says, “this is a new industry which I personally really believe in. In economic terms, it could benefit the country, and it is a new industry which can attract youths within this thriving economy.” Last month, Prime Minister Joseph Muscat launched Malta’s Vision for Video Games Development and Esports, a vision which will pave the way for the growth of this sector. The vision, presented by the Parliamentary Secretary, aims at helping companies already residing in Malta to further expand their operations and attract new game studios from abroad. “Malta’s vision aims at growing the industry from 0.1 per cent to 1 per cent of the GDP in 10 years whilst creating up to 3,000 new jobs,” he explains. Esports is central to Malta’ vision on developing its digital economy, and efforts are also underway to help attract international Esports tournaments to Malta. For this purpose, a Memorandum of Understanding was also recently signed between the world’s oldest and largest Esports company, ESL, and Government through the GamingMalta Foundation. The MOU will serve as an intent for both parties to develop a multiyear programme to help the development of the local grassroot Esports ecosystem, the organisation of local and international events, as well as the sharing of expertise in the sector.

Esports is a new industry which I personally really believe in. In economic terms, it could benefit the country, and it is a new industry which can attract youths within this thriving economy. 64

Going beyond the national level, it was Malta that initiated the signing of the MED7 declaration on blockchain and technology last December, and more recently, Malta and Singapore signed an MOU to promote digital innovation and blockchain technology. Discussing how Malta is steering discussion on an international level in relation to this sector, Mr Schembri attests that what has been done on a national level is now being put on an international platform. “On the first day of the Delta Summit, we’re going to have the first MED7 conference in Malta, bringing together my seven counterpart Ministers responsible for these areas in the other Mediterranean countries within the EU to discuss their development,” he says. Moving on to the MOU with Singapore, the Parliamentary Secretary explains, “we saw that Singapore has various similarities to Malta,” noting that it is an English-speaking, Commonwealth country which is small in size and densely populated, and the economy of which is structured in a similar way to Malta’s. Apart from that, the country is also open to these new

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The most challenging part of this industry is talent, not just in Malta but across the globe. It’s so dynamic and has grown so fast that supply is not coping with demand. areas. “In terms of legislation, we are more advanced in relation to DLT, while they are more advanced in the areas of research and cyber security. The idea is to share information, collaborate and see what pilot projects can be done together. In doing so, we will continue to put Malta on the map,” he affirms. Progress, however, isn’t without its challenges, and human capital and skills in the sector remain an issue that needs to be addressed within these rapidly developing sectors. “The most challenging part of this industry is talent, not just in Malta but across the globe. It’s so dynamic and has grown so fast that supply is not coping with demand,” Mr Schembri laments, revealing his plans to combat this. “Given that this is a whole ecosystem, it doesn’t just have to do with ICT professionals – we also need lawyers and engineers specialising in IT, for example. So, together with the staff at the University of Malta, we have reviewed the courses being offered, and looked at how we can include modules related to these emerging industries in different courses,” he explains.

in a test environment, in order for the Authority to analyse the risks and opportunities within the sandbox. Projected to run from January to October this year, Mr Schembri reveals that it has been a huge success so far, stating that “initially, we thought that gaming operators wouldn’t be interested in turning some of the operations onto the blockchain, but we were proved wrong and the interest was huge. In fact, the MGA is working to expand the programme further.” Apart from this, there also appears to be continued interest in Malta as a jurisdiction of choice among gaming companies. “It is an ongoing process, so we are always open to new applications as the industry continues to thrive and grow,” says Mr Schembri, noting that a further 20 companies submitted their applications following an ICE B2B gaming event in February.

Moreover, the first degree courses relating to DLT have also recently been launched, starting last year. “We’ve also launched a new scholarship programme for students at Masters and PhD level who would like focus their studies and research on DLT, so as to encourage more students to go into this area. This has already been a huge success, with 19 students having recently been awarded a scholarship grant to pursue their studies at a Masters level in blockchain and DLT,” he adds. On the subject of education, back in February, it was announced that Malta will be the first country in the world where education certificates and students’ credentials will be on the blockchain. Mr Schembri elaborates on this initiative taken by the Ministry of Education, which started with a pilot project in three education institutions in Malta. “Since then, we have signed on to expand the service to all institutions in Malta, making us the first nation in the world in which all our education certificates are issued on the blockchain, starting from this scholastic year,” he says. Another success was an initiative launched by the MGA at last year’s Delta Summit, whereby gaming operators are able to operate on DLTs and accept cryptocurrencies

“Last year, we enacted a new overhaul legislation in Parliament, abolishing the previous gaming legislation, enacting a new legislation which made it less bureaucratic and gave more power to the MGA to act on cases of fraud, while also making it more business-friendly by overhauling the previously cumbersome licensing set-up,” Mr Schembri says, noting that this has also made Malta more attractive as a jurisdiction. Another factor that contributes to Malta’s popularity, he says, is Brexit. “Much of the UK’s economy is based on gaming, and the uncertainty in relation to Brexit will obviously hit them hard. Although we are not taking the approach of actively poaching, it is understandable that operators would be looking for a stable jurisdiction. So, during ICE, we saw a lot of interest from such operators too,” he says. And all things considered, it all boils down to one thing: “that this industry is growing stronger,” Mr Schembri concludes. 65

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Promoting Malta as a blockchain island in Vietnam KF recently led a delegation of staff members to Hanoi, the capital of Vietnam, as part of a two-pronged Asian drive to promote Malta as a blockchain island and to shed light on third-country residence/visa opportunities for applicants in Vietnam and China. Vietnam is reputed to be one of the emerging Asian tigers with a 7 per cent annual growth in GDP, and is poised to expand its influence in commerce, having a relatively young population of about 100 million. In the field of blockchain technology, Vietnam lacks a proper legal framework which may prevent the country from maximising benefits from the emerging industry, yet according to CEO of Bigbom, a blockchain platform company, the Vietnamese government was reported to have expressed its intention to explore ways on how to issue enabling legislation. One hopes this fully supports the development of the blockchain industry.

Quoting Bigbom, a large number of Vietnamese people are not fully aware of the terms blockchain and cryptocurrency, and often mistake them. Blockchain tech experts say that the use of technology in Vietnam could help industry users save 30 to 50 per cent of their expenses as apps would help them improve the quality of production and transparency in finance and management. As can be expected, the tech community in Vietnam is booming due to a large talent pool of skilled developers. So far, official recognition has been slow since the country’s central bank has clearly stated that it does not recognise crypto assets as legal tender. Still, one cannot but admire the progress achieved by members of the Vietnam Blockchain Club which aims to connect Vietnam business leaders, educators, policymakers, regulators, tech entrepreneurs, and for and not for profit organisations to get acquainted with the new technology. So how can Malta be of service to blockchain enthusiasts in South East Asia? Last year, Prime Minister Joseph Muscat led a trade mission to encourage business opportunities in a number of sectors including crypto and blockchain applications. Why Vietnam? This is a socialist-oriented market economy, the 47th-largest in the world measured in GDP and 35th largest in the world measured by purchasing power parity (PPP). The swift transformation of the Vietnamese economy has been truly remarkable, which over the last 25 years has reduced unemployment to single digits.

I was enthusiastic about meeting delegates at the Vietnam Blockchain Start-Up event in Hanoi, to discuss how Malta is a pioneer country and the first in Europe to welcome blockchain technology. Vietnam is also catching up with this revolution, especially in the FinTech sector, and one expects it to promulgate various laws and regulations similar to the ones enacted in Malta last year. In this context, one cannot underestimate the merits of virtual currencies and tokens that in the future could be used for cross-border payments, such as is happening in Malta through the use of the sandbox regime for remote gaming. Many agree that virtual currencies have become a global phenomenon that has also caught the attention of users in Vietnam. Delegates at the Blockchain Start-Up event were interested to know about the regulatory prowess in Malta. It is worth noting that the IMF recently conceded these virtual currencies are facing ‘technological’ problems which could eventually be solved, and that as such they could be ‘easier and safer’ to hold than paper bills in remote regions, or countries with unstable national currencies or ‘weak institutions’. It is true that bitcoin had a bouncy ride such that in a number of cases, exchange platforms have gone out of business or have failed – in some instances due to hacking by third parties. During the Start-Up event, speakers explained how a virtual currency represents the concept of value and can be used in a framework as a medium of exchange, a unit of account and a value storage. However, it does not have a link to any particular jurisdiction and, hence, does not qualify for a legal tender status. As it were, no jurisdiction guarantees the performance of its functions, which is only held together by the mutual consensus of the community of users. Paper and coin money, as we have traditionally been accustomed to, is referred to in various ways, as, fiat money and is recognised in the country that issues it. By contrast, the uniqueness of a virtual currency is that in itself it does not entail prior authorisation by a centralised entity. There are unique advantages when using virtual currencies in Vietnam to help cash flow issues in industrial, fishing, logistical and agrarian sectors. One appreciates that Malta can somewhat help Vietnam given that it has recently consolidated its legal framework for this industry. It is now in a position to receive applications and licence VFA agents and IT service providers while facilitating the licensing of White Papers issued by new ICOs. The promotion of this expertise in Vietnam can pave the way for future cross-border consultancy projects. Without doubt, the Prime Minister’s visit to Vietnam has oiled the wheels of progress for potential collaboration in this revolutionary technology. George M. Mangion, Partner at PKF, an audit and business advisory firm. E: gmm@pkfmalta.com

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Meta Luminor:

the FinTech connector AS A SELF-CONFESSED GROWTH HACKER DEDICATED TO BUILDING START-UPS THAT ARE EAGER TO EXPAND ON A GLOBAL SPHERE WITHIN THE FINTECH AND DLT SPACE, PHILIP MAURICE MIFSUD RECENTLY FOUNDED THE ADVISORY FIRM META LUMINOR. JO CARUANA FINDS OUT HIS EXPECTATIONS AND HOPES FOR THE DEVELOPMENT OF THE BLOCKCHAIN INDUSTRY IN MALTA.

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hilip Maurice Mifsud didn’t just fall in love with blockchain overnight; his interest in DLT has been ongoing for years and dates back to the days when bitcoin first started.

“I began to read about the subject and quickly saw that the technology had the potential to change the way trade works,” he says. “I already had a substantial amount of international experience in the financial industry at the time, and knew that something that could be used as a form of payment to substitute FIAT currencies would be a game changer – not only in trade, but even on a macro-economic level. I quickly learnt as much as I could about the sector’s potential and got involved.”

Photos by Alan Carville

Through our advisory network – and especially through my Silicon Valley connections – 2018 saw us help fund in excess of $800 million (¤710 million) for about 120 ICOs.

