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German State Announces Plan to Establish European Blockchain Institute

North Rhine-Westphalia has announced that it is founding the European Blockchain Institute in Dortmund later this year.

The government of the German state North Rhine-Westphalia (NRW) announced plans to establish the European Blockchain Institute to research blockchain technology in a press release on May 13.

According to NRW Economics Minister Andreas Pinkwart, the European Blockchain Institute will be founded in the city of Dortmund later this year, inside the Fraunhofer Institute for Material Flow and Logistics (IML).

The press release says that critics of blockchain have voiced concern over the amount of energy consumed by mining bitcoin (BTC). Pinkwart addressed these concerns and praised the benefits of blockchain tech, saying:

“This technology can be safe, decentralized, affordable and, when used properly, not too energy-intensive.”

According to the press release, Europe is behind the United States in blockchain advancements and “has to catch up,” which is a goal that NRW hopes to lead the way in achieving.

As reported by Cointelegraph, Ripple’s Director of Regulatory Relations Ryan Zagone commented at Consensus 2019 on the need for the U.S. to lead the way in implementing blockchain and crypto infrastructure:

“There is a broad discussion in Washington around 5G being dominated by foreign firms and the U.S. being reliant on foreign technology and foreign expertise… With blockchain and crypto, I think there’s a recognition now that these will be part of our future infrastructure… It’s important both for national security and from an economic perspective, that the U.S. is a leader in that.”

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New Poll Reveals Italy As The Most Bullish European Country For Bitcoin

A new bitFlyer poll that sampled the opinions of 10,000 respondents across ten countries in Europe revealed a high percentage of Europeans, particularly in Italy and Norway, who say cryptocurrencies aren’t a fad.

Europeans Are Bullish On Cryptocurrencies

According to the details of the Google Survey carried out by bitFlyer, 63 percent (more than two-thirds) of Europeans believe cryptocurrencies will still exist by 2029.

Of the ten countries covered in the poll, participants from Norway showed the highest level of confidence in cryptocurrencies as 73 percent believe virtual currencies will still be around in ten years’ time.

French responders had the least confidence of the lot with only 55 percent expressing the belief that cryptos will last the next decade.

But Many Don’t Think Bitcoin Will Last

While the survey suggests Europeans are generally bullish on cryptocurrency as a whole, that enthusiasm didn’t extend towards Bitcoin. According to bitFlyer, the survey involved seven possible responses to the question “do you think Bitcoin will still exist in 10 years’ time.”

Only 49 percent of participants said that believed Bitcoin would last the decade. Italy had the highest percentage of Bitcoin believers with 55 percent while France once again occupied the rear with 40 percent.

Furthermore, only seven percent of the participants said Bitcoin will exist as a security or investment tool. Commenting on the patterns observed in the result, Andy Bryant, the COO of bitFlyer said:

The fact that Bitcoin is not generating as much support as other cryptocurrencies is in part a symptom of the market’s volatility but is also a direct impact of the constant media attention that is associated to its volatility.

Poll results aside, Bitcoin continues to outperform the rest of the cryptocurrency market combined. Recent upward gains in April have dampened most of the ground accumulated by altcoins during so-called ‘altseason.’

On the technical side, Bitcoin continues to process greater value transactions that all altcoins combined and even those with lower transaction fees. Security and network effect reign supreme.

From Hype to Legitimate Asset Class

On the whole, the results of bitFlyer’s Euro Poll are in line with the emerging sentiment of cryptocurrencies moving from hype to legitimate asset class. Earlier in April, an IMF Twitter poll showed more than half of responders saying that cryptos will become mainstream within the next five years.

Since 2018, there has been a considerable uptick in institutional involvement in the cryptocurrency market. From endowment funds taking investment positions to multinational conglomerates looking to establish vital crypto-based services.

The growing consensus among analysts is that the next crypto bull run will emerge on the back of a strengthened asset class as against the hype-driven speculative play that characterized the 2017 bull market.

These analysts point to the emergence of a robust Bitcoin market and technical fundamentals, as well as the decline of the ICO market.

Do you think Bitcoin will continue to be king of crypto? Let us know your thoughts in the comments below.

Images via bitFlyer, Shutterstock

The Rundown

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The Hidden Effects of Crypto Money Laundering Rules

Noelle Acheson is a veteran of company analysis and a member of CoinDesk’s product team.

The following article originally appeared in Institutional Crypto by CoinDesk, a free newsletter for the institutional market with news and views on crypto infrastructure delivered every Tuesday. Sign up at the link below. 

Ever since Emperor Vespasian held up a gold coin that came from taxing urine and pointed out that it smelt just as clean as others, the separation of money from its origin has been on regulators’ minds.

