Interview with Dr Justine Scerri Herrera by Massimo Costa from Business Today
Blockchain … the beginning of a new revolution
Justine Scerri Herrera is a warranted Maltese lawyer currently specialising in the blockchain and cryptocurrencies sector, specifically in relation to advising clients (Issuers and Service Providers) on products, activities and licences related to the new Maltese VFA (Virtual Financial Assets) regulations
As a lawyer, how did you become interested in blockchain?
Four years ago I was a lawyer studying for a Master’s in the Netherlands, in global criminal law, and one of my subjects had to do with cybercrime. Subsequently, I decided to focus on the jurisdiction in cyberspace for my thesis, and while writing it, I came across the word “Bitcoin”. I started doing research on the topic and found out about things like the Dark Web. When I graduated, I began working as a lawyer in the criminal area and then investment and banking.
Later, I heard that the Maltese government was discussing blockchain, and I realised I was knowledgeable about the subject.
Eventually, I decided to quit my job and dedicate myself full-time to researching and writing about the blockchain area. Last October, I managed to land a job with my current firm, MK Advocates and Legal Consultants, where I set up a Virtual Financial Assets (VFA) department.
What does your work in relation to blockchain consist in? Are they many lawyers working in this sector in Malta?
Regarding the number of lawyers in this sector in Malta, a handful have applied for a VFA agent’s license. Anyone who wants to regulate or apply for certain cryptocurrency or blockchain related activities and licenses locally must appoint a VFA agent. Therefore one needs a VFA agent’s licence in order to service clients in this sector. With the new business opportunities and the new laws on the blockchain, lawyers have seen a window of opportunity to branch out.
In terms of my work, roughly 40% of my time is spent reading and writing about crypto and blockchain and participating in international conferences – it’s essential that one keeps constantly updated in this rapidly evolving area. The remaining 60% of my time is spent servicing clients who deal in the blockchain and cryptocurrency ecosystem. Through our services, we contribute to building a secure regulated infrastructure for these players and ensure that they operate in a compliant manner.
What do you feel is the potential of blockchain, apart from cryptocurrency? What can it be used for, concretely?
Cryptocurrency works on blockchain – it is its underlying technology – but they are not one and the same since blockchain has many functions and uses.
Blockchain is a distributed public ledger working on a decentralised network. It was originally intended for Bitcoin – the most famous cryptocurrency – but other potential uses within the technology, which is public and transparent in nature, subsequently emerged.
Through blockchain, the middleman in financial transactions basically becomes redundant – there is no need for him. One major potential transformative use applies to capital markets. When it comes to integrating this technology within capital markets, we are in the initial stages of something big.
One of the major uses of blockchain is for security tokens in capital markets. A security token involves the tokenization of traditional securities, which are then traded and recorded on the blockchain. In this regard, blockchain does away with middlemen such as clearing houses and banks.
Another important use of blockchain is in supply chains, where, through the technology, tracking is possible, so one can ensure that a good or service has arrived at its destination or has been delivered.
Something to keep in mind is that, just because blockchain is a good technology, it doesn’t mean it is useful for every business. If a business’ system of centralised ledgers is getting the job done well, then that company doesn’t need to use blockchain.
Why is it so important to regulate blockchain?
Over the past months and years, there have been a lot of scams and hacks when it comes to blockchain, and money has been lost. In Japan, for instance, an exchange operator has had over $500 million in funds stolen from it by hackers. These episodes highlighted the fact that the sector needs to be regulated.
Unfortunately, for various reasons, 90% of ICO (initial coin offering) projects have failed, which has given the industry a bad name. I believe that if 90% of that 90 % decided to take the regulated route then such projects would have stood a better chance of being successful.
Regulation protects investors (token buyers), maintains market integrity and validates the industry. Moreover, these technologies need to be audited and certified, because, if the technology is flawed, then the product is flawed.
Will regulation help counter the criticism that the technology can be used for illegal purposes, such as money laundering and terrorism financing?
Money laundering, unfortunately, will always take place somehow, be it through complex offshore structures, corrupt banks or smuggling large amounts of cash by sea. Unfortunately, it will happen through crypto too.
If you look at cryptocurrencies, some are anonymous and some aren’t It’s a misconception that Bitcoin is anonymous, because governments and police forces have now found ways to trace the source behind Bitcoin payments, using public addresses on the blockchain.
The possibility to launder money and conduct illicit activities also applies to traditional financial services. It is more about having the proper policies and procedures in place to prevent illegalities – regardless if we are talking about traditional banks, placing cryptocurrencies on the market or operating a crypto exchange.
Is the association between blockchain and cryptocurrencies – such as Bitcoin – with illegal activities, unfair?
It is unfair but understandable, because, when it first started, Bitcoin was often used for illegal activities. Now that Bitcoin can be traced, those wanting to conduct illicit practices are using other cryptocurrencies. It is possible that in the future exchanges opt not to list certain privacy (non-traceable coins) if regulation and governments ban them for being untraceable.
But I also think that, gradually, people are understanding more what crypto is, so the association with illegal activities might be somewhat lessening. It’s all about education.
I get the impression that the common man in the street doesn’t really understand what blockchain is. Do you think technology will eventually become something we all know and use?
Let’s look at it this way: almost everyone uses the internet, but most don’t really understand how the technology works. Blockchain will be the same – it will be used in everyday life, but people won’t necessarily know they are using it. Some of the world’s largest companies, such as Amazon, Facebook and JP Morgan are either researching the technology’s functions or already using it.
Of course, the use of blockchain will depend on the industry itself. Cryptocurrency, for instance, could start being used as a more widespread means of payment, but there are still several issues which need to be solved.
I am, however, a true believer in the technology, since it presents many benefits, such as cutting costs and providing transparency.
We are in the infancy stages in terms of adoption, but I think mass usage is only a matter of time. Just as people did not understand and realise the potential of the internet in the early 1990s, for blockchain and potentially cryptocurrencies, the situation will be the same – we are now in the beginning of a revolution.
Can traditional banking models and blockchain co-exist?
Banks may feel threatened by cryptocurrency and blockchain, one of the reasons for which is because they make their money through lending activities and charging transfer and exchange fees, and so on. So if two people can send money directly to each other, without the need for a traditional middleman, such as a financial institution, this isn’t a good thing for banks.
This said, I think people who have access to traditional banks will adopt the new technology very slowly. But for that 39 % of the world who don’t have access to banks, blockchain technology through cryptocurrency can give them financial access.
Not having access to banks is a global problem which inhibits persons from benefitting from economic opportunities, so crypto and blockchain can serve the purpose of financial inclusions for these people.
Until we have widespread usage of cryptocurrency around the world, existing banks will continue to operate in tandem with cryptocurrencies which are serving the purpose of financial inclusivity for unbanked people.
According to some, such as Erik Finman, a teenage “bitcoin millionaire”, Bitcoin is dead. Is he wrong?
I definitely would not say Bitcoin is dead – it remains the biggest cryptocurrency, and many token issuers who want to raise funds for ICOs use Bitcoin.
But it now has some fierce competition from other cryptocurrencies. We are seeing the emergence of cryptos which solve some of the problems which inhibit mass adoption of Bitcoin, such as volatility and scalability.
In terms of whether cryptocurrencies will continue to exist, I might be a bit biased in my opinion, but unless there are major barriers from government and financial institutions, I’d say they are here to stay.
Cryptocurrency is an evolution of money, and it offers greater control of funds, so I don’t think it’s going to cease to exist.