Why is Germany listed as the most crypto-friendly country?

In the monthly Expert Take column, international tax attorney and CPA Selva Ozelli covers the intersection between emerging technologies and sustainability, and presents insights on taxation, AML/CFT regulations, and legal issues affecting cryptocurrencies and blockchain. latest developments.

In the list of the most cryptocurrency-friendly countries published by Coincub, Germany ranks first in the first quarter of 2022. The European country allows its domestic long-term savings industry to leverage cryptocurrency investments, backing its zero-tax policy on long-term capital gains in cryptocurrencies, and its number of bitcoin and ethereum nodes is second only to the United States.

Blockchain Adoption

In 2019, Germany is the first country to adopt a blockchain strategy to advance the potential of digital transformation technology, hoping to make Germany an attractive country for blockchain, Web3 and metaverse applications in financial technology, climate technology, business and government technology, and the center of the German digital identity project.

The Association of German Savings Banks — a network of 400 savings banks in German-speaking countries — has started developing a fintech blockchain application that will enable customers to buy and sell cryptocurrencies. Companies such as Volkswagen, About You, SAP, BrainBot, and BigchainDB have been developing NFT, Metaverse, Web3, government tech, and crypto payment applications that are widely used to purchase goods in e-commerce. C3 is a team of operators and investors that supports companies working to reduce emissions. Jacopo Visetti, an advisor to the team, explained to me:

"C3 is a climate technology company developing an advanced technological infrastructure that allows the tokenization of carbon credits linked from international standards to the blockchain."

To fund the development of these technologies, ETF sponsor Roundhill Investments, which focuses on innovative themed funds, has launched the Roundhill Ball Metaverse UCITS ETF in Deutsche Börse Xetra, calling it Germany’s first Metaverse ETF. Additionally, Germany’s Fund Location Act allows pension funds, insurance companies, family offices and corporate investment funds to allocate up to 20% of their assets in digital assets.

cryptocurrency adoption

Around 2.6% of Germans use cryptocurrencies by the end of 2021. According to a recent report by KuCoin, 44% of Germans are willing to invest in cryptocurrencies.

German investors can participate in crypto and blockchain through companies and platforms such as 1inch Exchange, Nuri, FinLab, Minespider, the NAGA Group, Tangany, Coindex, CryptoTax, Upvest, Fiona, Blocksize Capital, USDX Wallet, Bitbond and Iota Foundation, or They can use Dash to shop on Sugartrends. As Dash’s communications and business relationship manager Mark Mason explained to me:

“Dash is an alternative cryptocurrency that provides financial freedom without borders. It promotes financial inclusion by allowing people to use their phones as bank accounts. It is decentralized, permissionless, and censorship resistant.”

Germany is one of the top 10 cryptocurrency mining countries and home to Northern Data, the largest mining company in the EU – which is almost entirely powered by renewable energy. Cryptocurrency mining as a business is taxable.

Startup company

Many blockchain startups have settled in Dublin, Germany's cryptocurrency capital. Fintech angel investor Christian Angermayer's Apeiron Investment Group is headquartered in Berlin's Denario and Penta, Nextmarket is headquartered in Cologne, and Northern Data is headquartered in Frankfurt.

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

Berlin-based fintech startup Forget Finance, on the other hand, focuses on motivating young people to save and invest in cryptocurrencies through artificial intelligence bots and online guidance from real financial experts.

central bank digital currency

According to a survey by the German central bank, Deutsche Bundesbank, the share of German consumers paying cash for point-of-sale transactions has fallen from 74% in 2017 to 60% in 2020. For this reason, the Bundesbank has been researching distributed ledger technology asset settlement. Meanwhile, the European Central Bank is exploring the creation of a CBDC, dubbed a digital euro. A recent study commissioned by the ECB, based on discussions with a group of EU citizens, highlighted safety and universal acceptance as the overarching concerns.

Non-Fungible Tokens and the Metaverse

The Metaverse is the next wave of Web3, changing the way we interact, socialize, work, play video games, fund charities, buy and sell NFTs, and attend concerts, sporting events, and conferences. The ZKM Art and Media Center in Karlsruhe bought some NFTs in 2017, well before the 2021 frenzy, and is now exhibiting works from its collection and private rentals on the "ZKM Cube", which is an outdoor, public viewable cube-shaped screen. Margit Rosen, Head of Collections, Archives and Research at ZKM, shared the details with me in an interview.

Since the start of the NFT craze, German sportswear company Adidas partnered with Bored Ape Yacht Club and Prada to launch a climate-focused charity NFT art project on the Polygon blockchain to raise awareness of environmental protection. In addition, the German Volkswagen AG has also successfully launched an interactive NFT advertisement.

Brian Shuster, founder and CEO of Utherverse, explained to me: “Since 2005, Utherverse has been building and operating an online virtual world community where people can socialize, attend events and start a business in real time. Utherverse combines the most Good Internet, games and virtual reality ultimate metaverse experience. For example, "Secret City" developed by Utherverse Digital Inc., 81% of its users are from Germany. We have developed more than 100 patents and patent pending, undisputed leader in metaverse architecture and virtual reality economy. There is a lot of noise about the metaverse, and frankly most companies claiming to offer properties and tokens dangerously underestimate the importance of the task at hand Complexity. Almost every company that has tried to create the Metaverse has failed. The third generation Utherverse and its utility tokens are expected to launch in Q2 2022.”

Illegal use of cryptocurrencies

Germany is a member of Europol's Joint Cybercrime Action Taskforce, which works to combat transnational cybercrime. According to a 2022 Europol report:

"The past few years have seen an increase in the volume and sophistication of criminal activity and money laundering using this virtual currency. Criminal activity in cryptocurrencies is no longer limited to cybercrime activities, but now involves all criminal activities that require the transmission of monetary value."

Following the news, Germany's Federal Criminal Police Office shut down the servers of Hydra, the world's largest illegal darknet marketplace. Since its inception, Hydra has facilitated over $5 billion in Bitcoin (BTC) transactions. Following Germany's action, the U.S. Treasury Department sanctioned Hydra, an internationally coordinated effort to "stop the proliferation of malicious cybercriminal services, dangerous drugs, and other illicit products."

Gurvais Grigg, Public Sector CTO at Chainalysis, told me: “Hydra’s takedown is notable not only because it is the largest darknet market in operation, but also because it provides money laundering services that enable the exchange of cryptocurrencies into Russian rubles. ’ he went on:

“Combined with last year’s sanctions on Garantex, Suex and Chatex, it is clear that government agencies are targeting cash-out points used by cybercriminals for ransomware, darknet market sales, fraud, and possible sanctions evasion.”

Digital Asset Supervision

Germany is one of the few countries in Europe to regulate cryptocurrencies ahead of the EU Markets in Crypto Assets (MiCA). Robin Matzke is a lawyer and blockchain expert who has advised the German Bundestag. According to Robin Matzke, Germany’s cryptocurrency regulations require those who control private keys on behalf of others and serve the German market to obtain a license from BaFin, regardless of whether they hold other similar licenses within the European Union.

The EU’s new funds transfer regulations also provide disclosure rules for “non-custodial” wallets, that is, crypto wallets that are not managed by a custodian or centralized exchange. Lone Fønss Schrøder, CEO of blockchain firm Concordium, explained:

“The new draft regulations call for significant changes to the way cryptocurrencies are currently transferred. This could be a huge challenge for decentralized crypto solutions that embrace anonymity as a core value and are committed to peer-to-peer (P2P) and self-custody. Additionally, many projects may be held back as the community changes solutions."