Malta as the Upcoming Blockchain Capital of Europe
Blockchain, Cryptocurrency and Other Usage in the Gaming Industry
Blockchain is without any doubt one of the technologies most talked about in the world today.
The Maltese Government has recently announced a drive to promote innovation and to make Malta the blockchain capital of Europe. Being at the forefront of innovation in the gaming sector, but also enhancing Malta’s reputation and economic activity in other areas of the economy is crucial.
Cryptocurrencies, such as Bitcoin, Ripple or Etherium, just to mention a few, make use of blockchain technology. Essentially, they are digital money in which computational algorithms rather than central banks or financial authorities, are used to regulate the generation of units of currency and verify the transfer of funds.
The authority’s approach to the acceptance of cryptocurrency as a form of payment using a controlled framework (as a test and learn environment) is a sensible step forward that balances risk with opportunity through a well thought out and coordinated initiative.
Blockchain, however, is not just limited to cryptocurrencies in its adoption and usage. The technology provides an innovative model, which along with the world wide web, delivers an infrastructure for the recording and verification of data on a distributed platform. We are now seeing the latest wave of blockchain, generally referred to as blockchain 3.0, which embraces wider adoption in areas of government, healthcare, transportation and energy.
The Malta Gaming Authority is in fact looking into other possible applications of blockchain technology to further enhance the regulatory landscape in Malta and truly make it future proof and innovative.
One such area being considered is a Unified Self Exclusion platform residing on such technology. It is still early days in this ambit but work has already commenced in exploring this project.
Definition of a blockchain and its advantages
What is a blockchain? The blockchain, is essentially a software database which creates a revolutionary way of storing, retrieving, allocating and interacting with digital assets, such as cryptocurrencies or smart contracts, in a secure and transparent manner.
The blockchain is a global online distributed database which anyone, from anywhere, with access to an internet connection can safely and transparently make use of.
Unlike traditional databases which are generally owned by central figures such as banks or governments, a blockchain does not have one central figure owning and regulating it, and with an entire network looking after it using the distributed concept, cheating the system by faking documents, transactions or other information becomes extremely difficult if not near impossible.
Blockchain stores information permanently across a network of computers. This not only decentralises the information but distributes it to all nodes (computers) on the network, too. Since, blockchain applications may have millions of users it is almost impossible for one person to hack the system or take down the entire network.
The many people who run such systems use their own computers to hold packages of records submitted by others. These records are known as blocks. Each block has a timestamp and a link to a previous block, forming a chronological chain of records. One can view the information stored in a blockchain, add records to it, but more importantly one cannot alter information that is already stored on the blockchain. This is achieved using the cryptography techniques mentioned earlier.
Since their inception in 2009, Bitcoin and other cryptocurrencies have gained in popularity and consumption. According to a study published by the University of Cambridge in 2017, the current number of unique active users of cryptocurrencies is estimated to be in the region of 2.9 to 5.8 million users with up to 11.5 million wallets currently estimated to be active.
Risks of Blockchain technology and preventative activities
The Malta Gaming Authority has been closely following the rise of blockchain and cryptocurrencies. Conscious of the need to remain at the forefront of innovation and to keep up with new developments in technology and the industry, as well as being fully aware that the system at the back of such transactions provides the industry with fast and cost- effective alternatives to traditional payment mechanisms, the Authority is committed to allow the use of cryptocurrencies by its licensees in the immediate future.
Having said that, the Authority is mindful that there are also risks which have to be addressed in order to ensure that such developments do not prejudice the protection of players, the importance of the prevention of crime in line with the 4th Anti Money Laundering directive and the reputation of the Maltese jurisdiction. To this effect, the Malta Gaming Authority commissioned a study
to assist in the development of an all-encompassing framework, to be inclusive of all necessary safeguards.
While the risk discovery process highlighted challenges in the adoption of cryptocurrency it also served to confirm that through a robust framework, a contained approach and proper guidance, the risks associated to cryptocurrencies may be well mitigated.
The Authority has embarked on a journey in identifying a potential way forward to develop the right balance of measures which will safeguard the gaming industry against such risks but without stiffing innovation and suffocating the legitimate use of cryptocurrency.
Cryptocurrencies in a sandboxed approach
To this effect the Authority will be looking into adopting a sandboxed approach to the acceptance of cryptocurrency in the Gaming industry. The idea is that cryptocurrency as a form of payment would be introduced in a controlled framework and for a period of time, to test the proposed controls and legislation with a view to further refining the regulatory approach. This approach is ideal since it gives exibility to be able to manage the various variable risks and allows for a track record of cryptocurrency usage in the industry to be built in a controlled manner.
The Malta Gaming Authority will be adopting a supervisory role in all aspects of the cryptocurrency introduction in the gaming industry.
The Authority will soon be publishing a framework within which cryptocurrency payments shall be permissible in the online gaming industry. The framework will include controlling parameters for operator restrictions, game restrictions, restrictions on Payment Service Providers, transaction limits and nature of transactions. The framework will also include monitoring, supervision and reporting requirements and a validity period for the authorisation granted.
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