Hoping to achieve market integrity, stability, investor protection via blockchain law
The parliamentary secretary for the Digital Economy, Financial Services and Innovation Silvio Schembri said that government envisions achieving market integrity, market stability and investor protection through the introduction of a blockchain framework.
Blockchain technology forms part of the wider Distributed Ledger Technology and has so far not been regulated by any institution or body around the world. It is a technology that is an ever-growing list of records, called blocks, which are linked and secured using something called cryptography. Each record has a link with the previous record, or block, and contains a timestamp as well as transaction data.
Once the record is issued with a timestamp, it is not possible to alter or tamper with that information. While the majority of people find this new technology difficult to grasp, in practice it could potentially bypass lengthy procedures in day-to-day life.
For instance, a music band could use DLT platforms such as blockchain to eliminate the need for intermediaries to receive royalty payments whenever somebody downloads their music. Transactions would occur across a peer-to-peer network, and are computed, verified and recorded using an automated consensus method.
Last week, government announced the launch of a three-step approach to setting up a legal framework for DLT technology and Initial Coin Offerings as a means of finance.
Last week, Schembri launched a consultation document for public feedback for a period of three weeks. After this time-period, three Bills will be presented to Parliament, one to set up the Malta Digital Innovation Authority, another to set out a regime for the registration of Technology Service Providers and a third to set up a framework for cryptocurrencies. The Bills will provide legal certainty in a regulatory vacuum.
A discussion was raised among The Malta Independent readers whereby the need for a central authority was questioned, since blockchain technology has been lauded since its main benefit is that it takes away the need for a “middle-man” or “central authority”.
Asked for a clarification on the matter, Schembri said: “The main role of the MDIA is to certify DLT Platforms and authorise System auditors.
The System auditors are the technical persons authorised by the MDIA to conduct a system audit on the technology arrangement using a principles-based approach to ensure that what is being proposed is actually being implemented.
“Applications such as wallets and smart contracts on both private and public DLT platforms will be subject to voluntary certification.
“The MDIA will be processing applications for the certifications of DLT Platforms with registered administrators. This automatically excludes public DLT platforms that share a mechanism such as Ethereum.
“This is needed in view of the need to conduct fit and proper procedures on the System auditors and administrators and to ensure that the code implemented by the operator is in line with the pre-specified criteria in line with Malta’s international obligations.
“This regime aims to put legal certainty in a space that is unregulated and where there is a great demand for certification and recognition. We envision achieving these three main principles – Market integrity, Market stability and Investor protection.”