Since 2009, when the world first heard about Bitcoin, cryptocurrencies, and blockchain technology in particular, have taken the world by storm. Nearly twelve years later – on May 11, 2021, the daily trading volume of all cryptocurrencies exceeded $200 billion for the first time, BlackRock Inc., one of the largest international investment funds, offers Bitcoin futures contracts, and Elon Musk, on Saturday Night Live , announced a future mission to the moon, codenamed "DOGE-1," inspired by the recently popular dogecoin.

The dynamic development of this entirely new area of ​​economic activity has forced developed countries to develop a current stance and appropriately incorporate cryptocurrencies into their legal systems. Due to the innovative nature of the distributed accounting system, based on cryptography, and the lack of established practices in common economic activity, national financial market regulators (in Poland, the Polish Financial Supervision Authority) approach cryptocurrencies with considerable skepticism.

In this article and the two following posts, we've decided to highlight European locations worth considering for their progressive solutions. Malta will be the first of these, and in the coming weeks, we invite you to read posts about regulations in Switzerland and Estonia.

Malta

In 2018, a series of bills, collectively known as the "Digital Innovation Framework," were introduced. Their goal was to introduce regulations concerning blockchain, distributed ledger technology, initial coin offerings, and virtual currencies. The regulatory framework cited above consists of:

• "Virtual Financial Assets Act" relating to initial public offerings of tokens, virtual assets, virtual currencies and related services,
• "Innovative Technological Arrangements and Services Act" introducing a register of entities providing services related to blockchain or smart contracts,
• The Malta Digital Innovation Authority Act establishes a special supervisory authority for the certification of created blockchains and smart contracts.

Maltese legislation recognizes four different categories of virtual property: electronic money, financial instruments, virtual utility tokens, and virtual financial assets. A particularly noteworthy tool is the so-called "Financial Instrument Test," an extensive set of precise questions designed to precisely determine the nature of a product based on blockchain or distributed ledger technology. The Malta Financial Services Authority is responsible for reviewing applications for interpretation of the test. The test is required by law and aims to determine whether the product being tested falls under the aforementioned "Virtual Financial Assets Act." Only virtual utility tokens are exempt from the regulations contained in the aforementioned Act. The license issued by the Malta Financial Services Authority is divided into four levels, with level one permitting the acceptance and commissioning of cryptocurrency transactions, while level four (VFA 4) allows for the conduct of all regulated activities, including the storage of client funds and the provision of custodial services.

Since 2020, we've seen a marked shift in the Maltese legislature's approach to the vision of a "blockchain island." Specifically, some of the requirements for companies applying for a Class 4 license have been tightened, such as the required share capital of €730,000 and the license fee, which is a one-time fee of €12,000 and a minimum annual fee of €25,000. However, given the near-pioneering nature of the solutions presented by the Maltese, it's worth keeping this country in mind when planning future blockchain-based ventures.

Next Thursday we invite you to a post about the regulations regarding cryptocurrencies introduced in Switzerland.

This alert is for informational purposes only and does not constitute legal advice.

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