Can Montenegro become a crypto paradise: "Mining" has not disappeared

Vitalik Buterin, the founder of one of the strongest cryptocurrencies, "Ethereum", received Montenegrin citizenship, and the Central Bank of Montenegro negotiated cooperation with "Ripple", a provider of crypto and blockchain solutions.

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Illustration, Photo: Shutterstock
Illustration, Photo: Shutterstock
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.
Ažurirano: 19.01.2024. 09:55h

Can Montenegro become a crypto paradise? The answer to this question could be brought by the announced law that should regulate the electronic money market.

While waiting for the law, transactions are carried out on crypto exchanges, real estate is offered for cryptocurrencies, there were attempts to mine (produce) electronic money, and the first crypto machine was installed.

The government created and then shut down the Directorate for Cryptocurrencies and Blockchain.

After arriving in Montenegro, the so-called cryptocurrency king Hjeong Do Kwon was arrested and is awaiting extradition on international warrants for fraud.

The founder of one of the strongest cryptocurrencies "Ethereum", Vitalik Buterin, received Montenegrin citizenship, and the Central Bank of Montenegro negotiated cooperation with "Ripple", a provider of crypto and blockchain solutions.

Answering the question where did the big names of the crypto industry come from in Montenegro, which has no laws in that area, nor a developed market, cryptocurrency analyst Novak Svrkota says that it is a relatively small but well-connected community.

"We came up with the idea of ​​creating a crypto paradise in Montenegro. The crypto community is looking for a small country that is open and could pass crypto friendly laws, because the current laws in some countries are quite restrictive," he points out.

Svrkota was part of the Government's Blockchain Directorate.

What are cryptocurrencies and blockchain?

Cryptocurrencies are digital currencies that do not have a physical form in the real world such as bills or coins.

The most famous cryptocurrency, Bitcoin, was released in 2009. It was only worth a few cents then, peaking in November 2021 when its value was $69.045. Today it is worth $42.682.

Bitcoin is only one of the cryptocurrencies, and all of them are connected to the blockchain system of transactions.

Blockchain is often presented as a virtual ledger that is located on the Internet and in which information about the transactions carried out is recorded.

Support from the top for crypto paradise in Montenegro

The current Prime Minister Milojko Spajić first mentioned that Montenegro will enter the cryptocurrency business, when he was the Minister of Finance in the Government of Zdravko Krivokapić in 2021.

Then the Directorate for Cryptocurrencies and Blockchain was formed.

During 2022, a conference on new technologies and blockchain was held on Luštica, an exotic peninsula not far from Tivat, which was attended by the founder of the cryptocurrency "Ethereum", Vitalik Buterin.

In the same year, Buterin was granted Montenegrin citizenship.

Krivokapić's Vlade then announced that he "will contribute to the development of the blockchain industry and the Montenegrin economy."

Spajić then met with the leaders of the company JAN3, which also deals with cryptocurrencies, which was also attended by Filip Karađorđević, Prince of Serbia.

"They discussed how the leading cryptocurrency Bitcoin can help Montenegro use hydroelectric potential," the X network said.

Last year, the Central Bank agreed to cooperate with the provider of crypto and blockchain solutions, the Ripple company, to develop a pilot program for launching the first digital currency in Montenegro.

"The introduction of a digital currency or a national stablecoin, i.e. a stable currency, is another step forward towards the digitization of financial services and the expansion of the space for the availability of financial services to citizens," the Central Bank of Montenegro announced at the time.

In March of last year, Do Kwon, the so-called king of cryptocurrencies, found himself in Montenegro.

He was arrested at the Podgorica airport for having a forged passport.

He is wanted by the US and South Korea over the damage caused to investors by the collapse of his Luna and Terra cryptocurrencies, estimated at more than $40 billion.

So far, it has not been revealed how and for what reason Do Kwon came to Montenegro.

Do Kwon is still in custody awaiting the conclusion of the judicial extradition process.

Prime Minister Spajić, under pressure from political opponents, admitted last year that he had met Do Kwon before learning that several countries were looking for him.

Before the 2023 elections, former Prime Minister Dritan Abazović tried to connect Spajić with Do Kwon's affairs, which was confirmed by his party colleague, then Minister of the Interior, Filip Adžić:

"In the laptop (Do Kwon) there is also evidence of the joint business between Spajić and Do Kwon. It may be a legal business with one of the most wanted fugitives, but it is the subject of an investigation."

The competent prosecutor's office dealt with this case, but so far it has not established the existence of such a connection.

Abazović still insists that Spajić's connections with Do Kwon be investigated.

Mining in Montenegro

The possibility of creating new virtual coins through so-called mining has not completely disappeared in Montenegro, although it has been unprofitable for the past few years, according to Radio Free Europe interlocutors.

In mid-January of this year, a citizen of Serbia tried to bring cryptocurrency mining equipment worth almost seven thousand euros into Montenegro. This was thwarted by customs officials and border police.

As stated in the announcement of the Police Administration, Serbian citizen K.D. who tried to bring in undeclared equipment "was handed over to police officers".

What was the epilogue of this case, Radio Free Europe was not answered by the police.

Cryptocurrency mining was first discovered in 2020 when the police arrested two people and seized 250 computers in the basement of a building in Podgorica.

The arrests were not due to "mining" but due to the long-term illegal use of electricity for "mining" cryptocurrency. The defendants were only responsible for the theft of electricity.

IT expert Boris Radović reminds Radio Free Europe that cryptocurrency used to be earned by "mining", that is, by computer "solving" mathematical equations, which required specialized hardware, a huge amount of electricity and time.