Going into further detail about his background, Mr Mifsud explains that he spent the majority of his youth living in the UK and studying in London, and he had already built a strong network in the financial services space when he returned to the island to launch one of Malta’s first digital marketing agencies back in 2009. He later joined companies that provided both software and hardware technology solutions, and also gained valuable experience working in financial services companies. It was at this stage, he says, that he was rather fortunate to have met Matt Grimms at a conference. “Matt, along with Chuck Swenberg, is the founder

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of a highly-respected blockchain advisory firm, with their headquarters in Silicon Valley. At the time, he was looking to expand their global presence by setting up offices across the globe. “Following a few meetings, Matt asked me to spearhead a project he was working on, before offering me the role of Senior Vice President for Blockchain Generations clients’, www.bcghub.com, and all their EU-based projects.” “The advisory network and reach that Matt had plugged into BCG in the US was impressive. We were working with people that included academics from top Ivy League universities across the USA, CTOs working in Top 20 Fortune 500 firms, experts in the largest VC firms, and even UHNWs interested in investing in DLT projects. It gave me invaluable experience in the space, and I still work very closely with Matt and his team on a number of international projects.” “Now,” he adds, “we even have Malta-based companies seeking our advisory services, which only goes to show the fast-growing interest in Malta by companies, investors and creatives alike.” Philip has also partnered with Josh O’ Cock and Alex Thomson of Growth Gurus, and is responsible for spearheading the growth of Blockchart.io – a global blockchain news and financial portal with a vision of engaging the world in blockchain technologies, cryptocurrencies, ICOs and exchanges. Engineered for both blockchain lovers and beginners, Blockchart. io delivers a unique blend of market ranking charts, real-time financials, videos, technology updates and latest news through a captivating user experience. In another milestone, Mr Mifsud recently launched Meta Luminor – a dedicated DLT and FinTech advisory company. It specialises in providing advisory services to source IBANs for, mainly, new tech industries, such as those in gaming, DLT (blockchain), ICOs, STOs and ETOs, medical pharma, FinTech and even crypto exchanges, to name but a few. Meta Luminor also provides advisory services for payment processing and payment gateway solutions in various jurisdictions and even cash-tocrypto services. “Beyond that, we provide advisory services and can help assess, guide and even develop projects looking to tokenise,” Mr Mifsud explains. “Plus, if we believe that the projects we assess have scalable potential, we are normally also willing to plug them into our network of venture capitalists, both on an institutional and a private investor level.” “Through our advisory network – and especially through my Silicon Valley connections – 2018 saw us help fund in excess of $800 million (¤710 million) for about 120 ICOs. And, on top of that, we are also working on several other projects, which include putting at least eight governments on the blockchain, and introducing FinTech solutions and cybersecurity solutions there.”

Recently too, he was given the role of President of the Decentralised Malta Chapter, which is the most highly-respected Premier Blockchain Conference in Europe. “It brings together the greatest creative minds in the DLT space, as well as on a commercial and an academic level. I look forward to growing this community locally, and to collaborating with key people here to grow the space,” he says. Asked about how he sees the blockchain industry at the moment, Mr Mifsud explains that a lot has already been done to put Malta on the global map. “Now there is plenty of hard work going on to create the right infrastructure to sustain the industry, as well as to create the legislation and structured regulation needed to allow for ICOs, STOs, ETOs and even crypto exchanges – as well as other projects in the FinTech space – to set up and launch here.” “I hope that we are not too far off launching the regulations. I am already aware of many advisory and legal firms that are literally waiting to process all of their existing clients looking to set up in Malta under the new Virtual Financial Assets Act that the Government, in collaboration with the MFSA, is working on.” He stresses that, first, the law needs to be in place properly, followed quickly by the required regulation and, importantly, having the right compliance team in place to oversee the applicants. “One cannot design a regulation based on another; gaming is gaming, DLT is DLT, and DLT is not FinTech alone. Educational, top-down and bottomtop frameworks, as well as experience, are paramount. You cannot have inexperienced graduates, accountants or lawyers as VFA agents who do not know anything about the space,” he says.

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“If we merge the process with the Security Exchange Commission in the US, both jurisdictions will benefit and we could jointly run through all potential STOs, ETOs and other crypto projects together. This will give Malta access to another 4,700 experienced compliance officers.” “ICOs are already dying out, and we should be focusing on STOs, ETOs and, more importantly, joint regulation platforms for global crypto and FIAT investment movements from both high-net-worth and ultra highnet-worth individuals, as well as multinational VCs and institutions willing to plug in. I believe that ‘two continents and one platform’ is the answer; a joint KYC/ AML/compliance review platform will only ascertain the integrity of the offerings and tokens issued through a multi-jurisdiction platform. Until that happens and countries in different jurisdictions cooperate, funding will cease.” Mr Mifsud’s experience in this growing sector places him in the enviable position of being right at the forefront of it – both locally and internationally. This is also highlighted by the many ways that he and his organisation have helped their clients. He shares a recent case study of a gaming company that was licensed and operating in Malta that, although operating in a very legitimate manner and processing their payments through a local bank, found that their bank’s licence was revoked.

With this sort of success in mind, Mr Mifsud says that the sector in Malta will almost certainly grow once the legislative infrastructure is complete and maintained. “The demand is always brought about by the networking people that encourage it from overseas,” he says. As for Meta Luminor and his own plans, Mr Mifsud says the firm will be fully set-up very shortly, and explains he has big plans for it. “I am currently billing advisory services under my old 2009 tech company but that will eventually be phased out and a new company will be formed.” “I am also looking forward to finishing off my office project which is conveniently located below my home, as I had a 450sqm space that was simply used for storage. I found myself questioning why I should go out and rent in an over-valued market when this area was free... so I have put it to good use.” “Plus, I look forward to spending more time with my wife Kristina and our sons Nicholas, eight, and Luca, four months, as well as our adorable puppy, Blaze. Being able to run a business that supports my family from home makes perfect sense to me, and I am excited to make it happen.” To get in touch, find Philip Maurice Mifsud on LinkedIn.

“This company then found itself unable to operate,” he explains. “They were in dire straits, with a substantial amount of their working capital blocked and held by the Central Bank of Malta; they were even considering having to make half of their workforce redundant.” “It was at that point that we were coincidentally introduced to them, and we set about trying to source a FinTech solution for them. Quickly, our client was provided with the IBANs he required, as well as the correct regulated infrastructure that meant he didn’t need to make anyone redundant and he can now operate as he needs to. They were a very happy customer, and we were thrilled to have found a fantastic solution for them.” In another example of success for their clients, Mr Mifsud recalls being approached by a local legal firm whose client had already registered a company in Malta, set up offices and even employed locals. “They happened to be a commodities trading firm with offices around the globe,” he continues. “Their legal firm was unable to source a solution for them within any of the local banks and they had exhausted all options and waited over seven months. We found them a solution and they are now operating well. More importantly, they did not pack up and leave our shores when they faced difficulty in achieving their goals quickly, and they now pay their taxes in the Maltese jurisdiction.” 72

IN BRIEF Describe blockchain in one sentence. It is a cloud-based, decentralised database that automatically encrypts secure records of all transactions one after another, and keeps them forever for everyone to see. How do you think it could change the world? From an economic perspective it is a much more efficient way of transferring and storing value. From a technical perspective, DLT is a new way of storing data and making it encrypted and secure. Finally, sociologically speaking, it rekindles trust among the general public, for both governments and companies alike. What is your favourite application of it that you have seen so far? Definitely KYC/AML identity card management, tied with property assets that are encrypted on the DLT. This means no more favouritism by governments and one will always hold their real assets themselves. It would help with the identity crisis the world has and the huge influx of illegal immigration and ‘invisible’ people (a term used by governments to describe a human being who has no documents). We need to do this for the good of humanity as a whole. The UN would be a good start for all their humanitarian aid programmes. People need to know if the aid is getting to the right people and not lost in translation or going to corrupt government officials.”

Photos by Alan Carville

LEGAL

Malta needs to

“walk the talk”

to succeed as a blockchain island

LEGAL

AFTER ALMOST 10 YEARS IN BUSINESS, HEAD OF LEGAL AT E&S GROUP, DR ANTON JOHN MIFSUD, TELLS VANESSA CONNEELY HOW THE FIRM IS STAYING AHEAD IN THE LEGAL LANDSCAPE.

hile there’s no question that Malta has changed a lot in the past decade, one company has been working tirelessly to ride the ever-evolving wave. E&S Group is celebrating nine years in business this June. It started off with just two people on the ground and has grown to a staff complement of 35.

“I would describe it as a mid-size boutique firm,” says Anton John Mifsud, Head of the company’s legal department. “We try and service particular industries to avoid trying to do everything.” And that model seems to be working. E&S Group is now composed of several departments, including legal, accounting, marketing, front office, as well as financial control. “When the firm was first set up, there was substantial interest in spheres like foreign exchange. People wanted to open brokerage firms which would help people exchange their currencies. Today that level of interest has switched to cryptocurrency.” “As we know, crypto wasn’t around nine years ago, but one of our main strengths is that we were one of the first firms in Malta that had an interest in this early on, and that gave us an edge over other firms. A few years ago, people were concerned and would say ‘while blockchain technology might be popular today, will it still be around tomorrow?’.” Dr Mifsud believes the answer is a solid yes. “If you ask me, I think blockchain is here to stay, so for us, it was a wise decision to delve into this new area of law and try to be a pioneer in this area.” But he also has strong

opinions about what needs to be done to attract more companies to set up shop in Malta, as well as ideas on how the country can sustain the level of growth it has been experiencing over the past decade. “While Malta has been very innovative with its legal framework, it doesn’t mean that other jurisdictions aren’t catching up. So, we need to walk the talk on several fronts. First, there is the problem with our banking system. Clients find it very difficult to open an account, and the burden is entirely on the customer to disprove that they are not a criminal,” he asserts. “In the sphere of cryptocurrency, it’s even worse. Mention the word ‘crypto’ to some banks and they won’t even touch it as it’s outside their perimeters of risk. I can understand that for the smaller financial institutions it does seem risky, but when it comes to bigger banks, I find it hard to conceive. I can also understand if a bank says ‘no’ to potential customers at the end of a process, but not

LEGAL

when it’s said at the start of a process. We end up looking outside of Malta for a banking solution.” Dr Mifsud believes this unwillingness to take risks by some financial institutions comes from another challenge that’s plaguing many sectors across Malta: a skills shortage. “Let’s face it, blockchain is a new technology and most of the best brains are taken up by the sector itself, so it’s very difficult for banks to beef up their human power to actually meet the demand from the industry.” “Malta is a victim of its own success. It’s a small country and it doesn’t have the brain power to meet the demands. We’ve managed to attract some talent from outside of Malta, but essentially, we’re a small pool of professionals who are all competing for the best brains. We need to attract more expats on better packages and start training people at university level in this sector. The short-term solution is of course to attract more talent from abroad, but in the long-term, you need home-grown talent.”

