Cryptocurrencies a danger in the unregulated market: Digital money - the hope and fear of the modern world

According to Prime Minister Spajić's plans, Montenegro could be a paradise for the crypto community, even the introduction of hydro bonds is announced, which could threaten our rivers and nature

47467 views 70 reactions 46 comment(s)
In the beginning, it was worth less than a euro, and now it is about 40 thousand euros: Bitcoin, Photo: Shutterstock
In the beginning, it was worth less than a euro, and now it is about 40 thousand euros: Bitcoin, Photo: Shutterstock
Disclaimer: The translations are mostly done through AI translator and might not be 100% accurate.

In Montenegro, slightly more than one percent of the population owns cryptocurrencies, 7.053 of them, according to data from Triple-A, a private company for estimating the number of cryptocurrency holders on a global level.

The most famous owner of cryptocurrencies in the country is the Prime Minister Milojko Spajic. He stated in the asset register, even while he was the Minister of Finance and Social Welfare in the 42nd Government, that he owns bitcoin. In the last report, after assuming the most important function in the state, Spajić reported that in addition to bitcoin, he owns other cryptocurrencies - ETH (ethereum), BNB (binance), USDT (tether) and some others that he does not name. In no report did he specify the value of this digital money.

Unlike him, the current Minister of Justice Andrej Milović he stated that his cryptocurrencies are worth 30 thousand euros, although he does not specify which ones exactly.

Some of Spajić's currencies have become key tools for money laundering, warns the United Nations Office on Drugs and Crime (UNODC). They point out that tether has become a favorite tool for fraud across East and Southeast Asia.

Cryptocurrencies were allegedly dealt with by some other names that are mentioned in the public these days. That's how the former operative of the National Security Agency (ANB) Dusko Golubovic, after MANS published research on his family's multimillion-dollar assets, announced that he got part of those funds by mining bitcoins. There are also Bojan i Dejan Petričević, builders of the controversial Lamela C, on Zabjelo, which is being demolished by order of the Minister of Urbanism, Spatial Planning and State Property Janko Odović. The Petričevićs were also arrested in 2020 for mining cryptocurrencies. They are suspected of illegally supplying electricity to as many as 252 computers, through which they obtained digital money. For the process of obtaining cryptocurrencies, that is, mining, a lot of electricity is necessary to power special computers, designed for this work.

Recently, at the border crossing with Serbia, Dobrakov, a Serbian citizen had undeclared crypto-currency mining equipment, worth almost seven thousand euros, confiscated.

According to some earlier statements of Prime Minister Spajić, Montenegro should become a paradise for the crypto community. He claimed that tens of thousands of people could find work in the cryptocurrency industry in Montenegro.

During the 42nd Government, the Directorate for Blockchain and Cryptocurrencies was formed at the Ministry of Finance and Social Welfare, headed by Andrej Milović. The directorate was abolished in 2022, when Spajić and Milović were dismissed, as the URA Civic Movement entered into an alliance with the Democratic Party of Socialists (DPS) and received the minority support of that party for the formation of the Government.

While he was the Minister of Finance and Social Welfare, Spajić brought one of the most famous names from the crypto world to Montenegro - Vitalika Buterina, a Canadian-Russian businessman who made a huge fortune doing business with digital money. Buterin also received a Montenegrin passport, which was awarded to him by the then prime minister Zdravko Krivokapic, on the initiative of Spajić. Since then, this Canadian citizen has been in Montenegro several times, including recently, after Spajić assumed a key position in the country.

Got a Montenegrin passport: Vitalik Buterin
Got a Montenegrin passport: Vitalik Buterinphoto: Screenshot/Youtube

It is interesting that in June 2023, a crypto machine (an ATM for cryptocurrencies where they can be exchanged for euros or some other digital currency) was found in Tivat, although this type of trade is not yet legally regulated in Montenegro. The then Minister of Finance Aleksandar Damjanović announced, after the session of the National Security Council, that cryptomat is connected with George Cottrell, a British financier and convicted criminal. Cottrell, by the way, is under investigation by American investigative authorities. He lived in Montenegro, and in 2020 he founded the company Private family office in Tivat. Ratko Pantović, Cottrell's lawyer, said that the crypto machine is not his client's, but the property of Global Trust Limited, which he founded Hon Kong Yong.

In order for Montenegro to become attractive for the crypto community, it should meet a number of prerequisites. First of all, the legislation, because the European Union (EU) warns that this industry must be regulated by strict legal solutions, so that economic breakdowns do not occur, due to possible speculations and currency uncertainty, as well as frauds, which have been numerous so far. In addition, in order to develop this industry, significant amounts of electricity and water should be provided.

It is estimated, writes Forbes, that the mining of bitcoin alone consumes about 127 terawatt-hours of electricity annually, which is more than the annual electricity consumption of Norway.

