BETWEEN A ROCK AND A HARD PLACE

THE BLOCKCHAIN ISLAND TOOK A COMPREHENSIVE REGULATORY APPROACH BACK IN 2018, LEADING THE WAY IN AN INNOVATIVE AND ELUSIVE INDUSTRY. CHRISTOPHER ATTARD SAT DOWN WITH DR. JOSEPH F BORG, PARTNER AT WH PARTNERS, TO DELVE INTO MALTA’S APPROACH FOR LEGAL CERTAINTY AND THE BLOCKCHAIN INDUSTRY MORE BROADLY.

Malta was always at the forefront of innovation. We saw this in 2004 when it ventured into the iGaming sector which at the time was pushing the envelope in this regard. It’s understandable that Malta, being the flexible and dynamic country that it is, wanted to be the first European member state that gets into new industries before everyone else. Similarly, the government saw potential for blockchain and was the first to react. However, we’re still in the early stages despite the price-fuelled hype in 2017 and early 2018.

Indeed, the exuberance of 2018 will materialise in organic growth over the next few years. Like everything else, there’s a hype right at the start followed by a crash. But in the long-term, I see projects slowly inching towards a structured, organised evolution rather than a ‘revolution’. Needless to say, a lot of projects will fail but the ones that succeed will radically change things.

SOUNDS LIKE THE DOT.COM BUBBLE ALL OVER AGAIN. BUILDING ON THIS LAST POINT, WHICH SECTORS WILL BE MOSTLY DISRUPTED BY BLOCKCHAIN IN YOUR VIEW?

We briefly mentioned iGaming initially, and to my mind this industry will be significantly disrupted since blockchain brings a number of advantages to this sector. More broadly, we’ll see major changes in stock exchanges, drastic changes in the way insurance companies, banks, and fintech firms operate and other fundamental changes.

WHAT’S YOUR TAKE ON THE ICO-STO SHIFT IN THE INDUSTRY FROM AN ADVISORY PERSPECTIVE?

Currently the ICO market is slow, but the idea to raise capital was ingenious. Instead of going to a venture capital which would have taken a chunk of their shareholding, the ICO market provided an opportunity to crowdfund projects where investors didn’t hold any stake. This made sense right up to the point ICOs became irrational, where tens of millions were being raised.

The shift towards STOs will house companies looking for larger funding. However, very few exchanges are licensed to list security tokens, which is a deterrent for the STO market. In fact, jurisdictions still need to adapt their laws to cater for STOs. Given all this, it’s a bit of a gamble to do an STO at the moment. But certainly, the shift will probably happen in the future.

LET’S SHIFT GEARS TO PRIVACYCOINS. DO YOU EXPECT CURRENCIES LIKE MONERO AND ZCASH TO BECOME BLACKLISTED BY GOVERNMENTS?

Privacy coins are seen as a threat to law and order. I sympathise with Bitcoin fundamentalists that truly believe all transactions should be anonymous and governments should not interfere. However, we all know that reality speaks to the contrary, as you cannot allow money launderers to make use of crypto and circumvent the national order.

WHY SHOULD ONE CHOOSE MALTA AS THE JURISDICTION FROM WHICH TO OPERATE ITS BLOCKCHAIN BUSINESS?

I always say that regulation is a necessary evil. Malta is clearly ahead of its time, but in the long-term it could be a plus. If you compare Malta’s framework to others in Europe, you’ll realise that it’s quite tough compared to Estonia and other jurisdictions. That said, I’m convinced that we’re going to have regulation toughening up everywhere in a couple of years.

Meanwhile, the Maltese framework could serve as an example for other jurisdictions. We’re expecting regulation at ESMA level (European Securities and Markets Authority) – once that happens then all EU countries will follow. Malta anticipated this eventuality and offered a complete ecosystem for the industry.

In fact, Malta provides accreditation of auditors, certification of blockchain platforms and gives comprehensive legal certainty in blockchain and cryptocurrencies.

WHAT IS YOUR VIEW ON THE CURRENT MARKET SITUATION AND HOW DOES THIS AFFECT INDUSTRY-GROWTH IN MALTA?

At the same time, privacy coins for large acquisitions and mergers by companies of a certain repute, which understandably might not want to make their transactions visible to everyone, is a valid use case. So, while Monero and other coins might become blacklisted, I don’t see this as a general rule-provided police can trackdown illicit activity. The best way around this is to promote currencies that are safe, secure and private but with the law enforcement caveat.

Earlier you mentioned the dot.com bubble and you hit the nail on the head. 20 years ago, during this bubble, everyone was buying domain names, selling at millions and taking over the world, so to speak. As we know, most failed but the ones that remained are now the largest companies in existence. All in all, it will be faster this time round as we’re living in a more fast-paced society, now more than ever.