You’ve probably heard of cryptocurrencies such as Bitcoin or Ethereum whilst you’ve been going about your everyday life but do you really know what they are? These are two of the most popular cryptocurrencies on the market, they are basically a digital currency which utilizes encryption techniques in order to enhance security during the trading process. Cryptocurrency in Malta is sometimes referred to as virtual currency, is made up of a number of virtual coins which can be generated using a process called mining, this involves solving a series of complex mathematical algorithms. Coins can be used to pay for goods and services in a similar way to any other form of electrical payment using a blockchain platform, which is a peer-to-peer technology that ensures transparency and accountability during trades.
What is are the benefits of a cryptocurrency over traditional currency?
The main benefit that cryptocurrency has over traditional currency is that is free from government or institutional influence. Whilst traditional currency is made and distributed by the government of a country, cryptocurrencies are created through the mining process. Miners receive cryptocurrency in exchange for solving complex algorithms, there is no government involvement and so miners have more control over the currency. To date, users of cryptocurrencies all agree that it is more difficult to create believable counterfeit cryptocurrency than it is with traditional currency, making it a lot safer.
Cryptocurrencies are also considered to be more economical to manage than traditional currencies. This is because transactions processed using a cryptocurrency do not need a ‘middleman’ because they are simply recorded by the blockchain database. This eliminates expensive transaction fees that can often occur when using electronic payments as they need to be processed by a third-party.
Security and anonymity are also major benefits of using a cryptocurrency. Once coins have been mined they are stored in an encrypted digital ‘wallet’ with the balance being monitored via the blockchain database. Users of cryptocurrencies are only ever identified by the address of their ‘wallet’, which is simply a series of alphanumeric characters. This means that users cannot be identified when trading using cryptocurrencies, unlike traditional currencies where transactions can easily be linked to bank accounts. Cryptocurrencies are also more difficult to hack thanks to the security of the blockchain network and the fact that a third party storage system does not need to be used. ‘Wallets’ are also protected using public and private keys which provide extra security.
Are there any disadvantages to using a cryptocurrency?
As with everything, there are always downsides and with cryptocurrencies, this comes from the volatility of the market. The value of the currency can fluctuate sharply and lack of protection from government or financial institutions can mean that it can be an investment risk. There is also limited acceptance of the currency around the world, perhaps because it is new and unknown to people but also because some are distrustful of the idea that transactions can be anonymous and could mean that the currency is used for illegal activity. This means that government buy-in looks unlikely, meaning that any schemes leading to protection of the cryptocurrency are a long way off.
What is the legal situation of cryptocurrency in Malta?
The way in which cryptocurrencies are seen by governments around the world differs. Some acknowledge that it is an alternative to legal tender whereas others regard it as a completely separate asset class or payment method. At the current time, cryptocurrencies are unregulated under Maltese law and exchanges of cryptocurrencies are seen as equivalent to commodity trading. Any company or individual wishing to make use of cryptocurrencies do not currently need to seek any authorisation from the Malta Financial Services Authority (MFSA).They would need to seek permission, however, if they qualify as a collective investment scheme or if they were in any way carrying on the business of a financial institution or payment service provider. There is also no need to, at the current time, to seek licensing in regard to investments as cryptocurrency is not yet considered to be an investment instrument.
To ensure all transactions in cryptocurrencies remain legal users should be aware that there are potential pitfalls out there. Unfortunately, the anonymity that the currency enjoys along with the inability to reverse transactions means that it attracts users who are unscrupulous in their activity. Users should, therefore, be on the lookout for fraudulent crowdfunding schemes or ICOs and securities fraud. It is also worth noting, that in order to complete a transaction outside of Malta there may be complications in regards to the legal position of cryptocurrencies in the country with which you are doing business. This might mean there will be different regulatory requirements that have to be taken into account for transactions.
