Navigating the digital asset environment

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Ian Gauci, GTG Advocates

Q&A with Dr Ian Gauci, Managing Partner at GTG Advocates, a member of FinanceMalta…

What are the key concerns investors and managers have around security in digital assets?

Digitalisation in the past years has been ever-present, in almost all industries, with varying levels of impact. In the digital assets and cryptocurrencies realm, where we have representation of real assets/rights in a digital form, and an enumeration of the latter in digital format, technology assurance, cybersecurity as well as issues related to custodial duties have been key concerns for active players in this arena. Until ad hoc rules and regulations are harmonised and implemented, investors and managers need to assess their risks and set specific procedures. This will allow them to navigate between an environment which remains flexible and user-friendly but on the other hand, focuses on processes and solutions which do not compromise on security.

Can you outline the role technology plays in abating these worries? Are there any side effects?

The operators involved in the digital assets and cryptocurrencies arena will aim to adopt the best technologies to abate any of these risks. One of the main contenders here is DLT or blockchain. Through blockchain, the aim will be to increase security, ensure more traceability and a level of immutability. The security of blockchain technology occurs when data is cryptographically linked through the chain of blocks. This key feature however also poses challenges to reversing bad transactions or fixing unreliable software artifacts caused by code bugs or user error. Technology assurance and proper code design is paramount as it can also affect issues around cybersecurity.

Digital assets comprise of a broad range of items including, rights, personal data, certificates, assets, etc. They will exist and depend on the reliability of the blockchain. The potential risks can be substantial and may affect the users and adopters in each industry where these technologies are deployed in a multitude of ways, from loss or theft of digital assets, access rights, digital identities, personal data, trust in innovation and technology.

Looking ahead, what is the expected trajectory for technology and the security of digital assets in terms of opportunity and risk?

Technological innovation, as well as the huge potential of blockchain technology will surely open far-reaching opportunities for simplifying processes and augmenting security around the digital assets’ ecosystem. Technological innovation will be the main driver here and can also be infused or automated through regtech and suptech by any Authority leveraging on technological innovation.

We are also witnessing new legislative proposals like DORA (which covers operational resilience and cybersecurity), the proposed amendment of NIS as well as the Cybersecurity Act in the EU. I am sure that in the not-so-distant future, regulatory tools will also make sure that the technology meant to be used in the digital assets eco-system, can also be validated and ascertained through an independent audit. This assessment will be based on concrete quality of service parameters before it is deployed, particularly where the risks of any potential failure are very high and thus it would be proportionate to impose such a measure, coupled with periodical audits to ascertain that safety is sustained in the digital realm. 

Dr Ian Gauci, Managing Partner at GTG Advocates, a member of FinanceMalta

Dr Ian Gauci is the Managing Partner at GTG Advocates, Afilexion Alliance and Caledo Group. He is engaged primarily in technology law, fintech, regtech, electronic communications, fintech, information society, data protection and gaming/gambling. Ian is an advisor to the Malta Digital Innovation Authority (MDIA) as well as the Malta Financial Services Authority (MFSA). He has co-authored the Maltese Electronic Communications Framework, the Maltese VFA Legislation and the DLT Framework. He lectures Legal Futures and Technology at the University of Malta.

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