Edward Mallia’s article ‘Bitcoin- what’s that?’ (January 28) prompts me to enter the fray after having read, over the past few years, so much that has been written in both the local and foreign printed media on the vagaries of Bitcoin and other cryptocurrencies.
Obviously those who have an interest in promoting such virtual currencies claim that this is the best thing to happen in the financial services; the main reason given being that we no longer need banks to make money transfers and thus avoid bank charges altogether.
However, on balance, much of what I have read was negative and highlighted the dangers of what is a purely speculative and unregulated financial instrument.
I start with the local scene.
In the last quarter of 2017 the Malta Financial Services Authority issued a stark warning advising the public to exercise caution and be vigilant when dealing with virtual currencies and to ensure that the risks involved are well understood.
It was emphasised that the value of a virtual currency can change quickly and could even drop to zero. Indeed, only a few days ago the Bitcoin value fell by as much as 30 per cent in a single day. The main exchange platforms that deal in Bitcoin could not keep up with the demand to the extent that holders were told that they could not switch out into dollars or euros before another 10 working days.
Other dangers, which the MFSA pointed out, was that virtual currencies are vulnerable to misuse for criminal activities such as money laundering and that law enforcement authorities could therefore decide to take action against or even close exchange platforms.
Moreover, such exchanges are not banks and if a platform loses money or fails there is no specific legal protection and money can be stolen from one’s ‘digital wallet’ which is stored on a computer in an unknown location.
It is worth noting that the MFSA’s warning was issued soon after BitMalta, a group of professionals bent on raising awareness on the technology, was reported as having submitted a list of proposals to Gaming Parliamentary Secretary Silvio Schembri to incentivise companies involved in cryptocurrencies to move to Malta.
Is sufficient thought being given to the risk of Malta getting even more bad publicity for facilitating money laundering?
Earlier, Prime Minister Joseph Muscat announced that Malta would be leading the race to embrace the Blockchain system.
This is the platform used by digital currencies but transactions are independent of a central bank. A conference was also held in Malta by promoters of the Blockchain technology and we have even seen Bitcoin ATMs sprouting in various localities in Malta.
So one is bound to ask: are we running before we can even walk? Is sufficient thought being given to the risk of Malta getting even more bad publicity for facilitating money laundering? Are our regulatory authorities sufficiently equipped to stamp out any abuses at the outset?
Are the Central Bank of Malta, the MFSA and even the main local banks being consulted before a White Paper is issued on the subject for public consultation?
Incidentally, it is commendable that other local banks have decided to follow the Bank of Valletta’s initiative in refusing to handle any financial transactions concerning Bitcoins or other virtual currencies.
Due to space limitations I have not gone into any detail as regards the mechanics of such currencies. Like Mallia I have enjoyed reading Yanis Varoufakis’s book Talking to my daughter about the economy.
He writes in a strikingly lucid and simple way. Among the telling points he makes is that Bitcoin, being outside the jurisdiction of any state, no one will come to your rescue when things go bad.
It is impossible to adjust the total quantity of money in the system in response to a crisis and this makes a crisis worse. The Bitcoin algorithm specifies that the number of Bitcoin in existence is essentially fixed as the quantity grows slowly until it reaches a maximum of 21 million some time in 2032.
Thus, no wonder that buyers keep rushing in as they see the price rising in the hope of making a quick profit (assuming one is able to get out quickly before the price falls again as happened a few days ago).
Warnings were made, even recently, by eminent international bankers and even the world’s most successful hedge fund manager who has likened Bitcoin to a ‘lottery ticket’. He even considers Bitcoin’s meteoric rise in recent months – even before the recent 30 per cent fall in one day – to the dotcom bubble of the late 1990s.
In conclusion, my view is a definite no to cryptocurrencies but by all means let us explore the potential introduction of Blockchain technology, with adequate safeguards, as this may well be a service that could prove to be a valuable extension to Malta’s very valuable and lucrative services industry.
Anthony Curmi is a former bank executive.