It’s not easy to acquire a licence from the MFSA, and that carries weight in business.

And supporting that education system is something Dr Mifsud does from within E&S Group. “A member of my team will complete one of the Master’s courses which is now on offer at the University of Malta. Even though we are in the middle of all this regulation and technology advancements surrounding blockchain, we understand that we still have to keep up to date. I can’t really advise a client about the sector, unless I understand the technology myself.” Dr Mifsud also believes Malta needs to invest in several support services which surround the blockchain ecosystem. “For example, for systems auditors who audit smart contracts, there is a separate licensing process. This is not administered by the Malta Financial Services Authority (MFSA), but by the Malta Digital and Innovation Authority. Not everyone is aware of this,” he explains.

“Strengthening the number of people who are familiar with the industry will only serve the sector and the overall economy better. Otherwise we will end up in a situation of having a small number of service providers who are drowning in work, but when you are drowning in work, the quality may be compromised.” Seeing the changes coming thick and fast over the past decade has allowed Dr Mifsud to fine-tune his skills when predicting potential challenges for the firm as well as its clients. And one aspect which he believes could be problematic, is the time it takes to set up a crypto-exchange here.

LEGAL

“The issue is the time to market. If you want to launch your business in two months’ time, I’m sorry but Malta is not an option. Some countries can grant a licence for a cryptocurrency exchange in one month. This can make them more attractive to investors.” But despite the list of challenges Dr Mifsud says Malta is facing, he also believes it can remain competitive – especially since Government introduced the Virtual Financial Assets (VFA) Act and the Innovative Technology Arrangement and Services (ITAS) Act, which came into effect on 1st November 2018.

The new law [is particularly beneficial] because people who want to make a quick buck and disappear the next day won’t come to Malta. apply for a licence by 30th October this year. I believe that once the first licences are issued by the MFSA, banks will change their approach, because essentially they will be dealing with a licenced entity which has gone through a very rigorous due diligence process.” “Since the new law came into force last year, we’ve already seen a change. We are now receiving queries from higherquality clients who are considering setting up business here. They like the fact that Malta has introduced more stringent checks and balances, and the industry is more regulated. It’s not easy to acquire a licence from the MFSA, and that carries weight in business. “At the moment, cryptocurrency companies are operating under a transitory period. While the law came into force on 1st November, those who were already up-and-running before that date have been allowed to continue under a transitory period, provided they 80

Dr Mifsud says that 95 per cent of the firm’s clients are from outside Malta, and while many are established in Europe, clients tend to hail from across all continents. “Here in Malta we have an added level of reputability when it comes to cryptocurrency because we did it first. So now we just need to stay ahead and maintain our level of credibility. The new law has had this benefit, because people who want to make a quick buck and disappear the next day won’t come to Malta. When you have a legal framework, you have legal certainty, and the first thing that anyone who wants to set up a new business would look for is legal certainty.”

IN DEPTH

The next big disruptions in the buzzing world of blockchain AS MALTA POSITIONS ITSELF TO FACILITATE THE GROWTH AND DEVELOPMENT OF INNOVATIVE TECHNOLOGY, WITH BLOCKCHAIN AT THE FOREFRONT, HELENA GRECH SPEAKS WITH INDUSTRY INSIDERS ON THEIR PREDICTIONS FOR THE FUTURE, AS WELL AS THE MAJOR DEVELOPMENTS WHICH HAVE PIQUED THEIR INTEREST.

018 was a big year for Malta within the global blockchain revolution. November 2018 saw the coming into force of three comprehensive pieces of legislation aiming to provide legal certainty to operators working in the space, whether they are technology service providers, deal in Virtual Financial Assets, or are looking to raise funding through tokenisation.

Building on the formal push for such digital innovations to be backed by a regulatory framework, both local and international players within the blockchain industry began to pay attention to whatâ&#x20AC;&#x2122;s happening in Malta, with a huge buzz surrounding many high-profile blockchain conferences, events and business breakfasts. 82

IN DEPTH

Managing Director of Blockchain Advisory, Jonathan Galea, believes that, moving on to 2019, the hype surrounding blockchain technology is being strengthened. Dr Galea says the cryptocurrency market crash in 2018 has, in fact, “helped flush out those who were only looking to earn a quick buck rather than focus on the longevity of any meaningful ventures in the space.” Despite this, Dr Galea shares his thoughts on how “the killer application of blockchain still remains cryptocurrencies.” He explains, “let’s keep in mind that cryptocurrencies serve as the bread and butter of public distributed ledgers, especially since they serve as an incentive for the support thereof. The next big disruption will occur when a successful link between all such different blockchains emerges, allowing for the crosscommunication and token/data transfer across such different blockchains. Right now, we are in the Intranet phase – we’re waiting for the Internet.” Senior Partner at Ganado Advocates, Max Ganado, takes a different stand. He believes we are currently experiencing a quiet period in this sector because experts are working on developing the technology for different use cases. “As I understand, it takes an average of two years to launch a blockchain platform, and it may cost as much as ¤2 million, so this is not an industry that is going to emerge very quickly.” Traditional banks have so far taken a cautious approach

IN DEPTH

We are still some years off from blockchain technology’s mainstream use and integration, but one thing is certain: it is here to stay, and it’s here to change the world as we know it. Jonathan Galea, Managing Director, Blockchain Advisory

to the developments surrounding blockchain technology, preferring to wait and see what the next technological developments will be. The captivating aspect of Distributed Ledger Technology (DLT) is how it removes the need for an intermediary by being transparent and immutable. On the role of banks, Dr Ganado predicts that 2019 will see “banks and investment firms, who were reacting to the threat of disintermediation, taking initiatives to overcome that very real threat as early as possible.” He adds, “whether taking certain initiatives will reestablish trust in the intermediaries has to be seen as technology is after all just a tool. The players remain the same.” FinanceMalta Chairman, Kenneth Farrugia, speaks of the importance of positioning Malta at the forefront of technological innovation, so that it may be able to foster growth and operational efficiency across a wide number of sectors.

“The legal framework Malta put in place is not just significant in the local context but has garnered much interest in the international sphere. We put together a very comprehensive framework with three key acts: the Malta Digital Innovation Authority (MDIA) Act, the Innovative Technology Arrangements and Services Act (ITASA) and the Virtual Financial Asset (VFA) Act.” The MDIA acts as a communicator between key national bodies such as the Malta Financial Services Authority (MFSA), other relevant Government regulators such as the Malta Gaming Authority (MGA) and operators. It also regulates new and emerging technologies. The ITASA is geared towards regulating technology service providers, while the VFA Act regulates Virtual Financial Assets. “Having this ‘trialogue’ in place, as I like to call it, in terms of the Government, the regulator and industry, has worked very well in defining and articulating these laws and regulations. The attraction, as previously said, was not just local – the key interest was predominantly driven by international operators,” Mr Farrugia continues. 85

IN DEPTH

Asked what intrigues him most about the developments surrounding the blockchain industry, Mr Farrugia asserts it is how the technology’s flexibility “allows it to be amenable to a number of sectors because it induces a new customer experience and improves operational efficiency.” Dr Galea also points towards local regulatory changes as the most exciting developments on the local scene. “We are now on the cusp of fully activating the implementation of the DLT regulatory framework, with the initiation of the licensing process for the relevant stakeholders, namely the VFA Agent who shall be in a position to assist prospective VFA Service Providers and VFA Issuers. Likewise, the regime for Systems Auditors has also been implemented.”

Since technology – well-programmed technology – cannot be threatened, bribed or fooled and it cannot be lazy or decide not to observe the law, we will move great steps forward. Max Ganado, Senior Partner, Ganado Advocates

On an international level, Dr Galea speaks of the “curious shift” from Initial Coin Offerings (ICOs) to Initial Exchange Offerings (IEOs). “Through this mechanism, token issuers leverage the network and reputation of existing cryptocurrency exchanges to offer their tokens to the public at large, or rather, the users of such exchanges. It has given a new lease of life to projects looking to raise funds without going through traditional funding mechanisms, and has potentially stalled the onset of Security Token Offerings which, although belong to a completely different regime, have been assimilated by some to the takeover of ICOs.”

IN DEPTH

We are realising that strategically, technology is the future of business and operational efficiency. I think we are taking the first steps to regulating the environment which facilitates and increases the speed with which operators are willing and able to adopt new technologies. Kenneth Farrugia, Chairman, Finance Malta

Dr Ganado, on the other hand, says his interest lies in “those developments which enhance implementation of monitoring and flagging bad behaviours in the way we deal with things in our societies, our service industry and also in public administration.” Should technology manage to keep “things on the right track, it’s a good solution to the serious problems we evidently have in managing challenges in respecting the law,” he says.

“Since technology – well-programmed technology – cannot be threatened, bribed or fooled and it cannot be lazy or decide not to observe the law, we will make great steps forward. We need to introduce the kind of technology called REGTECH (Regulatory Technology) into our systems and quickly. It would also be very good if we can support innovation in the development of such software. So, I am keenly interested in the recent decision by the MFSA to use new technology to monitor compliance aspects of the blockchain services industry,” he asserts. “I am also a keen follower of developments in identity management systems which protect our identity and allow us to manage

IN DEPTH

it ourselves. It seems one of the biggest problems facing the world’s populations is identity theft – people pretending to be you and stealing money using your name – and this is rampant due to the internet, the failures resulting from anonymity, and failures to develop tools to combat abuse in cyberspace.” Dr Ganado, Mr Farrugia and Dr Galea hail from different backgrounds, but when asked for their predictions for the blockchain industry as Malta continues to position itself as a tech hub in Europe, all three agree that the efforts being undertaken to regulate and provide legal certainty to these emerging technologies have been vital in order to foster an environment of growth and technological innovation. Mr Farrugia says that Malta is now “realising that strategically, technology is the future of business and operational efficiency.” He asserts, “I think we are taking the first steps to regulating the environment which facilitates and increases the speed with which operators are willing and able to adopt new technologies. Being at the forefront of the technology sector is very important for Malta’s positioning. It will attract operators, whether they are start-ups or established organisations. Overall, a focus on the technological industry and other innovations is very welcome. It elevates Malta’s position as a jurisdiction where you can conduct international business.” Building on this, Dr Galea comments that “if Malta continues at this pace and remains open to suggestions and criticisms from the private industry, then it will surely continue being a leading jurisdiction which sets an example to the rest of the world. As for the DLT industry in general – the question is not ‘if’, but ‘when’ it will scale upwards and we finally get to see its true potential. We are still some years off from blockchain technology’s mainstream use and integration, but one thing is certain: it is here to stay, and it’s here to change the world as we know it,” he adds. Once again erring on the regulatory side, Dr Ganado says that he is excited about the future opportunities for Malta if the energy and focus are kept up, while taking initiatives with the right principles and priorities in mind. “We are charting new ground and proving that even small nations can contribute to innovation in a very material way. We are far ahead of many other countries in this thought process and legislation. That was possible due to our size, where impacts are more manageable. We need to build up infrastructure and resources to back up the initiatives, otherwise we would have a problem.”

