Cyprus, Malta and Gibraltar are competing for the title of “Blockchain Island”. But despite their blockchain-friendly governments, none of these jurisdictions has so far achieved the same progress as Liechtenstein.
Hedge funds register on the Cayman Islands. Online poker companies incorporate in Malta or Gibraltar. And where does the blockchain industry go?
Besides Bitcoinstein and the Crypto Valley – the “Blockchain Islands” have now appeared on the radar. In Europe, those are Cyprus, Malta and Gibraltar.
As blockchain technology evolves, governments are competing for the jobs, technological innovation and tax dollars associated with it. Mediterranean islands seem especially eager. Due to their isolated nature, these islands are not competitive in other areas. Besides tourism, attracting finance and tech businesses therefore offers diversification opportunities.
Smaller countries can also draft regulations more quickly. Their speed and flexibility are major advantages for emerging industries that are not yet attracting enough volume to make it onto the top of the priority lists of lawmakers in countries like Germany or France.
But where is the real blockchain island? Is it Cyprus, Malta or Gibraltar?
Cyprus: Banks will give you a hard time
Cyprus offers some of the lowest corporate tax plans in Europe. Low taxes combined with low bureaucratic demands have made the island attractive to all sorts of businesses.
Recently, Cypriot institutions began creating a blockchain ecosystem. In August 2018, the Cyprus Security and Exchange Commission (CySEC) has launched an innovation hub focusing on cryptocurrencies. Another example is the University of Nicosia, which offers courses on both blockchain and cryptocurrency.
But Cyprus is not yet ready claim the title “Blockchain Island”.
The economy and the banking system were heavily hit by the 2008 financial crisis, followed by the 2012-2013 Cypriot financial crisis. That, combined with the current state of the Greek economy, has slowed down the banking sector.
Moreover, Cyprus has not yet drafted any crypto- or blockchain-specific regulations. The lack of legal certainty further complicates the interaction with the traditional banking sector.
“It’s almost impossible to open a corporate bank account for a blockchain startup,” says George Agathangelou, Chief Business Development Officer for Cyprus-based Universal Crypto.
Malta: friction with EU regulations
Malta has also put crypto and blockchain-specific regulations in place:
The Innovative Technology Arrangements and Services Bill regulates crypto exchanges.
The Virtual Financial Assets Bill concerns ICOs and states that fundraising campaigns have to prove their legitimacy with a whitepaper and other regulated documentation.
The Malta Digital Innovation Bill created the Malta Digital Innovation Authority, a body meant to supervise the blockchain industry.
Malta has also introduced a “Financial Instrument Test,” which will be used to identify whether or not a token is a security.
So, if there is a “Blockchain Island,” is it Malta rather than Cyprus?
While Malta is trying to draft favorable regulations, the country is also a full member of the European Union. Hence, all these laws will have to comply with EU laws. But it seems they don’t.
There is friction with the EU’s GDPR laws, which regulate data protection. Also, Malta is the first EU member state that has ever been ordered to get its anti-money laundering (AML) rules sorted. A report by an EU committee in January 2018 stated, “general and systematic shortcomings” in Malta’s enforcement of AML rules.
And there is history.
Daphne Caruana Galizia, a Maltese investigative journalist was killed by a car bomb in 2017. She was investigating a corruption and money laundering case involving a leading Maltese bank and high-ranking government officials. The EU report from January said the “perceived culture of fear dramatically escalated with the assassination of Mrs. Daphne Caruana Galizia.”
Does that sound like legal certainty?
Gibraltar: a transient business community
Technically, Gibraltar is not even an island. It’s a peninsula and a self-governing British overseas territory.
Just like Malta, it’s also heavily populated by gambling businesses. And like Malta, Gibraltar is also trying to replicate the success it achieved in the online gaming sphere, by giving out licenses to blockchain firms.
So far, 35 companies have applied to the government for such licenses. In November 2018, the Gibraltar Blockchain Exchange (GBX), a token sale platform and digital asset exchange, has been granted a full license by the Gibraltar Financial Services Commission (GFSC).
Another advantage of Gibraltar is that it has access to the entire European Economic Area (EEA) but also to a post-Brexit UK, as recently confirmed by British Authorities.
However, this connection might turn out less smooth than expected. Early this year, leading UK banks like RBS started to refuse any crypto transactions originating from Gibraltar.
Also, Gibraltar’s financial industry is not that well developed. There is a general lack of funding within the territory’s borders and a lack of financial services and FinTech professionals. Many founders just fly in to do a day’s worth of business before flying out again in the evening. There is no blockchain ecosystem and “community” atmosphere like in Vaduz or Zug.
Cyprus, Malta and Gibraltar all make efforts to attract blockchain businesses. But the truth is, none of them can combine all of the advantages that Liechtenstein offers: legal certainty, access to the European market, an armada of tech and financial industry professionals and easy access to financing.
Thus, if you are thinking about where to incorporate your blockchain business, leave your swimwear in the wardrobe and pack your hiking shoes. We’re going to the Alps.