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.