The Old Continent is undoubtedly one of the best places in the world for incorporating a blockchain company. On the supranational level, the European regulators have taken a pro-innovation approach towards the advancement of DLTs and cryptocurrency, and they’ve been largely supportive towards various crypto projects and startups.
The overall pro-blockchain climate, relatively low corruption, and world-class talent are, however, just a few of the many factors that attract crypto startups to incorporate in Europe. The EU unites 500 million people with significant consumer buying power in one single market, and hosts almost 40% of all ICOs world-wide.
That being said, the national laws regulating cryptocurrencies aren’t harmonized across the Union and, naturally, some member states offer a far better business climate to crypto startups than others.
Let’s take a look at the top three EU countries in which to start a crypto or blockchain business.
Cayman Islands (Wait, What?)
Even though EU laws do not apply directly to them, the Cayman Islands are considered (under the Treaty of Rome and successive EU treaties) as Overseas Country and Territories of the EU (OCTs). In 2018 the Cayman Islands overtook Switzerland as the 2nd leading country in the world, considered in funds raised through ICOs. Within the first 5 months of 2018, the Cayman Islands hosted ten ICOs that raised over $4.2 billion.
As it stands, the Cayman Islands’ authorities have not issued any cryptocurrency-specific regulations. While they’re working on a sound and effective crypto-specific regulatory framework, the existing AML, money services, mutual funds, and securities laws apply (on a case-by-case basis) to ICOs and established crypto businesses.
Furthermore, crypto projects, much like all international financial businesses established on the Caymans, greatly benefit from its high-quality financial infrastructure with well-developed connections to almost all of the financial centers in the world. The Islands also have a reputation for having one of the most ‘relaxed’ tax regimes (no income, capital gains, wealth, or inheritance tax) and non-existent currency exchange controls.
The Cayman Islands are one of the top destinations in the world for businesses seeking privacy, efficiency, and safety. And the diving’s good, too.
After the breakdown of the Soviet Union in 1991, Estonia managed to transform and catapult its economy into one of the most successful economies of the EU’s newer member states in record-breaking time. Crypto startups love Estonia because of two things: stable, accessible and open government, and Estonia’s dedication to creating “the most advanced digital society in the world.”
The country’s self-proclaimed nickname “E-stonia” is well deserved; Estonia was one of the first in the world to implement e-Governance, e-Tax, digital ID, e-Voting, e-Health and, finally, its most notable digital project – e-Residency. Furthermore, Estonia has utilized blockchain technology in its health, judicial, legislative, security and commercial code registries since early 2012. Yes, you read that right. Not experimental, but fully operational!
In the first 5 months of 2018, ICOs in Estonia raised over $323 million, making it the 7th leading country in the world in funds raised through ICOs. Indeed, that’s an incredible feat for an ex-Soviet country with a population of ~1.3 million, but it shouldn’t come as a surprise. Estonia’s business ecosystem is second to none; you can literally set up an LLC (online) in an hour for less than €5,000, and if there’s anything you need help with regarding your crypto/ICO project, the Estonian government is there for you 24/7.
Unlike the Cayman Islands, Estonia regulates cryptocurrencies fairly precisely. Cryptocurrency exchanges and custodian wallet providers are required to apply for licenses and register with the Estonian Financial Intelligence Unit (FIU) and, in regard to ICOs, the Estonian Financial Supervisory Authority (EFSA) maintains that in some cases “coins and tokens may qualify as securities according to the Estonian legislation.”
While other jurisdictions are still stuck in the old paradigm of seeing crypto regulation through the eyes of the old financial world, Malta is doing things differently. Instead of merely licensing crypto businesses as MSBs or ICOs as securities, the crypto archipelago is looking at the technology behind the white paper. As Silvio Schembri, Malta’s Junior Minister for Financial Services, puts it: “If the technology is flawed, the product won’t deliver what is started in the white paper. We are looking heavily at the technology behind these blockchain-focused companies.”
Instead of making crypto startups jump through the hoops of Malta’s Financial Services Authority (MFSA), the Maltese authorities decided that, in the long run, it would be much smarter if a new and technologically competent body audited and licensed the businesses. The newly established Maltesian Digital Innovation Authority (MDIA) will determine whether a crypto business is eligible to obtain a license or not solely on the basis of the code in the white paper.
This radically different approach to crypto regulation is what put Malta on the world map as “the world’s first blockchain island,” attracting major crypto companies such as BitBay, Binance, and OKEx.
On July 4, 2018, the Maltese Parliament passed 3 crypto-specific bills into law which, according to Mr. Schembri, makes the country “the first world jurisdiction to provide legal certainty to this space.”
The first bill known as the Malta Digital Innovation Authority Act (MDIA Act) outlines the duties and responsibilities of the newly established Digital Innovation Authority. The MDIA will “certify DLT platforms and provide legal certainty to users wishing to make use of a DLT platform.”
The second bill known as the Innovative Technology Arrangement and Services Act (ITAS Act) deals with the setting up of cryptocurrency exchanges and their certification.
The last, third bill known as the Virtual Financial Assets Act (VFA Act) establishes the regulations governing ICOs, exchanges and custodian wallet providers. The newly inaugurated regulations are based on the principles of market integrity and consumer/industry protection.
As it is now, the results of Malta’s approach to crypto regulation should serve as an exemplar to EU’s lawmakers currently working to get an EU-wide regulation out. In fact, the Old Continent has much to learn from all three of these countries – the cryptocurrency industry is global, ever-evolving, and in dire need of legal certainty – the sooner the EU adopts a decisive stance regarding cryptocurrencies and DLT, the greater its prospects of becoming the true blockchain hub of the world.
The author is not currently invested in digital assets.