Is cryptocurrency a technological disruptor? : a study on how cryptocurrency can affect the Maltese financial sector

Abstract

Until recently, the mention of the word Bitcoin, provoked responses such as drug trade (Silk Road), money laundering, terrorism funding, and the dreaded on-goings on the dark web. Following the phenomenal rise in the price of Bitcoin in December 2017, cryptocurrencies, in particular Bitcoin, have garnered some respect. Slowly, it is being realised that Bitcoin is here to stay, together with its underlying technology, Blockchain. Furthermore, it has suddenly become apparent that this technology could prove to be an opportunity, if regulated with the right touch. This study explores cryptocurrency as a technological disruptor, it also examines whether it can replace traditional payment systems in Malta and how the financial sector can adopt cryptocurrencies safely and effectively, while minimising the inherent risks associated with it by means of regulation.

Through primary and secondary research, the questions posed above are explored and answered from a Maltese perspective. The primary research consisted of one-to-one structured in-depth interviews with relevant players connected to the financial sector in Malta, either directly or indirectly. Indeed, a total of 14 high ranking individuals working in the financial sector participated in this study. This provided a real-time snapshot of the situation concerning the objectives of the Maltese Government and the regulations being passed through Parliament at the time of writing. The secondary research consisted of a literature review, gathering data and snippets of information on a global and local scale, giving a contemporary review of the situation regarding cryptocurrencies and blockchain.

Whereas, until recently, cryptocurrency exchanges where generally seen, by the various Government Authorities around the world, as a way to move money under the radar. Some countries, such as Malta, for example, have recognised that the new emerging technology, if properly regulated, could prove to be an opportunity to the country, providing jobs and growing the economy. As a result of the research conducted, it was found that although cryptocurrencies could be technology disruptors in their own right, it is more likely that the real disruption will emanate from the underlying technology - Blockchain. The reason for this is that Blockchain has the potential to replace almost every database that currently resides on individual servers. It was also concluded that it would not be presently possible for Malta to digitise its current Fiat money, in other words the Euro, primarily because of its commitment to the Euro project as a full member of the EU. However, one proviso to this statement is, that if the EU decides to digitise the Euro itself then Malta would have to follow suite. In any case, from the primary research conducted it results that there is consensus that should cryptocurrencies be allowed, then some form of regulation to prevent criminal activity and abuse such as money laundering, arms dealings, funding of terrorist activities and other criminal acts would be absolutely necessary. It is also widely agreed by all parties that it would be more beneficial and effective to regulate the workings of the blockchain rather than the cryptocurrency itself.

Should the Maltese Government manage to achieve the right balance of regulation allowing exchanges to operate relatively freely without a harsh intervention, the potential of this new industry could even supersede the success of the iGaming sector in Malta, which has been very successful, indeed. One reason for this is that blockchain is multi-sectorial in that it is applicable in every sector as opposed to just the iGaming sector.