What Are Virtual Currencies?
Virtual currencies, also known by the name crypto currencies, are an entirely digital form of money. They are unregulated by any financial authority, instead being entirely under the control of their developers. National and international banks do not oversee the use of virtual currencies, as there is no physical aspect to them, and they are therefore, not considered to be legal tender.
Transactions in a virtual currency involve them being shown on an online platform, which is called a BLOCK. The person sending the money must first purchase Bitcoins, on a platform known as an Exchange. The new BLOCK is then broadcast to all the other users of the network, and is added to the current blocks, making a blockchain. This completes the transaction, with no intermediate banks or transfer fees involved.
The Exchanges on which Bitcoins are purchased will eventually all be approved and awarded the relevant licences in the appropriate financial jurisdictions. At present, the Bitstamp exchange has had full licensing since 2016, which means it can be used within the European Union. Regarding security, the blockchain is held over thousands of different networks, making it more difficult to hack than the one central system which holds all the details of one bank’s customers and accounts.
What Is The Political Status?
Joseph Muscat, Malta’s Prime Minister, has stated that the policy of his government is to encourage and support the introduction of virtual currencies and blockchain to the country’s economy. He intends that Malta should be the first member of the European Union to have a specific strategy for approaching the use of blockchain, and also to be among the first worldwide to have a method of virtual currency exchange regulation.
Silvio Schembri, Malta’s Parliamentary Secretary for Digital Economy, has declared that a new government Authority would be necessary to regulate the use of cryptocurrencies within the country. It is likely that this would operate independently from the Malta Financial Services Authority (MFSA), thereby having a similar status to the Malta Gaming Authority. Gaming is already a thriving sector in Malta, and this, along with stable financial services, reliable ICT and a tax system that many find attractive, should mean that the virtual currency is popular.
Financial Services Authority Policies and Regulation
The MFSA has issued a number of notices to the public regarding its stance on virtual currencies. While this regulating body does not consider the introduction of cryptocurrencies such as Bitcoin to be desirable, it will nevertheless allow all stakeholders to voice their opinions and concerns before providing any definitive advice. They would, however, like to note that the use of blockchain does come with risks, as well as the advantages drawing people to it.
The Exchange Platforms have no legal protection if they fail or lose money, as they are not banks and are therefore not covered by any compensation schemes such as deposit guarantees. The value of virtual currency has also been shown to vary considerably and change rapidly, as has already occurred with Bitcoin. This means that the value of the total holdings could drop drastically and customers who are paying using cryptocurrency are not entitled to any refund rights, as they are not protected by the current European Union legislation.
However, despite these risks, Malta Financial Services Authority recommends that people become familiar with the Exchange Platforms that may be used in the future, particularly the reputations, public perception, and the more practical side of virtual currency ownership. The Authority is consulting with companies operating in financial services on the impact of introducing virtual currencies to Malta, both legally and financially. Professional investors in virtual currencies should expect to be subject to regulations, as these are already in development.
Probable Processes In Licensing And Regulation
It is likely, although not yet definitively determined, that clients intending to set up and operate a virtual currency Exchange Platform would first need to liaise with both the existing Malta Financial Services Authority, and the new Authority for regulation of virtual currency. It would be necessary to register a Platform at the Maltese Registry of Companies, and then a licence could be awarded by the new regulatory Authority, the wording of which would quote the relevant laws (which are yet to be written), and that the company has been approved to run the cryptocurrency Exchange Platform.
It is expected that only companies licensed by the new regulatory Authority would run cryptocurrency Exchange Platforms, as they would have to be verified according to the same method that the Malta Gaming Authority currently uses. This would involve the production of a certified copy of the company’s Memorandum and Articles of Association. This ensures that the company has been set up correctly according to Maltese law, and would satisfy all of the appropriate formalities for establishing a cryptocurrency trading business.
The authorisation of virtual currencies for use in Malta is likely to lead to a great deal of debate and even some controversy. However, the present government has committed to it, and their intention is to allow the use of cryptocurrencies on the island as soon as it is feasible to do so. It is not yet known how the residents and business owners will approach this change, but Dr Jonathan Galea, the president of BitMalta, considers the development of blockchain and virtual currencies to be as revolutionary as the introduction of the Internet.
To learn more about bitcoin and how it works, read our article on Bitcoin Guide, where cryptocurrency is made simple.