MFSA Issues Bitcoin And Virtual Currencies Warning, Bitmalta Reacts

31st July 2017

The Malta Financial Services Authority (MFSA) has issued a statement warning about the use of Bitcoin and cryptocurrency.

The Malta Financial Services Authority (MFSA) has issued a statement warning about the use of Bitcoin and cryptocurrency.

In a statement that followed a spate of articles in the Maltese media about cryptocurrency, including the installation of the first Bitcoin ATM in Malta, the MFSA warned the public that a virtual currency (also known as cryptocurrency) such as Bitcoin is an unregulated digital instrument used as a form of money that is not issued or guaranteed by a Central Bank or by any other authority and is not equivalent to traditional currencies.

“Unlike traditional money, acceptance of payment in virtual currency depends entirely on the voluntary consent of the recipient,” the statement said. “Furthermore providers of services in relation to virtual currencies are currently neither regulated by law nor authorised by the MFSA.”

The MFSA warned not only against ‘Bitcoin’, “probably the most well-known virtual currency”, but against a number of other virtual currencies, citing risks such as losing money on the exchange platform, having money stolen from your digital wallet by hackers, the lack of protection by any refund rights under EU law, the quickly-changing value of virtual currency, and the potential misuse of transactions in virtual currency for criminal activity.

“The MFSA therefore advises the public to exercise caution and be vigilant when dealing with virtual currencies and to ensure that they have understood the risks involved. If you buy virtual currencies, you should be fully aware and understand their specific characteristics. You should also exercise the same caution with your digital wallet as you would do with your conventional wallet. You should not keep large amounts of money in it and ensure you keep it safe and secure. You should also familiarise yourself with the ownership, reputability, transparency and public perception of the exchange platforms that you are considering using.”

In reaction to this, BitMalta, a Maltese Bitcoin and virtual currency advocacy group, said that such a warning “would have been justified five years ago in view of the yet-uncertain nature and effect of cryptocurrencies, but not in this day and age when jurisdictions worldwide are readying themselves for acceptance of cryptocurrencies rather than shying away from this technological revolution.”

“We are extremely disappointed, to say the least, that whereas Malta's Prime Minister Dr. Joseph Muscat and Hon. Silvio Schembri, the  Parliamentary Secretary for Financial Services, Digital Economy and Innovation, are actively advocating the adoption of blockchain technologies and cryptocurrencies in Malta, the MFSA stubbornly choose to ignore developments in the area and quote long-since settled risks pertinent to cryptocurrencies. The blockchain technology is firmly rooting itself as "the next big thing", a disruption which will echo that of the Internet back in the late 90s, and cryptocurrencies are but one single application of such a technology, albeit an important one as they show what can be achieved through the use of blockchain technologies. It is therefore of utmost importance to create incubators for such thriving projects to grow unmolested and study them closely, and this ostrich-in-the-sand approach adopted by the MFSA is anything but proactive. Cryptocurrencies are here to stay, whether you ban them or not, so it is advisable, even obvious, that measures should be taken to educate the public about them rather than scaremonger.”

BitMalta also pointed out that virtual currencies and cryptocurrencies are not one and the same. “Cryptocurrencies are simply one type of virtual currencies; they are open, exchangeable, cryptographically-secured tokens, whereas other types of virtual currencies such as Amazon Points and World of Warcraft gold are not cryptocurrencies. It is paramount to use correct terminologies to avoid any sort of confusion.”

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MFSA Issues Bitcoin And Virtual Currencies Warning, Bitmalta Reacts