Gibraltar’s Crypto Harbour is a safe port for Fintech

2018-03CryptoHarbour

When Gibraltar announced that it was introducing Distributed Ledger Technology Regulatory Framework legislation from the beginning of January, there were more than a few people who sat up and took notice. What was it planning? With Brexit looming in the not too distant future, it sounded like the Gibraltar government had spotted an opportunity and now had a cunning plan that would hopefully prove to be much more successful than one of Baldrick’s in Blackadder.

On the other hand it is quite logical that Gibraltar, already recognised internationally as one of the world’s best financial jurisdictions, should seek to harness the power of an emerging economy on the blockchain and attract a host of new companies, i.e. Fintech start-ups. It undoubtedly gives Gibraltar a ‘first mover’ advantage in Europe, and may have the potential to perform damage limitation post exiting the EU. Since nobody really knows what the ultimate effect of Brexit will be on either the UK or Gibraltar, or indeed, what any final deal is likely to look like, setting yourself up as a centre of excellence for businesses using blockchain technology seems like a good insurance policy.

And now it has a dedicated trading exchange for ICO tokens as well. The Gibraltar Blockchain Exchange (GBX) at Crypto Harbour is a sibling of the Gibraltar Stock Exchange and it will list new tokens approved under Gibraltar’s regulatory framework. But first, what are the regulations and why are they necessary?

What is this new Gibraltar law?

The Gibraltar Financial Services Commission’s (GFSC) DLT Regulatory Framework came in to effect on 1st January 2018. This means that firms in Gibraltar that use DLT (also known as blockchain) to store or transmit value belonging to others, now have to apply for a licence from the GFSC. Nicky Gomez, Head of Risk and Innovation, said: “We are really excited to finally welcome applications from DLT Providers. The team expects to be very busy in the coming months, and are looking forward to working on some interesting and innovative ideas with applicants. Working closely and collaboratively with the financial services industry and the Government of Gibraltar has resulted in the GFSC becoming the first regulator to introduce a DLT Regulatory Framework – it is a very encouraging time and we are also looking forward to the challenge!”

Why is regulation necessary?

Blockchain technology has been developing for a few years now, but until last year it hadn’t really reached far outside a small community of cyberpunks and technology geeks. Its core concept – decentralisation – is the antithesis of the centralised organisation of Big Finance worldwide, and for many of its supporters, the anarchic nature of the blockchain is one of its big attraction. If you look at the crypto market it neatly divides into three ‘fandoms’: those who believe in its ideology, those who admire the technology and those who are in it for the money.

Eva Kaili, writing for Coindesk explained why regulation is needed: “Neither an infant nor an adult, the technology is like a teenager who has already shown strong potential and raised great expectations. But, as it happens with all the teenagers, in order to materialise their potential, they need a disciplined framework, some boost of confidence, a feeling of certainty and the wisest possible direction when necessary.”

We have seen real enthusiasm for DLTs, but we are also seeing resistance coming from traditional players and business models. Some investment banks are adopting it, whilst others have denounced it as a “fraud and a Ponzi scheme.” This is particularly noticeable in relation to Bitcoin, which is only one element of the blockchain technology ecosystem, but when you read the mainstream media, you might be lured into thinking that Bitcoin IS the blockchain. It isn’t remotely, but as newcomers try to understand this emerging tool, there is a lot of poor information out there.

Regulation is also needed because there are some bad actors out there who prey on the uninformed consumer. Having regulations for blockchain start-ups issuing tokens in their Initial Coin Offerings (ICOs) weeds out those businesses that only wish to scam investors and whose business proposition can never succeed. A regulatory framework will establish confidence in the blockchain’s huge potential to revolutionise everything from property sales to healthcare and banking, and more. We have not really explored where it can go, but it has ‘the sky’s the limit’ possibilities.

It is a disruptive technology. As Ms Kaili said:”The emerging business models democratise the value chains, remove transaction costs, optimise the allocation of resources and risks, expand the social inclusion and improve the quality of services and products we receive as customers and as citizens.”

The European Union is enthusiastic about blockchain and plans to create a level playing field for both DLT firms and consumers that guarantees legal and institutional certainty.

There is also debate over ICOs. Are the tokens a security or a commodity? The U.S. regulator has decided on  ‘a security’ but as Kaili pointed out in her article, Europe is taking a more modern approach. It says these old labels don’t fit the new technology and that an ICO is an ICO. It’s different, but regulation is needed to help firms expand this method of crowdfunding while also making investors feel more comfortable with it. And that is where Gibraltar hopes to make significant progress, especially following the hugely successful ICO for the GBX in early February.

The GBX at Crypto Harbour

GBX aims to be one of the world’s first licensed and regulated token sale platforms and digital asset exchanges operated by an EU regulated stock exchange. The company also aims to develop the capacity to be able to support projects at any stage of their development covering all of their business service needs. And it intends to set a higher standard for token issuance and trading for the benefit of all market participants.

GBX offers the Rock Token (RKT) on the Ethereum blockchain and the owners are known as ‘Rockers’ and ‘Rockstars”. During the advance private sale, GBX raised US$21 million. An Early Access sale followed on 7th February and the General Public Token Sale, which started on 8th February, sold out to the tune of $27 million in nine seconds.

As Nick Cowan, CEO of GBX said: ““We’re very excited to share the Rock Token with the world. Everyone at the GBX is fully committed to blockchain technology and its potential to change the way that people build their own projects.” No doubt, he is somewhat surprised at the speed with which the token sale achieved its hard cap, which was scheduled to last until 14th February. It didn’t even make it to the first minute, never mind six days.

Who will follow in Gibraltar’s footsteps? That remains to be answered. But for now, one of the smallest jurisdictions in Europe is leading the way with its regulatory framework and its innovative GBX exchange. Its Crypto Harbour aims to be a safe port for the Fintech industry worldwide and with its “We will rock you!” attitude, it seems fairly certain that Gibraltar is going to continue its financial success by taking a leap of well-informed faith into the future.

 
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