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Because of this, Germany is ranked as the most crypto-friendly country

In her monthly Expert Take column, Selva Ozelli, an international tax attorney and CPA, covers the intersection between emerging technology and sustainability, sharing the latest developments in tax, AML/CFT regulations and legal issues related to crypto and blockchain .

Germany has risen to the top of the Coincub guide to the most crypto-friendly countries in Q1 2022. The European country allows its long-term domestic savings industry to leverage crypto investments, aided by its zero-tax policy on crypto’s long-term capital gains, and its number of Bitcoin and Ethereum nodes is second only to the United States.

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Blockchain Adoption

In 2019, Germany was the first country to adopt a blockchain strategy to leverage the technology’s potential to boost digital transformation and help make it an attractive hub for the development of blockchain, web3 and metaverse applications in in the fields of fintech, climate tech, business and govtech. including the German Digital Identities project.

The German Savings Banks Association – a network of 400 savings banks in German-speaking countries – has started developing fintech blockchain applications to enable customers to buy and sell cryptocurrencies. Various companies like Volkswagen, About You, SAP, BrainBot and BigchainDB have developed NFT, Metaverse, Web3, Govtech and crypto payment applications which are widely used in e-commerce to buy goods. Jacopo Visetti, an advisor to C3 – a team of operators and investors who support companies working to reduce emissions – explained to me:

“C3 is a climate technology company developing an advanced technological infrastructure that will enable carbon credits to be transferred from international standards to the blockchain through tokenization.”

To fund the development of these technologies, Roundhill Investments, an ETF sponsor specializing in innovative theme funds, launched the Roundhill Ball Metaverse UCITS ETF on Deutsche Börse Xetra, calling it Germany’s first Metaverse exchange-traded fund. In addition, the German fund location law allows pension funds, insurance companies, family offices and corporate funds to invest up to 20% of their assets in digital assets.

crypto adoption

By the end of 2021, around 2.6% of Germans used cryptocurrency. And according to a recent report by KuCoin, 44% of Germans are motivated to invest in crypto.

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German investors can engage with crypto and blockchain through companies and platforms such as 1inch Exchange, Nuri, FinLab, Minespider, NAGA Group, Tangany, Coindex, CryptoTax, Upvest, Fiona, Blocksize Capital, USDX Wallet, Bitbond and the Iota Foundation. or they can use Dash to shop at Sugartrends. As Mark Mason, Manager of Communications and Business Relationships at Dash, explained to me:

“Dash is an alternative cryptocurrency that offers financial freedom without limits. It accelerates financial inclusion by allowing people to use their phones as bank accounts. It’s decentralized, permissionless, and censorship-resistant.”

Related: What the SEC can learn from the German regulator

Germany is among the top 10 countries for crypto mining and is home to the European Union’s largest mining company, Northern Data, which is almost entirely powered by renewable energy. Crypto mining is taxable as a business.

startups

Numerous blockchain startups have settled in Germany’s crypto capital Berlin, with fintech angel investor Christian Angermayer’s Apeiron Investment Group supporting Berlin-based Denario and Penta, as well as Cologne-based Nextmarket and Frankfurt-based Northern Data.

Paycer, a Hamburg-based fintech startup specializing in cryptocurrencies and decentralized finance, is developing a bridge protocol that aggregates and combines DeFi and cross-chain crypto services with traditional banking services.

Berlin-based fintech startup Forget Finance, on the other hand, focuses on motivating young people to save and invest in crypto with online coaching via a mix of AI bots and real finance experts.

Central bank digital currency

According to a survey by the Deutsche Bundesbank, the share of cash payments by German consumers in cash transactions has fallen from 74% in 2017 to 60% in 2020. Accordingly, the Bundesbank has been working on distributed ledger technology asset accounts. Meanwhile, the European Central Bank is looking into creating a CBDC, dubbed the digital euro. Recent research commissioned by the ECB, based on discussions with EU citizens’ panels, emphasizes security and general acceptability as key concerns.