The accelerating flows of digital money around the world, as well as the rising threat of terror attacks and powerful crime cartels, have given the dialogue an added urgency and resulted in a flurry of rules and guidelines from national governments and supra-national organizations.

Obviously, these were, at some stage, going to affect cryptocurrencies given the concern of many authorities that bypassing third parties would make it much harder to stem the flows of illicit funds.

Exhibit A: AMLD5, a Europe-wide law that will end up affecting crypto businesses around the world. Recent signs from other jurisdictions also point to increased attention around this issue. As usual with encroaching compliance regulation, the short-term pain in terms of higher costs and lower privacy is a concern, and there are signs that regulators still don’t fully understand how the technology works.

But longer-term, even the most onerous requirements will end up evolving and are likely to stimulate sector development in unexpected ways.

Now my watch begins*

(*pardon the Game of Thrones quotes, I couldn’t resist)

First, some background.

In June of 2018, the European Parliament and Council published an update to the bloc’s anti-money laundering (AML) directive. Known as AMLD5, the deadline for its implementation is January 2020, less than a year away.

Under the new rules, all crypto exchanges and wallet custodians operating in Europe will have to implement strict know-your-customer (KYC) onboarding procedures and will need to register with local authorities. They will also be required to monitor transactions and to report suspicious activity to the relevant bodies.

Furthermore, national authorities, including tax collectors, will be able to obtain crypto user information from the relevant exchanges.

The concern about illicit transfers is not just limited to Europe. Last week US-based crypto exchange Bittrex was denied a BitLicense due to KYC and AML shortfalls in its onboarding procedures (an assessment the exchange rejects).

On a broader scale, in December of last year, leaders from the G20 nations reiterated their pledge to develop comprehensive AML rules for cryptoassets. And the Financial Action Task Force (FATF), an inter-governmental body set up in 1989 to tackle money laundering, is due to publish guidelines and enforcement expectations for crypto exchanges around the world by June of this year.

Fear cuts deeper than swords

A draft of the FATF proposals was released in February. In a comment published last week, cryptoanalytics firm Chainalysis responded to this draft, pointing out that it is not always possible to know the beneficiary’s details, and in most instances an exchange does even not know if the destination is an exchange wallet or a personal one.

The EU Commission, on the other hand, seems to be aware of this and has been mandated to present, by early 2022, a further set of amendment proposals concerning self-reporting by virtual currency owners, and the maintaining by member states of central databases with users’ identities and wallet addresses. You can imagine the pushback that this will get.

Some of the more vocal objections to the encroaching oversight point out that it defeats the purpose of cryptocurrencies, which were designed to circumvent control by central authorities and avoid the risk of censorship.

Others have expressed concern that these rules will divert transactions to the less transparent crypto-to-crypto and/or decentralized exchanges that fall outside the scope of AMLD5.

And there’s the business risk, too: Operating expenses are a worry for any project, and the growing burden of reporting requirements could slow down the growth and professionalization of market infrastructure.

Make it your strength

Yet while the concerns are valid, the intensifying AML attention is more likely to help rather than harm the sector.

First, the AMLD5 enshrines in law what is probably the first “official” definition of virtual currency: “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.”

The use of the phrase “means of exchange” could end up giving entrepreneurs and lawyers support from which to construct further innovation, and regulators a base from which to develop more detailed definitions.

Another plus is the likely increase in banks’ confidence when dealing with crypto exchanges. One of the main reasons virtual currency businesses have such a hard time getting bank accounts is the financial institutions’ concern over money laundering allegations. Remove those, and the greater operational ease that comes with having access to a banking network is likely to encourage further infrastructure growth and development. This in turn could enhance the sector’s reputation and liquidity, as well as make market prices less volatile.

It could also pave the way for eventual custody by traditional financial institutions of cryptocurrencies themselves, which would further enhance demand for cryptocurrencies for both transactional and investment purposes.

Wear it like armour

A growth in the liquidity of cryptocurrencies will boost more than their price: It will also boost interest in and feasibility of using the underlying technology for tracking purposes.

As Chainalysis pointed out in its FATF comment, an effective use of blockchain technology would make it much harder to launder money using cryptocurrencies than digital fiat money, and would enable market participants to simultaneously collaborate with law enforcement while complying with trends in privacy legislation.

Sharing a wallet address with market participants in other jurisdictions is not the same as sharing personally identifying information and does not trigger infringements of Europe’s stringent privacy laws. This would make it easier for law enforcement to monitor and investigate suspicious activity, while protecting user privacy until a determination is made that more information is needed.

What’s more, the transaction history preserved on public blockchains gives greater credibility to data integrity and protects evidence from manipulation or human error. With blockchain-based assets, prosecutors could have access to a much deeper data trail than with fiat currencies. And a long enough time horizon, combined with sophisticated analytics, should provide a more holistic view of patterns, enabling enforcement officials to develop preemptive strategies that could further reduce the cost burden of the surveillance.

