[WATCH] Blockchain biggest thing since the internet, Malta to be at forefront, lawyers say

Two lawyers working in blockchain and IT have given the lowdown on how blockchain technology is set to become the biggest thing since the invention of the internet, as they highlighted how Malta will be the first country to put together a dedicated legislative framework to regulate it.

Lawyers Jonathan Galea and Ian Gauci, speaking on tonight’s Xtra on TVM, emphasised that blockchain - a technology by which financial transactions can be sent between two parties without the need for a third party, traditionally a bank, to transfer the money - will revolutionise technology.

Offering a basic explanation of what the technology entailed, Digital Economy parliamentary secretary Silvio Schembri said a ‘blockchain’ contained a record of all transactions taking place between parties.

“Its uses are endless,” Schembri said, “Some predict that in less than a decade it could be used to collect taxes, for instance. Financial fraud will be significantly reduced as every single transaction will be recorded on thousands of “nodes”, or computers, a bit like a public ledger system.”

“The nodes all over the globe will take the place of the middle man - the bank - and there will be a record of all transactions. To change the details of a transaction, you’d have to change it on all the computers, which is impossible, so this makes the system secure,” he said, adding that those who argued blockchain would facilitate money laundering “don’t know what they are talking about.”

Expanding on the description, Galea said blockchain negated the need for the traditional “trusted third party” for a transaction to take place. “This greatly increases efficiency and reduces costs,” he said.

“Disintermediation, security and decentralisation are all elements of blockchain,” Gauci said, “But at the end of the day, it’s an empowering machine, giving the power to the individual to start governing how her data is used, instead of companies like Facebook or Amazon deciding this.”

Blockchain will change island’s economic model

Malta would be one of the first countries to offer a platform for blockchain companies to operate on, Galea said.

“Attracting these companies will have a huge economic effect. Right now, less than ten years from its creation, blockchain is worth $500 billion (€430 billion). In the next five years, it could be worth at least $5 trillion (€4.3 trillion),” he said.

Binance, the world’s largest blockchain exchange, which recently announced that it would be opening an operation in Malta, transacts as much money in one week as our island does in a whole year, Schembri highlighted.

“Malta will be first in having an ad hoc legislative framework for blockchain,” he underscored, “This will change out entire economic model and the country’s physiognomy.”

“I share Schembri’s enthusiasm,” Galea said, “There will be ripple effects of blockchain companies investing in Malta - they won’t work in a vacuum but will need the support of accountants, insurers, lawyers, and so on. The companies will also offer good packages to their employees.”

He acknowledged that banks were currently being cautious of blockchain and cryptocurrency technology.

“This is for two reasons: cryptocurrencies were unfortunately up to three to four years ago more known for illegal activity; and because blockchain technology will change the way banks conduct their operations, which means those which persist in focusing on traditional systems will be affected negatively,” he said.

Malta advantaged over other countries

Schembri underlined that blockchain and cryptocurrencies were not the same thing.

“Cryptocurrency can be seen as an 'app' which works on blockchain technology. Right now cryptocurrency transactions are not regulated and can be used by people with bad intentions,” he said, “What Malta did was recognise the potential of this technology, and decide to creates laws for it.”

Elaborating, Gauci said three bills would soon be tabled in Parliament, one regulating virtual currencies including cryptocurrency, one regulating the blockchain technology itself, and another regulating “smart contracts”.

“A smart contract is a contract undertaken using technology. So, you have a contract between two persons and this is formulated using tech,” he said, explaining that the performance or enforcement of that contract would then happen automatically, without the need for third parties.

Asked by presenter Saviour Balzan when blockchain companies could start operating in Malta, and what advantages Malta had over other jurisdictions, Gauci said that laws should be passed before summer, and if companies adhere with all the legislation, they could start operating very soon.

“Malta has an advantage over other potential jurisdictions, such as Singapore and Gibraltar, because we are a European Union country,” Galea said, “Moreover, Estonia, which is also a contender, does not have a regulatory framework as good as the one we will put in place.”