Edward W. Mandel
Dec 30, 2018

Malta is a land of contradictions. Politically, it’s a sovereign state and an equal partner in the European Union. Geographically, it’s an archipelago perched precariously in the middle of the Mediterranean. A longtime part of the British sphere of influence, its residents speak fluent English and it has declared itself a republic despite retaining membership in the Commonwealth of Nations, the network which succeeded the British Empire. But its population is descended from North Africa and they are equal adept in their native Arabic-derived language. They’ve given their brand to a dog, a cross and a famous Falcon that Humphrey Bogart described as “the stuff that dreams are made of”.

It might also be the most forward-thinking country on Earth when it comes to crypto-asset regulation. It’s new legal framework went into effect November 1 and, although only time will tell how effective it will eventually be, it does appear to be the most sensible crypto oversight regime yet devised.

The BQT.IO founding team intends to establish the exchange’s legal and regulatory domicile somewhere in Europe. This broad, diverse continent is a maze, if not a minefield of national sovereignties, each with its unique method for regulating cryptocurrencies and the exchanges on which they trade. As such, we are taking a long, hard look at Malta before we make any firm decisions.

Figure 1. What’s not to love about the Maltese? Credit: Ron Clausen

The nutshell version

“Malta has sought to create a regulated framework for innovative technology that is built upon three pillars: consumer protection, market integrity and financial stability,” according to Maltese professional services firm Chetcuti Cauchi Advocates. “This comprehensive legal framework is a world first and was eagerly anticipated by fintech experts, operators and investors.”

Although I’m not sure I believe the “world first” part — if there’s no crypto regulation anywhere else, then why is trading banned in so many places? — but it does have the distinction of being comprehensive. Malta’s parliament passed a troika of laws to govern this space: the Virtual Financial Assets Act, the Innovative Technology Arrangements and Services Act and the Malta Digital Innovation Authority Act.

While the VFA regulates ICOs and exchanges, ITAS is the one that will provide oversight to digital ledger technology software vendors, smart contract developers, database administrators and IT auditors. The third act authorized the MDIA, which is now established as the regulatory agency.

The VFA puts most the compliance burden on the issuer, i. e., not us. In most cases, that is. BQTX tokens are still available via ICO so, if you’re one of the 475,000 potential participants who flies the George Cross flag, we’ll make sure that we’re on the right side of the law.

But our continuing operation is as a platform for experienced, sophisticated traders to participate in exchanging crypto-assets. As far as Maltese law is concerned, that suggests we’ll be treated by Valletta the way YouTube is treated by Washington. Under US regulation, YouTube isn’t responsible for policing its content. If regulators get a complaint, they’ll pass it along to the site’s manager and they’ll have to take down the offending video. In the same way, a crypto exchange in Malta need not vouch for every pairing but, if an issuer should run afoul of the law, the exchange would be ordered to suspend trading in the token and any derivative instruments. Which we would do, of course, no question. Easy-peasy.

The pros and cons

The problem, though, is to what extent this might be in conflict with evolving EU policy. I’m totally on board with the updated anti-money laundering measure the supranational entity approved this past year, 5AMLD, which was directed squarely at crypto exchanges. I’m less thrilled about how MiFID II, a financial securities regulation is being applied to tokens. In my opinion, Brussels is miscasting tokens as derivative instruments. And who knows what else the EU is going to cook up?

Even so, Malta is bound to be a forward-leaning influence on Europe. What I most like about the self-styled Blockchain Island’s new crypto regulations is the term their authors invented for what it is they’re regulating “DLT assets”. They don’t say “coin” or “token”. They don’t get into whether they’re securities, utilities, currencies or poker chips. The term is broad enough to cover anything touching a blockchain, whether that’s the asset itself or the market it’s traded on or the technology underlying its transaction clearance or payment processing.

So maybe, in five years, it’ll cover pretty much everything. Consider that Nasdaq is one of the largest holders of US blockchain patents, that’s a pretty hopeful sign. Another big patent holder is IBM, which is helping the London Stock Exchange develop a blockchain-based process for trading shares of small- and medium-sized businesses. Deutsche Borse Group has dipped its toes in such private blockchains as those developed by R3 and Hyperledger. The Tokyo Stock Exchange has a whole program dedicated to DLT innovations for improving capital market infrastructure. Still, China accounts for the majority of the world’s blockchain patents — not just the largest share, I mean literally more than 50% — so you have to imagine the Hong Kong and Shanghai exchanges will benefit from all this innovation.

So if, all of a sudden, all financial instruments could be considered “DLT assets,” then maybe the MDIA will be in the vanguard as long as this confluence continues. Malta might be playing a serious game of 3-D chess the way they’re approaching this space.

The black bird of paradise?

Could the Malta Digital Innovation Authority be “the stuff that dreams are made of”?

I’ve visited Malta several times and, on a personal note, I find the thought of spending much of my professional life there intriguing. The Neolithic temples, Baroque palaces, the forts that defended the island from the Crusades through the Second World War are all sites that can only be seen one place in the entire world. And you just can’t beat the weather there.

That the island nation is English-speaking as well as part of the EU makes it an intriguing post-Brexit compromise. But then again, the same can be said for the Republic of Ireland. Between the two, though, Malta is a whole lot less expensive.

Malta currently remains on our top list. If its homegrown crypto regulatory framework should supersede the less friendly one under development in Brussels, then maybe we’ve found out new home.

Edward is an Ernst and Young Entrepreneur of the Year Finalist, Blockchain Enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful Blockchain technology and ICO projects and recently launched his own BQT.IO P2P exchange helping traders connect with each other to leverage their crypto assets.

BQT.IO has been in development since March 2017 and its ICO launched September 18. The information can be found online at BQT.IO, on Telegram @BQTCommunity and on Twitter as @BQTico.