With this, we may even enter a world in which regulators see cryptocurrencies as the “cleaner” option. This could encourage them to recommend their adoption for money transfers across borders, instead of focusing on erecting barriers to their use. This could also lead to more official support for innovation around money, even from central banks, which in turn would accelerate the transformation of the banking industry as we know it.

Indeed, what is seen by many as crypto’s greatest threat could end up being its greatest opportunity.

Interested in receiving a weekly email with updates on market infrastructure, regulation and institutional crypto products? Sign up for our free Institutional Crypto newsletter here

Money boats image via Shutterstock

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Coinbase Crypto Exchange Debuts Visa Card for UK Customers

Coinbase has launched Coinbase Card, which enables its U.K.-based customers to make purchases with cryptocurrency.

Major American cryptocurrency exchange Coinbase has launched Coinbase Card, that enables its United Kingdom-based customers to pay in-store and online with cryptocurrency. The development was announced in a blog post published on April 10.

The Coinbase Card is a Visa debit card powered by customers’ Coinbase account crypto balances, which allows them to make purchases with digital currencies worldwide. Coinbase instantly converts customers’ cryptocurrency funds into fiat currency in order to complete the purchase.

Coinbase also released the Coinbase Card app for iOS and Android, which links customers’ Coinbase accounts with the app and allows them to choose a particular wallet to fund their Coinbase Card. The app additionally provides access to receipts, transaction summaries, spending categories, and other features. The card reportedly supports all digital assets available to purchase and sell on the Coinbase platform.

The card is issued by authorized and regulated as an electronic money institution Paysafe Financial Services Limited. Currently, Coinbase Card is available for customers in the U.K., however Coinbase reportedly plans to add support for other European countries in the near term.

Earlier this month, Visa itself published a crypto and blockchain-related job opening. The firm is ostensibly seeking someone to fill the position of Technical Product Manager at Visa Fintech at its Palo Alto office. The position’s description states that a candidate should have an in-depth understanding of distributed ledger technology and the crypto industry.

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A Small Bank in Germany Is Now Nearly 30% Owned by Crypto Companies

Almost 30 percent of the equity in WEG Bank AG, a previously obscure German bank focused on the real estate industry, is now owned by companies in the cryptocurrency industry, CoinDesk has learned.

By purchasing 9.9 percent of the bank, blockchain startup Nimiq now joins TokenPay and the Litecoin Foundation as part owners of the Munich-area financial institution. (Under German law, foreign ownership stakes of 10 percent or greater require additional regulatory approval.)

TokenPay became the first crypto company to acquire the bank’s equity in 2018, with Litecoin Foundation director Charlie Lee joining the bank’s board in a related move. Then WEG Bank enlisted Nimiq to help develop infrastructure for external crypto-to-fiat conversions for banking clients.

Nimiq raised roughly $12.8 million in a token sale in 2017 and, much like TokenPay, has invested its ICO funds in other assets as well, such as real estate and now equity.

Nimiq co-founder Elion Chin said in a statement:

“With Litecoin and Tokenpay as existing shareholders, new clients including [blockchain application platform] Lisk, and other key prospective partnerships, we believe WEG Bank is on the way to reinventing itself as a bank of the future.”

This cross-industry partnership could eventually offer fiat liquidity to decentralized exchange (DEX) users – if they pass the WEG Bank’s screening process.

These days, few DEXs can connect to institutional bank accounts for professional usage, unlike centralized exchange options. Meant to help facilitate the first DEX to WEG Bank AG transaction, the in-progress Nimiq system is scheduled for a limited launch by 2020. That said, WEG Bank AG will remain a traditional bank, never directly touching cryptocurrency.

“For the past 12 months, we have been looking at various ways to expand our core banking activities into the blockchain community,” WEG Bank AG CEO Matthias von Hauff said in a press statement about the effort in February. “With Nimiq, we have been able to develop not only a landmark payment interface which has the potential to revolutionize the way we deal with cryptocurrencies, but also an innovative and powerful partnership.”

For its part, Nimiq announced in a blog post that it would work with DEXs like Agora Trade to act as a “middleman to transfer funds between crypto markets and the traditional banking system,” charging a small percentage of transaction fees along the way. In return, the blog post says, Agora Trade will list Nimiq’s NIM tokens for cross-chain trades with ether and bitcoin without any exchange fees for NIM users.

Nimiq is also partnering with Binance-owned Trust Wallet, according to a recent blog post. The aim is to eventually give users across DEXs access to liquid euros for transactions made with bitcoin, ether or NIM through Nimiq’s upcoming “crypto-to-fiat bridge” called OASIS.

German money image via Shutterstock