Albanian Parliament approves comprehensive regulatory framework for cryptocurrencies

TIRANA- Today, the Albanian Parliament has approved the law  on ‘Financial Markets based on Distributed Ledger Technology’. The law aims to regulate the operation of DLT Exchanges, Initial Coin Offerings, Security Token Offerings, Third Party Custodian Wallet Providers, Automated Collective Investment Undertakings and Innovative Service Providers.  

The regulatory framework comes as an attempt from the Albanian government to incentivise foreign investments and start-ups in this field by providing a comprehensive and certain regulatory system for them to operate.

The main aspects of this law seem similar to those of the Virtual Financial Act of Malta. However, in a breakthrough development, the law also foresees the provision of a Light Banking Licence for Exchanges and Custodians which will enable the latter to also keep custody of FIAT money, thereby providing a better link between this industry and traditional finance. 

In order to address money laundering risks, the law foresees that all operators in this market are subject to AML provisions and are obliged to conduct KYC, due diligence and also periodically report to AML officers.

For a courtesy translation of the law in English, please click on the following link: tinyurl.com/y8uuww8k

What is a ‘blockchain’?

In order to describe the main features of a blockchain, we are going to illustrate the functionalities fo the first blockchain, namely the Bitcoin blockchain. 

The Bitcoin blockchain – a decentralised public transactions ledger, enabled for the first time in history the possibility of two or more distant, untrusting parties to directly complete transactions without any intermediaries being involved in the process. It does so by incorporating rules designed to incentivise the propagation of legitimate transactions, to reconcile conflicting information and to regularly check the true state of the ledger in an environment where not all transacting parties can be trusted.

In essence, it is a shared public ledger that everyone can inspect but no one controls, thus enabling trusted transactions authenticated by mass collaboration and powered by collective self-interest rather than public authorities or corporations.

In more simplistic terms, the blockchain is a decentralised ledger representing every transaction that has ever been conducted. It offers an opportunity for two or more unknown trust-less parties to transact with each other by establishing a record of who owns what that compels the assent of everyone involved. It is precisely this feature of facilitating secure direct peer-to-peer economic transactions without the involvement of third parties that has led to the blockchain being dubbed as the ‘trust machine’ and its proponents to call for a wider application of this technology in various domains of public and private sector services.

While the usage of the cryptocurrency Bitcoin has gained infamy mainly related to its price volatility and usage to supplement criminal activities5, its underlying technology, namely ‘the Blockchain’, offers a great potential for further application across multiple disciplines. For example, in a world where an estimated five billion people are deprived of fully accessible and inalienable property rights  the possibility to securely store your property rights in a decentralised incorruptible public ledger may soon alter the ways in which property transactions are conducted in the future. 

Another example can be the remittance sector, a ca. 2 billion dollar market in Albania, in which blockchain technology can dramatically lower transaction costs that normally skyrocket to almost 10% of the amount to be sent, into a mere 0.1%. 

While the future of cryptocurrencies like Bitcoin and Ethereum is unclear due to its volatility and infamy, the underlying blockchain technology is here to stay. 

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