In the text Bitcoin's growing water footprint, published at the end of last year in the journal Cell Reports Sustainability, a financial expert Alex de Vries he wrote that cryptocurrency mining could affect the amount of drinking water in the world if it continues without monitoring measures. De Vries states that a large amount of water is used to cool coal and gas-fired power plants that provide energy for computers in large data centers. He estimates that mining Bitcoin in 2021 will have consumed more than 1.600 gigaliters of water worldwide. Each transaction, de Vries writes, on the Bitcoin blockchain uses an average of 16 liters of water, enough to fill a swimming pool.

One of the first meetings, after taking the position of the first in the Government, Spajić had in December last year with Ben Van Holom i Samsonon Mouom from the company JAN3. The prince also attended the meeting Filip Karadjordjevic. They talked about cooperation and the possible introduction of bitcoin hydro bonds in Montenegro.

Spajić at a meeting with representatives of the JAN3 company and Prince Karađorđević
Spajić at a meeting with representatives of the JAN3 company and Prince Karađorđevićphoto: Jan3

One of the proclaimed goals of the JAN3 company is to make bitcoin an official means of payment in various countries. As a start-up, this company was active in El Salvador, which was the first in the world to introduce cryptocurrencies as an official means of payment in 2021. At that time, the value of one bitcoin was over 60 thousand US dollars. However, the Salvadoran experiment failed. The crisis due to the war in Ukraine, rising inflation, decisions by the US Federal Reserve to increase interest rates, but also fraud in the crypto community, caused the value of the most popular cryptocurrency in the world to fall, so bitcoin lost more than 50 percent of its value in 2022. This pushed El Salvador into economic problems. Earlier warnings from international financial institutions, primarily the International Monetary Fund (IMF) and the World Bank (WB), to the President of El Salvador Najib Bukele, that the decision on bitcoin as an official currency would affect the already unstable public finances, were not accepted, which later caused the country to pay a high price, from which it has not yet recovered, although the value of bitcoin has since recovered.

In El Salvador, with the dollar being the official currency, everyone had to accept bitcoin as well. President Bukela claimed that, among other things, he decided to introduce cryptocurrency into the country's payment system, to enable Salvadorans living abroad to send digital money home without commission. Remittances from emigrants make up about 20 percent of the country's gross domestic product. Representatives of several international financial organizations stated that precisely because of transactions from abroad, bitcoin could become an attractive currency for poorer countries, which have a large diaspora.

In addition to El Salvador, the JAN3 company also operated in South American countries. Western experts warn that some companies dealing with cryptocurrency usually have a strategy to enter countries that do not have developed institutions and regulations, because many unsafe projects can be "sold" more easily in an unregulated market.

Bitcoin Hydro Bonds

As the JAN3 company stated on their official website, Prime Minister Spajić discussed with representatives of that company and Prince Karađorđević the possibility of using the rich hydropower resources of Montenegro for bitcoin mining through hydro bonds, which, as they also pointed out, would be new sources income for the state.

"The Prime Minister pointed out the abundance of rivers in the country, highlighting the hydroelectric potential... The idea of ​​issuing hydro bonds showed innovative thinking that could open new paths for economic growth," the JAN3 website also writes.

What that would mean, how it would affect nature, rivers, what kind of power plants would be built and where, that was not explained after the meeting.

According to the clarification on the Bitcoin News website, hydro bonds would be tied to the network of rivers in Montenegro, the construction of hydroelectric plants and the production of electricity. In this way, according to this specialized site, the new energy would be used to create a new value of bitcoin.

The Be in Crypto website also wrote about this case.

"Bitcoin bonds based on renewable energy could be the next big machine for sustainable investments. Moreover, Montenegro could be the next country to start issuing them," this portal said.

Interestingly, this kind of project is current in El Salvador. In that country, through JAN3, volcanic bonds are planned, which would use energy from the Conchagva volcano for bitcoin mining, at the foot of which the construction of a bitcoin city is also planned. Those bonds should be issued at the beginning of this year, and were approved at the end of last year, despite protests about this intention in that country.

Cryptocurrencies are under fire from green activists and regulators for increasing carbon dioxide emissions. The total carbon dioxide emissions of the global bitcoin industry have risen to 60 million tons, according to a report by Bank of America, which is equal to the amount of exhaust gases produced by about nine million cars.

Financial advisor and former associate at the Directorate for Blockchain and Cryptocurrencies Novak Svrkota za Center for Investigative Journalism of Montenegro (CIN-CG) points out that bitcoin mining has no serious impact on environmental pollution.

"Only electricity is consumed. It is the most ecological in Iceland, for example, where it is derived from geothermal sources. There are no classic pollutions, except those that go to the production of the equipment itself," he states.

Svrkota points out that Montenegro needs a comprehensive analysis before launching serious projects.

