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A ‘blockchain’ is a system which can record
transactions between two parties in an efficient, verifiable, and
permanent way, where transactions made in a cryptocurrency are
recorded and maintained across several computers which are linked
in a peer-to-peer network. These records are referred to as
‘blocks’ where each ‘block’ contains a
timestamp and transaction data and once recorded, the data in a
block cannot be changed without affecting and changing the
subsequent blocks. In simple terms, blockchain is a digital
platform which is used for recording and verifying transactions
which cannot be reversed.
WHAT ARE THE BENEFITS OF BLOCKCHAIN?
The application of blockchain has the potential of impacting
various aspects of one’s life, both in personal and
professional scenarios. Blockchain provides greater
transparency for transactions. Since it is a type of
distributed ledger, all participants share the same documentation,
and everyone must agree on that shared version. Data which is saved
on a blockchain is accurate, consistent, and
transparent and once a block is linked,
it cannot be reversed. The use of blockchain
provides a more secure system, as well as
a faster and more efficient manner of
completing transactions, and this is done at a reduced
cost, without the need for third parties and other
intermediaries. Ultimately, blockchain
provides a practically instant and borderless transfer of value or
information in a secure manner.
AN INSIGHT INTO MALTA’S LEGISLATION ON BLOCKCHAIN
In Malta, the legislative framework regulating blockchain has
been divided into the following 3 acts:
- the Virtual Financial Assets Act (‘VFA Act’,
Chapter 590 of the Laws of Malta); - the Malta Digital Innovation Authority Act (‘MDIA
Act’, Chapter 591 of the Laws of Malta); and - the Innovative Technology Arrangements and Services Act
(‘ITAS Act’, Chapter 592 of the Laws of Malta).
The VFA Act seems to be the primary act which regulates
blockchain technology in Malta, setting out a number of
definitions, together with rules that protect the consumers, whilst
supporting industry growth. The VFA Act also sets out the necessary
regulatory framework for Initial Coin Offerings
(‘ICOs’) and regulates the type of virtual financial
assets (‘VFAs’) which may be issued.
The second Act, the MDIA Act, establishes the Malta Digital
Innovation Authority, defining its role, objectives, composition,
and powers. This Authority is aimed at developing the sector of
innovative technology in Malta, whilst increasing the promotion of
transparency in the use of innovative technology arrangements.
Lastly, the ITAS Act provides for the recognition or certification
of an arrangement which would be awarded according to a number of
criteria.
HOW CAN BLOCKCHAIN TECHNOLOGIES BE APPLIED TO THE MARITIME AND
SHIPPING INDUSTRY IN MALTA?
Malta is a key player in the field of Maritime and Shipping law
with one of the deepest natural harbours in the world, and the
largest shipping register in Europe. Furthermore, the Malta
Freeport is one of the most successful trans-shipment centres in
Europe.
When analysing the application of blockchain in this field, it
is evident that it could impact a large number of aspects,
including logistical, contractual and traceability aspects. It
could also impact the manner in which ships are registered, and the
way in which documentation is stored. Effectively, it
could impact the entire process involved in transactions, making
each transaction more efficient and possibly even
cheaper.
1. Reducing costs and paperwork
In the case of bills of lading for example, the application of
blockchain could improve the process involved in registering and
transferring the ownership of goods, facilitating the process of
trade for all parties involved, increasing efficiency, reducing
costs, and reducing paperwork. A bill of lading is a document which
is issued by the master of the ship and given to the person
consigning the goods, entailing a detailed list of the ship’s
cargo. This proves that the cargo has been loaded and creates a
‘contract of carriage’ between the carrier and shipper.
Very often, due to the delay of bank procedures and postal
services, the cargo is often delivered to the port, before the Bill
of Lading arrives and therefore, the cargo remains on board
unnecessarily, until the Bill of Lading is delivered. In this case,
the use of cryptographic signatures could be used in order to
eliminate distrust and improve the overall efficiency, transparency
and security of such a transaction.