A WORD FROM Jake Azzopardi, Manager in Advisory, PWC Malta

“Blockchain technology is set to enter a new era in 2019, with many believing it to be more widely adopted by mainstream companies. Companies are now moving from asking themselves ‘what exactly is blockchain?’ to ‘how and where can we apply blockchain?’ Therefore, more companies will move towards this emerging technology and we can expect that investment in this technology will further rise through the exploration of how it can be applied to help solve different business problems.”

FINTECH

The future ofas anMalta international FinTech hub

THE MALTA FINANCIAL SERVICES AUTHORITYâ&#x20AC;&#x2122;S RECENTLY-PUBLISHED VISION 2021 LAYS THE FOUNDATIONS FOR ITS STRATEGY OVER THE COMING YEARS, PLACING FINTECH AT THE HEART OF ITS PROGRAMME. REBECCA ANASTASI SPEAKS TO ITS CHIEF OFFICER RESPONSIBLE FOR STRATEGY, POLICY AND INNOVATION, DR CHRISTOPHER P. BUTTIGIEG, TO FIND OUT HOW THE REGULATOR PLANS TO BUILD THE SECTOR ON THE ISLAND STEP-BY-STEP.

FINTECH

Whilst the regulatory sandbox will provide a controlled environment wherein firms can test innovative products and services, the innovation hub will provide firms with guidance on the regulatory framework. inancial technology, otherwise known as FinTech, has been touted as a revolutionary disruptor bound to change the global economic landscape over the next few years. Indeed, a recent report published earlier this year by international auditing firm KPMG, revealed investment in the sector increased dramatically in 2018, more than doubling in 12 months across mergers and acquisitions, private equity and venture capital, from $50.8 billion (¤45.5 billion) in 2017 to $111.8 billion (¤100 billion) last year.

And, in an attempt to get in on the action and establish Malta as a world leader in the sector, the island has been one of the first countries to introduce a regulatory framework. Central to this drive, the Malta Financial Services Authority (MFSA) has placed FinTech at the forefront of its agenda, with its Vision 2021 outlining the way in which the entity could “provide a tailored approach to authorisation for innovative firms”; “capture additional financial technology investment and help drive increased investment, entrepreneurship and employment across the industry,” according to the publication released this January. “We aim to be a leading, forward-looking, financial services regulator in Europe,” Dr Christopher P. Buttigieg, the entity’s Chief Officer responsible for Strategy, Policy and Innovation asserts. To achieve this is no mean feat, and, to this end, the Authority has pledged a commitment to ensuring effective investor protection, market integrity and financial soundness in the FinTech environment. It does this through its FinTech strategy – based on the key pillars of regulation, ecosystem, architecture, international links and knowledge.

The strategy outlines the way it plans to succeed in this ambitious trajectory, with a regulatory sandbox and innovation hub being set up to develop, and cultivate, cutting-edge projects and enable access to FinTech, albeit in different ways. “Whilst the regulatory sandbox will provide a controlled environment wherein firms (including start-ups) can test innovative products and services for a specified period of time, the innovation hub will provide firms with guidance with respect to the regulatory framework, as well as the possibility of sharing resources, such as operational infrastructure,” Dr Buttigieg says. Indeed, these will be designed to attract and support both local and international start-ups, as well as established companies within the context of the island’s regulatory framework. “Malta is a jurisdiction of choice for foreign direct investment (FDI) in financial services, with the majority of our licence holders’ shareholders coming from abroad. Our intention is, therefore, to continue treating all operators equally,” he says, further explaining that 93

FINTECH

whether a FinTech operator will be allowed to operate within the MFSA’s regulatory sandbox environment or the innovation hub will depend on the quality of the proposed project, not the place of origin of its owners. Such a programme necessitates an outwardlooking approach, and Dr Buttigieg is well-placed to spearhead this, being also the Chair of the ESMA Data Standing Committee, while also possessing a doctorate in law focusing on financial regulation and supervision from the University of Sussex (UK). “The international dimension is also important. FinTech facilitates cross-border business and it is therefore important for the MFSA to interact with its peers with the aim of exchanging views on how technological innovation can make financial services more efficient and facilitate financial education and inclusion,” he explains. In this regard, the MFSA is already actively engaging with other financial supervisors, from outside these shores, “with a view of strengthening our relations with other regulators in the field of FinTech,” according to the Chief Officer, who goes on to reference the entity’s participation in discussions at the European Securities and Markets Authority, and the European Banking Authority on FinTech. “This interaction is critical. Apart from these discussions, we have also organised several bilateral meetings with our peers from different EU member states and third-country competent authorities. These have been and continue to be very beneficial in strengthening mutual trust and recognition with our peers and building confidence in what we are doing in the field of FinTech and crypto assets,” he asserts. The diligence and vigour with which the MFSA has embarked on this enterprise is in no small measure a direct result of the need to mitigate some of the risks

FinTech inevitably poses, due to the newness of the field. “Entities operating in this sphere bring about a bigger challenge with regards to money laundering and the financing of terrorism risks. However, the MFSA has all the necessary powers to carry out its supervisory work in this area, and our supervisory experience will be applied to this new field of business.” As examples of the policies implemented, he mentions cyber security guidelines, which were issued for consultation in February, and a cyber security function which is being set up by the MFSA within the Supervision Directorate. Moreover, Dr Buttigieg also refers to the Authority’s decision to engage CipherTrace, a specialist firm offering cryptocurrency and blockchain tracing and security capabilities, to better manage the sector-specific risks associated with crypto assets. “Through this partnership, the Authority has strengthened its framework for detecting transactions in crypto assets with any dubious source of funds, and this will, in turn, support our efforts in assessing whether market participants in this sector are fit and proper,” he emphasises. Companies’ compliance with the rules and regulations will also be subject to the same stringent monitoring as other firms in the more traditional financial sectors, according to Dr Buttigieg, and operators in the field will be monitored through a set of off- and on-site supervision. “Our aim is to apply the same intensity of supervision as that applied to operators under the traditional framework. In this regard, the frequency of on-site visits for operators under the VFA framework will be largely dependent on the outcome of a risk assessment performed by the Authority

Entities operating in the FinTech sphere bring about a bigger challenge with regards to money laundering and the financing of terrorism risks. However, the MFSA has all the necessary powers to carry out its supervisory work in this area. 94

FINTECH

in line with the MFSA’s risk-based approach to supervision.” And, in cases of serious breaches, regulatory action will be taken. “This ranges from the imposition of reprimands and fines to the cancellation of licences, where this is deemed justified,” he says. The MFSA’s Chief Officer underlines the commitment to transparency required through the Authority’s membership of the European System of Financial Supervision, which, he says, increases expectations – as well as demands – with regard to policy work and monitoring. As a result, and with the rise of FinTech, an increase in workload is pushing the Authority to also “implement a process for the strengthening of our supervisory engagement with the industry,” including the implementation of “a horizontal riskbased approach to supervision, to determine the level of supervisory engagement to be carried out across the entire industry,” he explains. Furthermore, changes within the corporate structure of the MFSA are in the offing. “This reorganisation, which was recently announced by the Authority’s CEO, will ensure that a number of functions, which are not core to the MFSA’s supervisory units and that are being carried out by these same units, are taken up by newly-

established directorates within the Authority. A case in point is the Strategy, Policy and Innovation Directorate, for which I am responsible, and the Enforcement Directorate,” he states. The Authority is also investing heavily in human resources, so that the challenges can be dealt with efficiently. To this end, the MFSA will also be setting up an ‘Academy of Excellence’, an educational entity designed to offer training in financial supervision and earmarked as part of the organisation’s plans for the next three years. “This facility will be particularly important for the further development of the MFSA, which is currently recruiting an additional 140 officials, who will require specific training in various disciplines related to financial supervision. Moreover, the academy will provide opportunities for continuous professional development for experienced financial supervisors.” And, there are plans for the academy to provide similar training to those working in the field abroad. “This will support our aim of building stronger relations with our peers abroad,” he asserts. In conclusion, this investment is, according to the Chief Officer, central to ensuring the MFSA stays ahead of the game and builds the blocks needed for the upcoming challenges and opportunities posed by the burgeoning of FinTech on the island.

BUSINESS

Helping Malta achieve its

full tech potential

FROM THE LEADING IGAMING HUB IN EUROPE TO ‘THE BLOCKCHAIN ISLAND’, IT SEEMS AS IF THERE’S NO LIMIT TO HOW FAR MALTA CAN GO IN THE DIGITAL SPHERE. MATTHEW SCERRI, SENIOR MANAGER, KPMG SOFTWARE, AND MARK O’SULLIVAN, ADVISOR, GAMING, SIT DOWN WITH MARIE-CLAIRE GRIMA TO OUTLINE HOW MALTA HAS ACHIEVED THIS LEVEL OF SUCCESS IN THESE FIELDS, ITS WAY FORWARD, AND HOW KPMG CAN BE INSTRUMENTAL IN MAKING IT HAPPEN. 96

BUSINESS

alta has been making a name for itself as a reputable digital hub ever since the early 2000s, when the first laws governing the iGaming industry were passed. Successive administrations have carried on placing importance on nurturing and creating a fertile space in Malta for new digital sectors, most notably, in recent years, with the introduction of DLT regulation, which serves to lay down the law in the unchartered blockchain sphere – earning it its now famous title. Matthew Scerri, Senior Manager, KPMG Software, and Mark O’Sullivan, Advisor, Gaming, mapped out what’s next for Malta’s ever-growing digital sector, and KPMG Malta’s role in its continuous expansion.

Photos by Alan Carville

THE BLOCKCHAIN ISLAND – HOW MALTA’S REGULATION MADE IT STAND OUT FROM THE CROWD While regulation was initially seen to be standing in direct opposition to what blockchain hoped to achieve, Mr Scerri says that people who adopted this view were missing the bigger picture. “The major hurdle blockchain and cryptocurrencies have to overcome is specifically mass adoption, as they would otherwise remain firmly confined within the domain of the tech-savvy. Things get even more critical when smart contracts are considered, particularly considering that these can have autonomous control and can take critical decisions, often being financial in nature. A question often posed by people who do not deal directly with code is ‘how can we trust code to take the right critical decisions?’” Mr Scerri says that regulation can give the stakeholders within an economy the necessary confidence to adapt such technologies to their day-to-day business and adopt them fully for their needs, which is what will ultimately bring this technology to the mainstream. “This is exactly where Malta’s regulatory framework stands out, as more than just regulating the financial element, it also regulates the technological aspect through the Malta Digital Innovation Authority (MDIA). Regulation gives added certainty and, above all, a set of rules which define a professional approach to a nascent industry.” While the fact that Malta has taken such bold first steps makes it a pioneer, it inherently brings about risks of being the first to face certain challenges. “After setting the platform and attracting a lot of interest, Malta must now consolidate its position by delivering what it promised, and things are very much going on the right track,” remarks Mr O’Sullivan. “Additionally, it is important to keep on building the knowledge in the industry and involving all stakeholders in decisions, as has already been done, as this is a fast and constantly changing space. Given this is a first of its kind, we also need to accept, and embrace, that the legislative infrastructure will need to be tweaked as the industry grows and opportunities emerge.”

