Choose mortgages. Choose high interest rates. Choose inflation. Choose rubbish customer support. Choose long waiting times. Choose withdrawal restrictions. Choose unreasonable due diligence checks. Choose extortionate account fees. Choose long transaction times. Choose blocked transfers. Choose freezing temperatures waiting in queues. Choose mobile apps that crash. Choose an archaic system… But why would I want to do a thing like that?

The reference to a cult classic that is mostly about drugs is not lost on me, and I picked it specifically because the general misconception out there is that Bitcoin and other cryptocurrencies are used primarily for drug-related purchases, money laundering, cyber-attacks, etc. If that was the case, I would highly doubt that banks like JP Morgan, Citi Group, Morgan Stanley, BNY Mellon, BBVA, and others would offer crypto-related services to their clients, as they have commenced doing lately. These banks, for years, vehemently rejected the possibility that cryptocurrencies can represent the future of finance, and yet, in 2021, here we are – banks are getting in cryptocurrencies.

“But aren’t cryptocurrencies anonymous, and therefore anyone can launder money with them”? Well… yes, and no. Mostly no, and let me tell you why.

You can use cryptocurrencies either by simply downloading an app onto your device and connecting with the crypto’s blockchain network, or by registering an account with a service provider such as an exchange or broker. Every single crypto transaction gets recorded onto a publicly available ledger, on which your data is encrypted to a point where, unless someone knows that the data belongs to you, it is very difficult to identify and trace your transactions.

To buy cryptocurrencies, you typically need to do so with fiat, or “traditional”, currencies. The gateways between crypto and fiat are exchanges that are mostly set up in jurisdictions that require them to apply due diligence measures that are set out by the Financial Action Task Force (FATF), and obviously include identifying the users that wish to transact in crypto.

And here’s the kicker – exchanges are also required to identify the addresses to which withdrawals are made, or from where deposits originate. They are also required to share such data with other exchanges, or so-called virtual asset service providers, effectively leading to a system where a user’s transactions are visible and identifiable to these service providers, which in turn can report to the responsible authorities in case of any suspicions of money laundering. So far, transactions made in crypto have turned out to be the bane of criminals worldwide, as this system of tracking helped sleuthing investigators pin down the perpetrators of crimes in various jurisdictions.

You can imagine my genuine surprise therefore when I heard Finance Minister Clyde Caruana’s and shadow finance minister Mario De Marco’s comments on Thursday on how they believed that Malta was added to list of jurisdictions under increased monitoring by the FATF, the so-called ‘grey list’, because of its involvement with the cryptocurrencies industry.

What was more surprising still was the FATF’s categoric announcement, barely 24 hours later, that Malta’s greylisting decision had nothing to do with the crypto sector at all.

In the first place, it is highly unlikely that companies set up in Malta processed ‘billions’ in crypto transactions. It was, and still remains, very difficult for crypto companies to operate effectively in Malta.

Firstly, no local SEPA bank will entertain the opening of accounts for such companies, due to their fear of losing ties with corresponding banks – while such corresponding banks directly open accounts to crypto companies, funnily enough.

We struck gold with the decision to regulate the crypto industry back in 2018, but we lifted our foot off the gas pedal too quickly.

Secondly, Malta’s Virtual Financial Assets Act, which was approved unanimously by both sides of the House in 2018, is comprehensive to the point where it is a solid deterrent to bad apples that may be present in the space.

The constant feedback that we receive from international industry is that Malta has regulated the crypto sector to the highest possible standards, with the latest round of feedback being given by regulatory experts brandishing the framework as “sensible”. Indeed, the proposed Regulation on Markets in Crypto-Assets being pushed by the European Commission is based on Malta’s VFA framework; isn’t this the highest form of approval that one may expect to receive?

It would have been highly ironic had Malta been greylisted because of its ties to the crypto industry, when another EU Member State, Estonia, formally approved the set-up of over 1,500 crypto companies within its jurisdiction, and then consequently revoked over 1,000 of those crypto licences because of concerns over money laundering.

Estonia eclipsed Malta, by a huge margin, in terms of the crypto companies that were allowed to set up within its jurisdiction, with the vast majority of such companies actually being initially approved by Estonia’s Financial Intelligence Unit, as opposed to the companies that undergo a rigorous licensing process via the MFSA prior to obtaining the regulatory approval.

The war-cry of the “blockchain island” is no more, and should not have existed back then either – it was too sensational. We struck gold with the decision to regulate the crypto industry back in 2018, but we lifted our foot off the gas pedal too quickly.

In the same way that both sides of Parliament fully supported the industry in the beginning, it is crucial that such support is rekindled, especially now that certain key pillars of the economy may be in potential jeopardy due to Malta’s greylisting.

I sincerely hope that scapegoating the crypto industry turns out to be a forgettable one-off and that a leaf is taken out of the books of countries such as the United States, Japan, and Luxembourg, that are treating the financial revolution knocking on their doors very, very seriously indeed.

As for the opening of this opinion piece… Bitcoin, crypto, and decentralised finance protocols change all of that. And why wouldn’t you want a thing like that?

Independent journalism costs money. Support Times of Malta for the price of a coffee.

Support Us