2. Raising finance
Another aspect of the maritime industry which may be heavily
impacted by the use of blockchain, is in terms of raising finance.
By applying the use of blockchain in crowdfunding for example, this
decentralises the process and increases the opportunities for
growth. An ICO is generally said to be the most popular way of
raising funds within the blockchain field. This concept is becoming
increasingly popular and provides a number of benefits, including
the fact that it is borderless and thus, facilitates cross-border
trade, creating a global platform for trade.
3. Marine insurance aspects
In terms of the marine insurance industry, the application of
blockchain technologies could impact both claims handling, and also
risk assessment. When it comes to claims handling, blockchain would
enable all parties to have access to the data (for example bills of
lading), which would make the process more efficient and reduce the
risk of human errors. In terms of risk assessment, blockchain could
streamline processes by connecting brokers, insurers and third
parties to DLT platforms, and integrate this information with
insurance contracts. This would reduce the need of administrative
processes and would also reduce the costs incurred.
LEGAL ISSUES WHICH MAY ARISE WITH THIS TYPE OF TECHNOLOGY
It is important to note however, that, from a legal point of
view, there are still some issues which need to be clarified in
terms of the use of blockchain technologies across the globe. Due
to the fact that blockchain ledgers do not have a specific
location, one issue which may arise is related to the fact that it
would be difficult to identify the legal jurisdiction of any given
node in the network, which is also due to the lack of physical
connection to any given jurisdiction.
When discussing the application of blockchain technologies to
the Maritime and Shipping sphere in Malta, it would also be
necessary to analyse whether the authorities would be willing to
shift from using traditional methods of carrying out transactions,
to the use of blockchain platforms. Although blockchain has a
number of benefits, there are also certain risks which may
discourage authorities from wanting to convert from traditional
methods, to blockchain technologies. Decentralisation for example,
is sometimes difficult to guarantee, and is often expensive due to
the large amount of electrical power which is required.
THE WAY FORWARD
In Malta, all transactions are still being done through
intermediaries, which charge a significant amount of money for
their services. If blockchain were to start being applied in
Malta’s Maritime and Shipping industry, even by the Maltese
authorities such as Malta’s Shipping Registry itself, this
would allow players to transact directly between one another, and
to register ships under the Maltese Flag, without the need of using
intermediaries such as banks, custodians, and different types of
trustees (typically third-party guarantors), whilst still ensuring
secure transactions.
Before blockchain, transactions between parties required a
trusted third party to act as an intermediary in the transaction,
however, given that blockchain is a public, anonymous, and
immutable digital ledger technology, it is envisaged to transform
the manner in which transactions are currently being conducted, by
eliminating such intermediaries and creating a platform which is
not dependent on intermediaries. Having said this, it is unlikely
that intermediaries will ever disappear completely and whilst
blockchain can help to make the process of intermediation more
efficient and secure, national registries and other players will
always require intermediaries to input the data and verify
one’s identity for example. The Maritime and Shipping
industry in Malta is currently very paper-heavy, which also
involves more administrative work. All this could be avoided with
the application of smart contracts, which would not only reduce the
amount of paperwork, but would also make the process faster and
more efficient.
This also ties in with contributing to environmental
conservation and essentially, going green. Maritime transport
activities are very polluting in nature. However, through the
process of digitalisation, this could provide for more sustainable
development in the industry. Blockchain technology is a
highly-researched and frequently discussed topic at the moment,
however when it comes to the application of blockchain technology
in the maritime sector, there is a lot which is yet to be done.
Its potential in the field of Shipping and Maritime Law is an
extensive one, which could completely revolutionise the way in
which things are currently being done and would provide a more
secure and tamperproof platform for transactions to take place. In
addition, if blockchain were to be adopted by public authorities,
it would have the potential to bring about numerous benefits in
this regard, such as reducing the amount of paperwork involved and
thus transforming the sector into a more environmentally friendly
one, streamlining the bureaucratic process, ensuring faster and
more secure regulatory approvals, and reducing costs of certain
intermediaries, among other advantages.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.