THE ESPORTS REVOLUTION – IS IT THE NEXT BIG THING? Esports is often considered to be one of the next frontiers in the digital economy sector, even though Mr Scerri says the very meaning of the term is debatable. “Personally, I see it as competitive peer-to-peer digital gaming. This is based on a comparison to its counterpart, traditional sports. However, for the purpose of this article, I will keep in line with the popular understanding of Esports, namely professional digital gaming.” He says that Malta’s recent economic growth has primarily been driven by its digital companies, adding that significant investment in the Esports industry seems to be a natural extension to its already bustling digital games industry and iGaming ecosystem. “The Esports and digital games industries are expected to surpass $150 billion (¤134.5 billion) in industry revenues in 2019. Malta has managed to establish itself as a hub for large digital events in Europe, attracting thousands of business leaders from across the globe to each of the events on this little island. The Malta Government can certainly replicate this model with Esports enthusiasts and business minds to propel the country forward in the Esports industry.” Indeed, Mr O’Sullivan expands on the fact that a number of well-known digital gaming companies already have headquarters in Malta, including 4A Games, the company behind the popular apocalypse series, Metro, as well as Exient, which developed some titles in the Angry Birds and Lemmings series. “Additionally, bringing things back to Esports events, there are some highly respected indigenous companies that have organised some high-calibre events for a number of years to date. First up there is GMR Entertainment (or gamers.com.mt), who run the yearly Malta Esports Festival, attracting over 350 players, 1,000 spectators at the event and over 1.5 million views through online channels during 2018’s festival. Next up, there is Quickfire, whose most notable event was the Supernova CS:GO Malta held in 2018. This event offered the largest prize pool ever seen in Malta, ¤150,000. The prize was scooped

BUSINESS up by the number one ranked Esports team in the world, Team Liquid. Then there is also interest among operators within the iGaming sphere, who provide a platform for punters to place bets on their favourite Esports teams in similar fashion to a regular sportsbook outfit. Pinnacle and Betway are often considered to be two of the market leaders on this front.” To strengthen its appeal to prospective Esports companies, Mr O’Sullivan says Malta has made significant strides forward. “Malta Enterprise offers excellent funding options, whilst GamingMalta is constantly driving the conversation forward alongside its Government counterparts, particularly with the forward-thinking Parliamentary Secretary Silvio Schembri. Just recently, GamingMalta led an Esports delegation to South Korea to further Malta’s understanding of the Esports and video games industries globally. Whilst Malta’s Esports industry is somewhat in its infancy when you look at that of many Asian countries, it is fair to say that Malta has a lot to offer this growing industry. 300 days of sunshine, an attractive tax structure, an English-speaking workforce and strong local-based tech talent are just some of them.” Mr Scerri adds that given the relative infancy of the Esports industry compared to traditional industries, there is currently little room in Malta for industry competition at this point. “It is important that Malta’s locally-based Esports companies form strategic alliances for the ultimate good of the industry in Malta as a whole. For Esports companies looking to base their operations in Malta, it is equally important that similar partnerships are made and that they immerse themselves in the tight-knit Esports industry on the island. Additionally, it is crucial

PROBLEM-SOLVING THROUGH EDUCATION AND TECH Among Malta’s greatest challenges when it comes to fulfilling its potential as a fully-fledged tech island are a lack of human resources and a need to invest further in education and R&D. However, it’s clear that the relationship between the two is symbiotic, and tackling the latter could positively affect the former. “You can never have enough investment in R&D and education, as that is the starting point for new technologies, so they very much go hand in hand,” explains Mr Scerri. “There are various emerging technologies that are disrupting various industries and solving interesting problems – from Robotic Process Automation (RPA) bots freeing up time dedicated to repetitive tasks, to the Internet of Things, a world where it is not just people that are connected to one another, but devices too.” “Technology is often touted as something that will replace jobs, but in reality, we are facing talent shortage across the board. I would argue that this is not necessarily a problem that is limited to Malta, but Malta experiences its effects a bit sooner and in a more obvious manner due to its limited size,” adds Mr O’Sullivan. “I firmly believe

Regulation gives added certainty and, above all, a set of rules which define a professional approach to a nascent industry. that the correct advice is sought from knowledgeable professionals. Malta has a lot to offer foreign companies and it offers incentives to attract companies to the island. Without the correct structuring and advice, it is possible that companies will miss out on good opportunities.”

Matthew Scerri, Senior Manager, KPMG Software

“Through its global network and locally-based experts, KPMG can provide a 360-degree service for Esports companies. From start-up phase to eventual global expansion, KPMG can provide expert insight and advise every step along the way. Globally, KPMG has been involved in both the video games and Esports industries for a number of years, and has built a strong knowledge base and excellent connections.” 99

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Whilst Malta’s Esports industry is somewhat in its infancy when you look at that of many Asian countries, it is fair to say that Malta has a lot to offer this growing industry. Mark O’Sullivan, Advisor, Gaming

that technology is actually the most efficient way of solving this.” Mr O’Sullivan and Mr Scerri concur that these are not changes that will happen overnight, so education needs to start from a young age, and have a broad scope. “It is encouraging to see the new Centre for DLT being launched at the University of Malta to help bring the different roles within the space under one academic roof, for example. However, it must also be tailored to cater for people with different backgrounds and possibly from different generations – a one-size-fits-all solution rarely works in tech,” Mr Scerri says. “The perspective of a software developer and a lawyer has often been different, yet technology is seeing these two roles come closer than ever before.” Mr O’Sullivan continues that education must be used to eliminate the fear and doubts of the unknown by providing the necessary information for people to be able to at least ask the right questions. “Once that happens, the technology starts to get demystified IN BRIEF and adoption will quickly follow.” RECOGNISING AND HARNESSING EMERGING TECHNOLOGIES KPMG in Malta has long recognised the importance of emerging technologies, and is involved in a number of initiatives in this regard. Investments range from the aspect of educating different businesses, roles, stakeholders and the public through the KPMG Learning Academy, up to developing bespoke solutions through KPMG software, providing advisory services through its dedicated IT Advisory team,

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and finally providing ERP solutions through KPMG Crimsonwing. “When looking at traditional service offerings which are relevant to this space such as audit, regulatory and tax offerings, clients expect you to have in-depth knowledge of the technology to be able to help them identify opportunities and cater for specific needs,” says Mr Scerri. “This is where the investment in specialised technologists comes into play, as it allows for a cross-functional team from different backgrounds to contribute to the delivery of these services.” KPMG is also using such emerging technologies to improve efficiencies in-house, which ultimately allows the firm to be able to offer a better experience to its clients. “We practice what we preach,” Mr Scerri grins.

What’s the biggest challenge when it comes to bringing blockchain into the mainstream? Mass adoption. What challenges does Malta face when it comes to emerging tech? A lack of human resources and a need to invest further in education and R&D. What does Malta have to offer the Esports industry? Among other things – 300 days of sunshine, an attractive tax structure, an Englishspeaking workforce, and strong local-based tech talent.

With several businesses relocating to Malta to take advantage of the regulatory framework, some of which have a presence in multiple jurisdictions, KPMG Malta’s membership within a wider international network allows the company to reach out to people who have expertise in a number of different areas and their own specific jurisdiction, which will ultimately allow it to provide services of the highest quality. “In addition, due to Malta’s unique service offering, it also allows us to reach out to the same network to be able to attract business to Malta, by showcasing what the island is offering and how it sets itself apart from other jurisdictions,” Mr O’Sullivan concludes.

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Keeping up with

the pace of change

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Photos by Alan Carville

AS THE WORLD SHIFTS TOWARDS A MORE DIGITALISED APPROACH, CAN BUSINESSES AFFORD TO STAY BEHIND? HELENA GRECH SPEAKS WITH ARTHUR AZZOPARDI, GO PLCâ&#x20AC;&#x2122;S CHIEF OFFICER FOR GO BUSINESS ABOUT WHAT CAN BE DONE TO HELP BUSINESSES THRIVE IN THIS ENVIRONMENT.

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Communication is key to business success as it enables business owners to connect with suppliers, stakeholders and ultimately their clients. Effective communication is only possible with the right technology. ne of the main drivers of a successful business in today’s day and age is strong connectivity and technology, which help to efficiently bridge the needs and wants of customers, employees, suppliers and the employer.

This often translates into different realities for different businesses. However, beyond this, having strong connectivity and efficient technology in place is likely to have a significant impact on how well a business can deliver its services, while maintaining a happy workforce. In addition to an ever-growing digitalised world, consumer culture has also changed. Less and less people adhere to the standard nine to five business hours. Instead, more and more people expect to be able to engage with a business throughout the day, from wherever they may reside. Customers are also becoming more technologically savvy, and are expecting businesses to keep up with the same pace of change. Arthur Azzopardi, Chief Officer GO Business for GO, agrees that “communication is key” for today’s businesses.

GO Business is a specialised businessto-business team (B2B) within GO, specifically catering to the needs of the local business community. The team members represent different departments and roles within the company, from sales and customer retention specialists to solution designers and support staff. The key differentiator is that GO business does not focus on selling packages to customers, but on understanding business requirements and providing solutions around these needs. Mr Azzopardi comes from the ICT industry and has a long history with the company. Joining in 2006 as part of the team responsible for transforming GO, he went on to work in different senior roles over the years. Following the successful turnaround of GO’s wholesale business, he has recently been appointed Chief Officer for GO Business. Connectivity within a business can refer to anything from hardware to software, network infrastructure and business processes. To lesser or greater degrees, changing customer expectations impact everybody from small local retailers to big business. 103

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In many instances, we don’t just design and deliver solutions here and now, but we advise on future scalability depending on the customer’s future plans.