Cryptomining, he says, has been unprofitable since its initial expansion, today due to high costs and low profits.

"I had personal experience with mining. After five months of 'work', four virtual coins of one cryptocurrency were mined - worth about 800 euros. As I did not convert them into real money in time, they lost their value. Now they are worth about 120 euros, which it can barely compensate for the price of electricity that was used while they were digging," says Radović.

The first crypto machine in Tivat

A cryptomat, a device for exchanging virtual money, was found in Tivat last year.

It was located in the private club Salon Prive, in the luxury complex Porto Montenegro.

The owner, Yong Hon Kong, of Malaysian origin, told the police that he legally acquired and imported the device, but that it was never put into operation for technical reasons.

In a statement to the police, which Radio Free Europe had access to, Kong explained that he tried to check the legal framework for the installation of vending machines in the government, but that his lawyer was told that this area is not regulated in Montenegro, which is why it cannot be approved, but neither prohibit its installation and operation.

The Government of the time announced that it was an illegal device.

"There is no legal basis to carry out that trade. Everything related to trade through that device is illegal," said the then Minister of Finance, Aleksandar Damjanović.

That the device is still in Tivat was confirmed to Radio Free Europe by Kongo's lawyer, Ratko Pantović.

As he said, no proceedings have been initiated against his client because there is no legal basis for it.

Buying and selling in digital currency

According to Svrkota, there are two segments of work with electronic money: one is buying and selling on the crypto market, and the other is using cryptocurrencies for payments,

"There are many more purchases, especially when there are jumps in the market. At the same time, payments with cryptocurrencies abroad are faster and cheaper than transferring funds in the usual way through banks, whose commissions and conversions are often unfavorable," says Svrkota.

When it comes to the volume of transactions in Montenegro, Svrkota says that it is difficult to estimate.

"Amounts vary and depend on the state of the crypto market. That currency is used in the real estate trade on the coast, and the developers get part of the earnings in digital money. It is used by people from countries like Ukraine and maybe Russia which is under sanctions, to avoid complications brought by the interaction with the banking system," he points out.

Svrkota adds that global cryptocurrency exchanges allow users from Montenegro to register in order to trade in these currencies.

Fluctuating luck with cryptocurrencies

One of them is Marija from Podgorica, who told Radio Free Europe that seven years ago she invested by buying a small amount of Bitcoin, the most famous digital currency.

"It was out of curiosity, to try my luck without any expectation of making money. It was interesting to watch the amount in the digital wallet grow every day. At the moment when the value of bitcoin reached ten times its value, I sold and organized an exotic wedding trip with the money me and my wife," says Marija.

She states that she has had a positive experience, but that today she has no desire to continue investing.

Boris Radović says that he has had both gains and losses in digital currency trading.

"You never know if something will rise or fall to nothing. Oscillations in the crypto world are far greater than on the classic stock market," Radović points out.

He explains that in the beginning bitcoin was worth nothing, to reach a maximum value of 60 euros. Then new currencies Ethereum, Ripple, Stellar, Tether... and hundreds of others appeared.

"Virtual stock markets, trade exchange and many useful opportunities were born. The cloak of anonymity worn by payment with cryptocurrencies allowed criminal activities to flourish, so since 2016, as Internet users, we are constantly the target of various crypto-locker viruses," says Radović.

He assesses that the new world of cryptocurrencies is unregulated, has no central authority, has only equal members - Nodes.

"The price of cryptocurrencies is not determined by anyone separately, except for the well-known laws of supply and demand. If something is in demand, especially from millions of people, they will get the price, even if it's a piece of programming code. A huge percentage of those people have no idea what a cryptocurrency actually is and how everything it works," said Radović.

And analyst Novak Svrkota confirms that there are risks in cryptocurrency trading, which is why knowledge of the platforms to be used is necessary.

He also warns that one should not fall for ads that promise quick earnings.

"In addition to education, a minimum of five years is necessary for investment," said Svrkote.

The law is yet to be announced

Due to the fact that the field of cryptocurrencies in Montenegro is not legally regulated, the state is losing money.

"The state loses because it does not have control over money flows and there are no tax benefits. Regulation would bring some security to companies and people who deal with it and an incentive to develop business. And it would give the banking sector a free hand to provide services for cryptocurrency exchange or investment," he says. Squirt.

The Ministry of Finance informed RSE that preparatory activities have begun on the drafting of a law that will regulate the area of ​​digital or crypto assets, in accordance with the MICA (Markets in Crypto-Assets Regulation) regulation adopted by the European Commission in June last year.

"However, the regulatory framework has not been finalized at the level of the European Union, and for this reason we cannot even specify the deadlines for adopting regulations in this area," said the Ministry of Finance.

And the Central Bank states that activities are underway to harmonize national standards with the EU regulatory framework (MICA).

The Central Bank said that interested parties addressed requests for obtaining information on possibilities, conditions and regulations in the field of virtual assets, but not official requests for entering the Montenegrin market:

"Given that this area is not legally regulated, that is, there is no legal basis for submitting this type of request," the Central Bank states, warning potential investors of the numerous risks that cryptocurrency trading carries.

In the recommendations of the European Commission report from 2022, it is stated that Montenegro must strengthen its capacities in order to determine and analyze illegal financial flows with cryptocurrencies.

The European Commission did not repeat this recommendation in the 2023 report.

In March 2022, the European Union announced measures against the possible use of cryptocurrencies in illegal trade.

In June, it introduced new laws to ensure that "crypto-assets will be tracked and identified to prevent money laundering, terrorist financing and other crimes."

And the United States Treasury Department has taken steps to prevent the illegal use of cryptocurrencies.

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