Blockchain Island: a work in progress

Marie-Claire Grima - 11th August 2019

From local media to international news outlets, it became a catch-all phrase that captured Malta’s forward-thinking vision in this technological realm.

After Malta passed three bills regarding cryptocurrencies, blockchain and distributed ledger technology (DLT), marking it as one of the first jurisdictions to regulate this sector the term ‘blockchain island’ quickly began to circulate.

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?

“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.

ian gauci

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.”

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

Stephen McCarthy

Stephen McCarthy, CEO of the Malta Digital Innovation Authority

“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.”

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.

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

Silvio schembri

Silvio Schembri, Parliamentary Secretary for Financial Services, Digital Economy and Innovation

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 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 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.”

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.”

Ben Pace

Ben Pace Lehner, co-Founder and Director of specialist recruitment company Broadwing

“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 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.”

This is an excerpt of the interview which featured in the June edition of Blockchain Island.

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Blockchain Island: a work in progress