“Communication is key to business success as it enables business owners to connect with suppliers, stakeholders and ultimately their clients. Effective communication is only possible with the right technology. Which is why it is important that businesses do not overlook their connectivity and technology needs, as staying connected where it matters and when it matters will help them thrive and stand out in crowded markets,” says Mr Azzopardi. Asked what services GO Business can offer beyond connectivity and networking, Mr Azzopardi explains, “our goal at GO Business is to facilitate and support successful businesses, being there to assist them while they are starting up, enabling them to operate efficiently and securely. Helping our clients grow is also a core part of our mission, and we do this by providing solutions and managing multiple components of their business from end-toend. Our highly-trained team can handle everything from the equipment installation to configuration, and ongoing support, ensuring complete peace of mind.” “Furthermore, we make it easy for our business clients to increase brand awareness and reach their potential customers wherever they are; our clients can run competitions, start a survey, utilise tele-voting and phone-ins or offer exclusive deals to their customers.”

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Mr Azzopardi adds that GO Business can provide assistance to any business size, from catering “to their most basic connectivity needs, to setting up and maintaining complex private networks that demand high levels of privacy.” “For smaller businesses we have convenient and easy ways to activate bundles that incorporate all that a business needs to operate. But we don’t stop there. We also offer networking solutions and managed services to larger clients, and clients who are growing,” he asserts. “such as setting up and maintaining fibre-based private networks, including providing 24-hour support. We have a specialised B2B team ready to advise and assist the local business community, and these can be reached via our website or through the GO Business Centre conveniently located at PAMA Village in Mosta. Once in touch with GO Business, our B2B specialists will assist each client individually, drawing up the right solution for their needs.”

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Stressing again the ability for GO Business to cater for even smaller businesses, that often believe that such services are geared towards bigger companies, Mr Azzopardi explains how GO is able to leverage its vast experience on the market in order to get the best for all their clients. “Our managed service offerings are tailored to fit the different individual needs of our customers, whether they are small or large. We evaluate the needs of the client in question, and tailor a solution to fit their specific requirements. But we go further than that. Our experience in the market is also something we leverage and in many instances, we don’t just design and deliver solutions here and now, but we advise on future scalability depending on the customer’s future plans,” he explains. “Therefore, any business, whether just starting up, in the process of expanding or already established, can look at GO Business as their partner, also sharing experiences from collaboration with other customers in the same sector.” He goes on to say that among the managed services on offer, GO Business is able to run the client’s infrastructure on their behalf – whether system administration, infrastructure management, data services, cloud services or disaster recovery. “We effectively take the hassle out of managing all of these key aspects, giving our clients complete peace of mind. This enables our clients to focus their energy on what they do best – running their business.”

Security is a top concern, and a top priority for us. We are investing considerable resources in the continuous upkeep of our security setup and knowledge.

Among the top concerns for modern businesses is security. Some of the most devastating incidents which impact businesses are weak security systems and resulting security breaches. Security becomes more important as companies move further towards a digitalised set-up. On this issue, Mr Azzopardi asserts, “security is a top concern, and a top priority for us. We are investing considerable resources in the continuous upkeep of our security set-up and knowledge. This is a core part of our operations because of the nature of our customer base as well. We are currently assisting banks, IT companies and Government entities, among other clients, in continuously updating and upgrading their networks’ security set-up, and advising them on new trends in security vulnerability threats. This is not only done through consultation and support on improvements on the customer’s end but also, as a major operator in Malta, we take all the necessary precautions to protect our customers from a provider’s perspective.” GO Business is also offering enterprise solutions, which Mr Azzopardi explains “are mainly geared towards medium to larger businesses, but also growing smaller businesses, that want to invest in the technology they use to become more efficient in their operation. We are able to offer solutions based on multiple vendors, seamlessly integrated into each other to meet the most demanding customer needs.”

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BDO Malta The only Firm licenced to act as a Systems Auditor and a VFA Agent DO, through its subsidiary company BDO Technology Advisory Limited, was one of the very first service providers to become a licenced Systems Auditor by the Malta Digital Innovation Authority (MDIA).

To date, BDO Malta is the only firm licenced to act as both as Systems Auditor and a Virtual Financial Assets (VFA) Agent. The licence enables BDO Malta to conduct both Type I and Type II Systems Audits which are based on guidelines and control objectives issued by the MDIA. Systems Audits are mandatory for Issuers and Service Providers applying for a licence under the Virtual Financial Assets (VFA) Act and for Innovative Technology Arrangements (ITA) seeking a voluntary certification under the MDIA certification process. The certification process is focused on five key principles: 1) Security – The system must be protected and completely secure from unauthorised access (both physical and logical). 2) Availability – The system is available for operational use as committed and/or agreed. 3) Processing Integrity – The system processing is complete, accurate, timely and authorised. 4) Confidentiality – The system will protect any information or data that is designated as confidential. 5) Privacy – The system will collect, use, retain, disclose, or dispose of personal information in full conformity with the commitments in the organisation’s privacy notice. The audit can be categorised into two different sets: TYPE I •Carried out on a certain and specified date, and takes an in depth look at the control design. •Typically carried when an ITA is in the process of applying to be certified by the Authority; or when deemed necessary by the Authority, or other Lead Authority in Malta. TYPE II •Carried out over a certain period of time, usually six months. The focus of this Type is to ascertain the operational effectiveness of the controls that are in place. •Carried out periodically during the operational lifetime of an ITA; or on the request of the Authority or other Lead Authority in Malta (e.g. MFSA).

The requirement to conduct Systems Audits came into force on 1st November 2018 as a result of Malta’s new regulatory framework around blockchain activity and Distributed Ledger Technology (DLT). The process to obtain the MDIA’s recognition as Systems Auditor was very rigorous and requires the Systems Auditor to have deep knowledge and understanding of the technology being audited as well as the systems audit principles applied across IT assurance frameworks. Asked to comment about BDO’s receipt of licences from the MDIA and MFSA, Mark Attard, Chief Executive Officer at BDO Malta states, “the MDIA recognition is a significant milestone for BDO as it positions the firm in a truly unique position, as we are now the only service provider in Malta to have obtained both the MFSA VFA Agent licence as well as the MDIA Systems Auditor licence. BDO is now officially licenced by all relevant regulators to support Malta’s blockchain and Virtual Financial Asset industry into its next stage of growth.” Ivan Spiteri, Head of Technology Advisory at BDO Malta adds, “our Tech Advisory and Assurance team worked very hard to obtain this very important recognition by the MDIA. We are immensely proud to be among Malta’s first to be licenced to carry out Systems Audits. We look forward to being of assistance to fast-growing companies in the blockchain and DLT industry who are making Malta their legal, regulatory and operational home.” BDO Malta is the only firm licenced to act as both a VFA agent and a Systems Auditor. The firm has built a dedicated team of licenced specialists, bringing together a range of skills to undertake MDIA Systems Audits and VFA Agent Services.

If you are interested in learning more about how BDO Malta can help your business succeed, get in touch on T: 2131 3060; E: technology@bdo.com.mt www.bdo.com.mt

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Emotional detachment – the importance of diversification ypically, all around the world, investors tend to have too much exposure to their own market – the one you know best is considered to be the simplest and easiest to invest in. This is purely a psychological reason since one finds him or herself more comfortable investing in a market the companies or assets of which are considered closer to home. For example, many local investors hold several investments in Maltese-based companies.

Same thing can be said for investors in the UK market who hold way too many investments in UK-based companies. Interestingly, this same situation applies to each and every country around the globe. The investor can also sometimes be emotionally attached to a particular instrument due to reasons that have nothing to do with the client’s risk appetite and/or objectives or financial stability of the actual instrument. As professionals, we have come across clients who own a particular investment just because they have the ‘gut’ feeling that it will do well or else are keen users or followers of the product/service being produced by that entity. Some typical examples include owning shares of a football club just because you support them, owning shares of a company just because you use its product, or owning an asset just because of the massive media attention it has received (such as bitcoin or cannabis stocks). In reality though, when the investor is controlled by psychological factors and lets emotions drive investment decisions, in the majority of cases, the investment will not provide the much-sought after results. In order to counter these emotional hurdles, the investor needs to apply the traditional, yet still very relevant concept of investment diversification. Diversification in various asset classes is vital and is considered one of the major cornerstones of investment management. It is a key investment strategy for the preservation of wealth and helps to manage and mitigate the risk of any one asset type underperforming over time.

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Statistics show that if you hold a well-diversified portfolio of investments, you’ll often achieve better returns. Different asset types and regional exposures will perform differently and can often vary significantly from year to year. The diversification that comes with this varied performance can help reduce the risk of having all your assets drop at once. Different asset classes have different risk/return trade-offs, and these become more evident to you during the process of determining your preferred investment asset allocations vs your income and capital growth needs. Diversification can also be achieved by spreading not just in various asset classes (i.e. shares, bonds, commodities), but also across different geographical regions (i.e. developed/emerging markets), sectors (i.e. tech, healthcare, utilities, energy, etc) and currencies. In this way, you are avoiding being over exposed to any given asset, country, sector or firm type. With diversification, the aim would also be to provide the highest potential return for your desired risk appetite. Statistics show that Emerging Markets (EM) was the top performer in 2007 (returned 40 per cent) whilst it heavily declined a year later at the height of the global financial crisis (-53 per cent). The top performing asset class at the time was Investment Grade Bonds (IG) which returned almost 5 per cent. Interestingly, EM returned to the top spot in 2009 with a massive return of 79 per cent, thereby not only recouped all the losses sustained the year before but finished the year with a stellar gain. Of course, it was not always rosy for EM, with the asset class registering positive returns only twice over the last six years. Therefore if an investor would have been emotionally attached to one specific area, he would not have gained from the better returns of other assets. It is clear that asset classes perform erratically from year to year, and asset classes that are the best performer one year can become the worst performer any subsequent year. The same can be said about individual stocks, bonds and any other type of investments. So, what is the solution? It is almost impossible to predict the best performing asset or sector year on year. Hence, it is imperative to have a portfolio holding a balanced mix of investments and not let your emotions take effect when dealing in your personal financial matters. Diversification is key to riding out volatility and maximising your reward with the lowest possible risk.

This article, which was compiled by Zenith Finance Ltd, does not intend to give investment advice and the contents therein should not be construed as such. Zenith Finance Ltd is licensed to conduct investment services by the MFSA. For further information contact Zenith Finance Ltd on T: 2133 2200 or E: info@zenithgroup.mt

BLOCKCHAIN? BUSINESS

What are the Skills required in Blockchain?

hen developing IT systems in the past, the concepts of accountability, auditability, availability, identity and integrity of data records were and still are crucial to systems development. Systems without these building blocks used to spell big trouble. Fast-forward a few years and today, Distributed Ledger Technology (DLT) provides all of this with less complexity. DLT or blockchain systems are coined as complex systems, but for those who develop enterprise systems know well that providing the above concepts in systems involves a far greater deal of complexity. It therefore follows that in the near future, systems based on DLT will be a major requirement.