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Non-fungible tokens and the metaverse

The Metaverse is the next wave of Web3, transforming how we interact, connect, work, play video games, fund charities, buy and sell non-fungible tokens, and attend concerts, sporting events, and conferences. In 2017, the ZKM Center for Art and Media in Karlsruhe acquired some NFTs, well ahead of the enthusiasm for 2021, and is now exhibiting works from its own collection and from private lenders on the “ZKM-Kubus” – an outdoor, publicly visible cube-shaped screen. Margit Rosen, head of the collection, archive and research department at the ZKM, gave me the details in an interview.

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Since the start of the NFT craze, German sportswear company Adidas has partnered with Bored Ape Yacht Club and with Prada for a non-profit, climate-focused NFT art project on the Polygon blockchain to raise awareness. In addition, the German automotive group Volkswagen has launched a successful interactive NFT advertising campaign.

Brian Shuster, Founder and CEO of Utherverse, explained to me: “Since 2005, Utherverse has been building and operating an online virtual worlds community for people to socialize in real time, attend events and start a business for the internet, gaming and virtual reality for the ultimate metaverse experience. For example, Secret City is a game developed by Utherverse Digital Inc. with 81% of its users in Germany. With more than 100 patents and patents pending for core internet technologies and the metaverse, we are the undisputed leader in metaverse architecture and VR economics. There’s a lot of noise out there regarding the Metaverse, and quite frankly, most companies claiming to offer real estate and token coins dangerously underestimated the complexity of the task at hand. Almost every company that has tried to make a Metaverse work has failed. The third generation of Utherverse and its utility token are expected to be unveiled in Q2 2022.”

Related: While Men Wanted, Women Did: Empowering Female Creators with NFTs and Crypto

Illegal use of crypto

Germany is a member of Europol’s Joint Cybercrime Action Taskforce, which works to combat cross-border cybercrime. According to a 2022 Europol report:

“The use of this virtual currency for criminal activity and profit laundering has increased in volume and sophistication in recent years. […] Criminal use of cryptocurrency is no longer limited to cybercrime activities, but now refers to all types of crime that require the transfer of monetary values.”

The German Federal Criminal Police Office, or Federal Criminal Police Office, has shut down the servers of Hydra, the world’s largest illegal Darknet marketplace, following a tip-off. Hydra has enabled over $5 billion worth of Bitcoin (BTC) transactions since its inception. Germany’s move was followed by the US Treasury Department, which in a coordinated international effort imposed sanctions on Hydra aimed at “stopping the proliferation of malicious cybercrime services, dangerous drugs and other illegal offerings” available through the Russia-based website.

Related: The world braced itself for Russian crypto sanctions

Gurvais Grigg, chief technology officer of the public sector at Chainalysis, told me: “The takedown of Hydra is notable not only because it was the largest dark web market in operation, but also because it offered money laundering services that the enabling conversion of cryptocurrency into Russian rubles.” He continued:

“Coupled with the sanctions against Garantex and Suex and Chatex over the past year, government agencies are clearly targeting payout points that cybercriminals use for ransomware, dark web market sales, fraud and potentially sanctions evasion.”

Regulation of Digital Assets

Germany is one of the few countries in Europe that started to regulate cryptocurrencies ahead of the European Union’s regulation of crypto asset markets, or MiCA. According to Robin Matzke, lawyer and blockchain expert who has advised the German Bundestag, Germany’s crypto custody regulation requires those who control private keys on behalf of others and serve the German market to obtain a license from the Federal Financial Supervisory Authority, regardless whether they do hold other similar licenses within the EU.

Related: European “MiCA” regulation on digital assets: where do we stand?

The new EU money transfer regulation also provides disclosure rules for “non-hosted” wallets, or crypto wallets that are not managed by a custodian or centralized exchange. Lone Fønss Schrøder, CEO of blockchain company Concordium stated:

“The new draft regulations require significant changes in how current cryptocurrency transfers are conducted. This can be a big challenge for the decentralized crypto solutions that have anonymity as a core value and are committed to peer-to-peer (P2P) and self-custody. Additionally, many projects could be blocked by their community from changing their solutions.”

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The views, thoughts, and opinions expressed herein are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Selva ÖzelliEsq., CPA, is an international tax attorney and chartered accountant who frequently writes on tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.