This brings me to the issue of skills requirements for people who would like to foray into this sector as quickly as possible. Being an emerging sector, learning and adapting accordingly is crucial. Traditional technical skills of software development, data analytics and systems architecture are essential foundations for technical professionals. In 2018, a foreign recruitment firm came up with the top blockchain-related skills requested in the market. These include cryptography, Python, Bitcoin, web design, blockchain platforms like Ethereum, Ripple and R3 Corda. Others include Java,

Javascript, C++, C#, node.js, angular.js, React.js, HTML5, Solidity, CSS, iOS and Android App development, machine learning and Goland. Then there are areas like content writing, research, ICO marketing and SEO writing. So it is evident that with the exception of some new technologies, a lot is still based on current technology. In my view, it is essential that the additional knowledge and competences needed are deep understanding of blockchain concepts and its underlying architecture, its effect on the current legal and financial structure, and the way that it is affecting and will affect businesses to set them apart from the rest. Many educational and training institutions have come up with their own courses (namely the University of Malta, Oxford University, MIT, Skillsoft, PwC, etc), therefore anyone can become blockchain-savvy. Carm Cachia, Chief Administrator, eSkills Malta Foundation

Cloud accounting software Xero and QuickBooks Online in Malta ocal interest in cloud computing is becoming increasingly relevant and important as more SMEs embrace modern technology to automate their business processes. This is very relevant for FinTech companies including those working within the blockchain space. Cloud computing comes in different shapes â&#x20AC;&#x201C; most people do not yet realise how deep this technology has embedded itself within our lives.

Over the last few years, the same SaaS-based concept has been applied to various industries including the finance world. In fact, accountants can carry out bookkeeping and accounting services directly from cloud applications â&#x20AC;&#x201C; providing a smarter and central way to share data between the accountant and his clients (the SMEs) without the need to send data or files back and forth over email. Two of the global leading cloud-based accounting platforms are Xero and QuickBooks Online. Whilst benefits are obvious and measurable, most accountants would still want to access the raw financial data in order to generate bespoke management reports. With Excel being the favourite data processing tool for the 110

analysis and processing of data, a local Malta-based start-up identified this gap as an opportunity to deliver a service which offers the convenience of operating from the spreadsheet in a robust manner.

DataDear is an Excel add-in, developed and maintained in Malta, which sits directly in the Microsoft Excel toolbar. DataDear has established itself as an important player in the global FinTech space, providing accountants with the ideal tool kit to help them transition to cloud accounting software and manifest tangible benefits introduced through the SaaS model. Companies working within blockchain projects can experience tangible benefits when using cloud-based accounting tools connected to DataDear. Local companies should seek the services of an experienced Cloud App Integrator when implementing these tools, as this invariably allows them to tap into their knowledge of the app ecosystem. DataDear is one such app which allows advisors to address customer functionality gaps in a bespoke and creative manner.

Project DataDear is financed by the Malta Council for Science and Technology through FUSION: The R&I Technology Development Programme 2017. www.datadear.com

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LIVE. WORK. PLAY Contemporary Danish furniture brand, BoConcept leverages its decades of design expertise to extend its contract furniture arm and secure success for businesses around the world. oConcept has been designing, developing and producing furniture in Denmark since 1952. This heritage gives versatile solutions with personality and an essence of home at the office or hospitality venue. Design that softens the edges of traditional contract solutions. It’s design for today’s work-life blend. It’s design for living. We call it people-first contract furniture.

BoConcept works with world-renowned, award-winning, international designers Karim Rashid, Morten Georgsen, nendo, Henrik Pedersen and Frans Schrofer, among others, designing products that are well-considered and improve our lives. Broad customisation is a fundamental part of the BoConcept offering, with one of the biggest material and upholstery selections on the market. Functionality, modularity and reconfigurability enable spaces to adapt to customers’ ever-more-fluid usage demands.

A tailored 360-degree service BoConcept understands that no two projects are the same – each service package is based on the client’s individual needs. Clients can choose a full 360-degree service, comprising interior consultation, product selection, professional installation and after-sales service. The new business advantage “Homeliness used to be a quality valued only in residential and hospitality settings. Employees now want a feeling of home in their workspaces as well. Offices need to promote collaboration, and all spaces must adapt to change of use. Designing for these qualities has always been central to our approach,” says Christian Malkemper, BoConcept Contract Director. For Malta projects, contact the BoConcept Malta team, at the BoConcept showroom and offices in Triq tal-Balal, San Gwann. E: bicontract@brands.com.mt; www.boconcept.com.mt

Grant Thornton: providers of real insight and a fresh perspective to keep you moving s a member of Grant Thornton International, a $5 billion (¤4.5 billion) global organisation of member firms with 50,000 people in over 135 countries, we have the scale to meet our clients’ changing needs, but with the insight and agility that helps them stay one step ahead.

With over 40 years’ industry experience, Grant Thornton Malta provides a full range of services including assurance, tax, advisory, specialist financial services and capital markets support, corporate, trustee and outsourcing services.

the main interlocutors in the drafting of the Virtual Financial Asset Act (VFAA) by the Maltese Government. Grant Thornton Malta was also among the first batch of companies to be registered by the Malta Financial Services Authority to offer the services of a Virtual Financial Assets (VFA) Agent (under both articles 7 and 14 of the VFAA), enabling us to support both VFA issuers in the registration of ICO white papers as well as VFA service providers in their licensing process. Whether a business has domestic or international aspirations, Grant Thornton can help you to unlock your potential for growth.

Privately-owned, publicly-listed and public sector clients come to us for our technical skills and industry capabilities but also for our different way of working. Our partners and teams invest the time to truly understand your business, giving real insight and a fresh perspective to keep you moving. Our experience in the Distributed Ledger Technologies field positioned us as thought leaders and one of

For further information contact Wayne Pisani, Partner Tax and Regulatory, Corporate and Financial Services on M: 9942 3253; T: 2093 1602; E: wayne.pisani@mt.gt.com; W: www.grantthornton.com.mt

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Smart contracts: where are we now that much of the hype has died down? WHEN THE BLOCKCHAIN REVOLUTION STARTED TO DOMINATE NEWS CYCLES, THE WORLD BEGAN TO LEARN ABOUT SMART CONTRACTS AND THEIR POSSIBLE USES. NOW THAT THE DUST HAS SETTLED AND THE INITIAL EXCITEMENT APPEARS TO HAVE DIED DOWN, HELENA GRECH SPEAKS WITH INDUSTRY INSIDERS TO UNDERSTAND WHAT SMART CONTRACTS CAN DELIVER, AND WHERE THEY POSE A CHALLENGE.

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mart contracts, together with Distributed Ledger Technology (DLT), were touted as advancements that would herald a complete revolution in many wellestablished industries such as finance, insurance, real estate, legal and much more. Many technologically-savvy industry insiders even went as far as saying that the proliferation of smart contracts could replace some of the oldest professions, such as lawyers and notaries. How much of this is true, and has the technology advanced since its initial hype three years ago?

To begin with, understanding exactly what a smart contract is, together with its strengths and limitations is crucial. Smart contracts are essentially pieces of code, or programmes, that run on a DLT, such as blockchain. By design, blockchain is an immutable, transparent and a secure data source. Blockchain technology in and of itself brings trust in the data storage without involving a third party. Moreover, a smart contract brings trust to the code that is running on top of the blockchain. What this means is that code may be written and placed on the blockchain, which is self-executing once certain pre-defined triggers have, or have not, been met. Founder and CEO of Smart Studios, Johan Zammit, explains smart contracts by using a simple analogy: vending machines. â&#x20AC;&#x153;Why a vending machine? When you consider that in reality, smart contracts are neither smart nor really a contract as we normally define it in legal terms, a vending machine is the perfect analogy.

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“When purchasing from a vending machine, you have a look at what you’d like to drink – say a can of coke which is positioned in slot ‘A2’. You key in A2 on the vending machine keypad, pay the price and the machine gives you the drink you’ve chosen. This is all that a vending machine is programmed to do. It executes the trade, it does it exceptionally well, but it cannot do more. “Smart contracts work in the same way – they are powerful through the self-executing trait and the user has a very strong assurance that it will run as planned.”

When you consider that in reality, smart contracts are neither smart nor really a contract as we normally define it in legal terms, a vending machine is the perfect analogy. Johan Zammit, Founder and CEO, Smart Studios

Asked about the proliferation of smart contracts in specific industries, Priscilla Mifsud Parker, Senior Partner at Chetcuti Cauchi Advocates, points towards the insurance industry and the use case of commercial flight delays.

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“A smart contract for insurance may cover, for instance, that if my flight is delayed by more than three hours, I am entitled to receive a claim payout. The airport flight information would feed into the smart contract and two outcomes may occur. If the flight leaves on time, or with less than a three-hour delay, then my insurance contract expires.” “If the plane has not yet left after three hours, then my claim is instantly activated, approved and paid out to me, without any human intervention. I do not need to submit a claim, nor does the insurance company need a human administrator to process the claim. This means that it becomes possible to issue ‘micro-insurance’, or to cover events that would otherwise not be worth insuring.” When speaking about the use of smart contracts across various industries, Dr Mifsud Parker is quick to point out that one must bear in mind that smart contracts run on DLTs, which very much falls under the category of an emerging use of technology. “This means that while there are countless use cases for smart contracts, there remain other aspects surrounding smart contracts that need to develop further, not least of which are development glitches, common standards across different platforms and a wider acceptance by companies and individuals.” “Beyond that there are legal issues that need to be considered and legal systems need to adapt to a new world order. In the example above, what happens if my insurance claim is paid out because the flight info showed a three-hour delay, yet the information was incorrect and my flight actually left within three hours?”

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Ian Gauci, Partner at GTG Advocates, Afilexion Alliance and Caledo Group, who also provides consultancy services on legal matters related to blockchain technology, smart contracts and cryptocurrencies, delves into why there has not been a wider uptake of smart contracts. “Apart from lacunas and problems on adequacy from the legal point of view, there are also technology-related issues. From this angle, the inadequacy of smart contracts to deal with complex and multi-layered scenarios as well as the security and robustness of the underlying code could be some of the major obstacles.” To highlight a positive attribute, Dr Gauci points towards how “using smart contracts instead of traditional ones, in certain instances, reduces the transaction costs significantly. Moreover, smart contracts can be applied in different industries and fields such as smart homes, insurance, e-commerce, real estate and asset management,” he adds. All three industry insiders explain that a lack of legal certainty is another challenge to the adoption of smart contracts. If the smart contract is not recognised in the traditional sense as a legally binding contract, businesses and entities will be reluctant to enter into one if they feel that the necessary protections are not in place. Countries have begun to tweak legislation in order to acknowledge smart contracts as being legally binding, inclusive of Malta which was the first country to bring into force – in November 2018 – three comprehensive laws regulating technology service providers, Virtual Financial Assets and emerging technologies. The legislation passed through Malta’s Parliament, among other parameters, provides a legal context to the use of smart contracts and allows for a developer’s code to be certified and rubberstamped as a legitimate and good-quality code.

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If history repeats itself, we can learn from the early years of the internet and internet/tech companies what is likely to happen to the blockchain space. Ian Gauci, Partner, GTG Advocates

By comparing blockchain technology and the possibilities it brings with it, such as smart contracts, to the internet, we begin to understand the stage that smart contracts are currently in. Dr Mifsud Parker stresses how not too long ago, an online shopper would have been considered to be out of his mind for making an online payment to a complete stranger in exchange for a good that could not even exist. She discusses the way in which big players have made it easier to accommodate user adoption.

“Smart contracts are developing but the most popular ones still have – in general – around a 3 per cent failure rate – which means they give an incorrect outcome. This is impressive for new, complex technology, but does not yet offer the level of comfort that most businesses or individuals require,” she asserts. “I must add that certain specific smart contracts have been refined to appear, so far, to work flawlessly.” “Developers around the world are working fast to plug these gaps and this leads to another issue – that there is no harmonisation of standards or protocols on different blockchain platforms,” she adds. “This means that specialised knowledge is required not only to draft a contract as a legal agreement, but also to then write it in code, in different platforms. Such creativity is useful at this stage as it allows free rein to developers, however, in the future, mass adoption will require at least basic agreement on key protocols.” On the comparison with the internet, Dr Gauci comments that a lot can be learnt from the lessons of the past. “If history repeats itself, we can learn from the early years of the internet and internet/tech companies what is likely to happen to the blockchain space.” “Having said this, I am also aware that society, technological innovation, as well as the amenability of humans to embrace change is different now from the 90s, and thus I expect that the blockchain cycle fuelled by big data and smart contracts will take much less time than the internet cycle took.” 119

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While there are countless use cases for smart contracts, there remain other aspects surrounding smart contracts that need to develop further. Priscilla Mifsud Parker, Senior Partner, Chetcuti Cauchi Advocates

Mr Zammit adds that a lot of similarities can be drawn between what happened in the 90s with the internet and what is happening today. “Blockchain was only invented 10 years ago. Last January we celebrated 10 years since Satoshi Nakamoto published the bitcoin white paper and in it there was a description of how blockchain works.” “Blockchain and connecting technologies really came under the spotlight only three years ago. Even the internet took about 20 years to become so widespread and accepted,” says Mr Zammit. “In terms of technology, it feels like the 1996 of the internet – when we started using email but we couldn’t know or envisage what was coming towards us in terms of online services, online stores, mobile applications, and more.” Mr Zammit is in agreement that there are limitations to smart contracts, however he believes that wherever there is an exchange that could be made between two or more parties, and the nature of that exchange or process may be automated and streamlined, smart contracts are an extremely effective tool. Flight delay insurance is a fitting example of where smart contracts are already in use; there is no subjectivity to the issue – a flight was either delayed by ‘x’ amount of time or

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it was not. Whether there was some form of glitch or the information being fed was not correct is another matter entirely. However, as wherever an exchange or process may be automated, smart contracts are an ideal solution. Some argue that the hype about smart contracts unfortunately came about too soon, and the negative press associated with fraud surrounding cryptocurrencies and cyber-security attacks have soured some people’s perceptions. In the meantime, however, developers around the world are creating, tweaking, improving and implementing smart contracts more and more frequently. Continued activity and interest will help to understand the risks involved, drawbacks and limitations – which may then be managed and mitigated.

Photos by Alan Carville

SPOTLIGHT

Into the curious world of

blockchain technology and postapocalyptic survival gaming

BLOCKCHAIN TECHNOLOGY HAS BEEN ASSOCIATED WITH A HOST OF DIFFERENT INDUSTRIES. HERE, HELENA GRECH SITS DOWN WITH FRACTURE LABS’ STEPHEN ARNOLD TO DISCUSS THE VALUE OF INCORPORATING BLOCKCHAIN TECHNOLOGY WITH HIS ONE TRUE PASSION – SURVIVAL VIDEO GAMES. 123

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s blockchain technology sweeps the world of various professional service industries, there is one area where the revolutionary technological development is just starting to make its mark: video games.

The Creative Director and CEO of Fracture Labs, Stephen Arnold, is intrigued by the curious union between blockchain technology and Massively Multiplayer Online (MMO) video games. Mr Arnold, coming from Scotland, is no stranger to living and working in different countries. He sheds light on his experience of launching a start-up in Malta, as the country positions itself to become a blockchain island.

Hackers can’t just hack the game and give themselves unlimited tokens or the best space ship in the universe. It’s all digitally scarce – once you own an item and you store it in your wallet, nobody can steal it from you.

He has a full decade of video game production experience under his belt, having been involved in the development of several large products and contributed towards art animation, cinematics and VFX production. His experience has seen him work on games such as UBISoft’s The Division, 2K Games’ Evolve, and Sony Santa Monica Studios’ God Of War. While not working directly with the various studios, Mr Arnold managed to gain his experience by working with vendors who organise art animation, motion capture and face animation. Fracture Labs, the video game company based outside of Malta and of which Mr Arnold is the Creative Director and CEO, has been working full swing on developing a multiplayer online post-apocalyptic sandbox survival game entitled Decimated. Sandbox games are a style of gaming in which minimal character limitations are placed on the gamer, allowing them to roam and change a virtual world at will. Decimated is currently at prototype stage with the game’s token currently available for purchase. The premise for Decimated, as described on its website, is that the Earth has been abandoned after hundreds of years of destructive climate change and catastrophic neglect of the environment by corporations and industry. Political and social unrest have left the old cities decimated and hostile to life. Civilisation has collapsed and destroyed itself, yet a cyborg police force still wields control over the wastelands. 124

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Mr Arnold explains that “players salvage resources, technology and digital currency, repair vehicles, build bases, fortify shelters, hunt, ambush, loot and trade in this hostile post-apocalyptic environment.” Players can choose whether they want to join the cyborg police force of the world, or whether they want to be part of the human race. Upon winning missions and progressing in levels, players can also earn the game’s cryptocurrency called ‘DIO’ – the Italian word for God, highlighting the importance of it if players intend to survive. “I have always wanted to make a game like this. The evolution of Decimated came from another game I was working on a few years ago called Dissident – it was a single player game set in the same universe inspired by a game called Flashback from the 90s, where you had a linear story with puzzles, and every step up of the game, something is trying to kill you.”

We want to make the game easy for the average user. I believe that video games will lead the path towards blockchain mass adoption.

“When I moved to Malta to develop a blockchain game, I met people and explained myself, and my history. They spoke about their blockchain experience and their enthusiasm for multi-player online games,” he explains. “We discussed how we could combine the two industries of blockchain and video games, and where the value lies in doing so. And the value is that players can earn crypto while playing, and take advantage of the security of the blockchain. Hackers can’t just hack the game and give themselves unlimited tokens or the best space ship in the universe. It’s all digitally scarce – once you own an item and you store it in your wallet, nobody can steal it from you.” Mr Arnold goes on to explain that Decimated is not built on the blockchain itself; it is built on ‘Unreal Engine 4’. This is the game engine which allows high-quality graphics and super-smooth animation. All programmers and developers working on the game use this game engine, while the blockchain has been incorporated into the game so that its sole task is to manage items and tokens. The game’s premise is closer to reality than one may think. Mr Arnold and his team of developers have incorporated the notion of digital scarcity so that tokens and virtual items have meaningful value. There will be a total of one billion tokens in the game, without the ability to destroy or create new tokens. Anything spent by players will be re-introduced into the game by developers. Tokens and items are managed by the blockchain and thus cannot be tampered with. Virtual items such as a space ship, for example, will also be digitally scarce, with only a set number available in the game. A player could go around destroying virtual items such as space ships in order to increase the value of their own space ship, for example. 127

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“When the laws passed last November, there was a lot of doubt as people did not know what would happen next,” he explains. “We exhibited the game at the Malta Blockchain Summit, and after the hype kind of died down, we were pressing forward with listing on the exchanges, developing the product and trying to get funding. I asked my accountant if we could go to the Malta Financial Services Authority and sort out regulation as early as possible, because we had a deadline for listing on the exchanges. There were no licensed Virtual Financial Asset agents ready and the fees were very high – both regulatory and legal.”

“We want to make the game easy for the average user. I believe that video games will lead the path towards blockchain mass adoption because you don’t have to learn how to send 0.001 token to this random string of numbers and letters. We can personalise it, have an interface on mobile or pc, and create a market place displaying the value of items.” There are a few dozen smaller-scale blockchain games, and some bigger games that could easily use the weight of their deep pockets to develop a game on the same scale which Mr Arnold is hoping for. He maintains that such companies would be waiting for a project such as his in order to gauge how successful it would be before entering the market. The global market for survival games is roughly 300 million people, and Mr Arnold hopes to get 1 per cent of these players engaged into the Decimated world. Turning to his experience with Malta as a jurisdiction, Mr Arnold sheds light on the brilliant ecosystem generated for blockchain enthusiasts through the state’s regulatory push, however he laments the large costs associated with getting licensed as a start-up blockchain and crypto company. He has self-financed the entire project, and is currently working on sourcing more funding for development.

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Malta has the right idea with trying to attract this kind of foreign investment into the country.

SPOTLIGHT

Due to bad timing and high costs, Mr Arnold decided to get cryptolicensed in Estonia, where he set up another company, while hoping to issue Decimated’s token on the Maltese regulated exchanges. Mr Arnold also hopes to set up his offices in Malta, cheekily adding that it is certainly a better place to live. “Malta has the right idea with trying to attract this kind of foreign investment into the country. There is a lot of interest from international companies and many big exchanges and other entities have set up here, such as Binance and Chiliz. These guys came from very wealthy countries to relocate to Malta, as it has been the most forward-thinking in terms of blockchain regulation.” However, he adds, “while it’s fantastic for big companies seeking to gain legal protection, for start-ups, who are self-funded, not earning a salary and paying freelancers who come and go with the wind, to be hit with such lofty fees for opening bank accounts, regulatory fees for having legal opinions on documents – it is a little discouraging.” “The culture created and the connections made here relative to the blockchain industry have been hugely positive and helpful. The need to spend limited funds on such regulatory fees – when I would much rather be spending my money on marketing and development – is, in my opinion, short-sighted,” he asserts. “Having said that, I understand the state’s need to safeguard against any reputational damage, and proper due diligence is very important, but this could be improved.” Looking ahead, Mr Arnold hopes that, sometime soon, Decimated will be the game on everybody’s lips. Until then, he continues the risky yet rewarding work of throwing his entire time and commitment into his post-apocalyptic survival game.

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