"Bitcoin mining based on the hydro potential that we have needs to go through a detailed analysis. The need for electricity will grow exponentially. There are many causes. First of all, the use of batteries has increased, not only in the automotive industry, but there is an explosion in the number of all devices that use batteries. Electricity is the new oil, practically. There is also the issue of artificial intelligence and super computers, digitization of states. All of this consumes a huge amount of electricity. It will be a resource that everyone needs. We also need to see the potential of solar power plants, what will we do with to work with that excess electricity, will we give it to bitcoin... Everything should be put on paper and taken into account," says Svrkota.

Prime Minister Spajić spoke about the possibility of establishing a bitcoin community in the country, similar to communities such as Bitcoin Beach in El Salvador and Jungle and Lake.

They are from the Central Bank of Montenegro (CBCG), while he was at its head Radoje Žugić, warned investors about the risks of investing in cryptoassets, because there is still no appropriate legal regulation. Those risks relate to speculative investments and the fact that some cryptocurrencies are not hedged. In addition, they pointed out that the investment amount is not insured, that it does not belong to the consumer protection system and that it is not covered by the deposit insurance system. They also stated that there is no competent institution that protects against losses caused by investing in crypto assets.

The countries with the largest number of cryptocurrency owners are India (six percent of the total population), the USA (14 percent), Vietnam (21 percent) and Pakistan (about seven percent). Russia (with around six percent), Turkey (five percent) and Ukraine (10 percent) are also highly ranked - countries from which numerous investors have been staying in Montenegro in recent years.

Crypto scams: America, Estonia, Great Britain, Serbia...

One of the more famous scams in the crypto world is the one committed by FTX and Celsius Network, companies whose headquarters were in offshore havens - in the Bahamas and New Jersey. The founders of these companies, Sam Bankman-Fried i Alex Mashinsky in 2022 found themselves in front of the US prosecutor's office for defrauding clients. Benkman-Fried is suspected of robbing FTX clients' deposits in order to pay the debts of his hedge investment fund Alameda Research, and of using that money to buy real estate and donate millions of dollars to Democratic and Republican campaigns. Mašinski was accused of defrauding investors of billions of dollars.

Police in Estonia arrested 2022. Sergej Potapenko i Ivan Turogin, on suspicion of defrauding hundreds of thousands of people, for about $575 million. The two 37-year-olds tricked clients into investing in fake cryptocurrency mining HashFler and fake virtual bank Polybius.

The case is also interesting Roses of Ignatov, a 42-year-old Bulgarian woman wanted by the FBI for her alleged involvement in the organization and fraud of a cryptocurrency called OneCoin. Ignatova presented herself as the inventor of a cryptocurrency equal to Bitcoin and convinced people, mainly in Great Britain, to invest money. It turns out that OneCoin is a fake currency, and was never protected by blockchain technology like the others. In essence, Ignjatova used a classic pyramid scheme, thus defrauding many for more than four billion dollars.

There were frauds in our region as well. At the beginning of January 2023, 14 people were arrested in Serbia who are suspected of defrauding foreign citizens via the Internet and causing them damage of more than two million euros. Europol, as well as the judicial authorities of Bulgaria, Germany and Cyprus, also took part in the action.

"The suspects used advertisements on social networks to lure victims to sites they secretly managed, and offered seemingly exceptional investment opportunities in cryptocurrencies. The victims, mostly from Germany, would first invest low, three-digit sums and then convince them to make transfers of larger amounts." , Europol stated at the time.

The Do Kwon Case

One of the most famous people from the crypto world, co-founder of the Singapore laboratory Terraform Labs, a South Korean To Kwon, whose full name is Kwon Do Hyung, is currently in custody in Montenegro. His extradition was sought by South Korea, as well as America, where he will face a trial initiated by the US Securities and Exchange Commission (SEC) in New York on March 25 this year. He is charged with multiple crimes such as conspiracy to defraud "severe" US$40 billion in connection with the purchase, sale and manipulation of cryptocurrencies, i.e. securities, as well as wire fraud.

Do Kwon ahead of the trial in the Basic Court in Podgorica in May this year
Do Kwon ahead of the trial in the Basic Court in Podgorica in May this yearphoto: Luka Zeković

According to the Forecast portal, Do Kwon graduated from one of the most prestigious private high schools in South Korea, Daevon, in Seoul, and in 2015 he graduated from the famous Stanford University in California. He is also a Turing Award winner, which is said to be like the Nobel Prize in computing. In 2012, he spent three months on a software engineering internship at Apple Inc., and in 2015, another three months at Microsoft Corp. In 2016, he founded the telecommunications company Anifi Inc.

Terraform Labs launched in Singapore in 2018 with Daniel Shin, also a South Korean from a well-known family with strong political and business connections. Their company introduced two digital currencies in the year after its establishment - terraUSD (UST) and luna. Later, they moved the headquarters of the company from Singapore to their homeland. By April 2022, they already had about 230 depositors, so the company Terraform Labs was then worth over 40 billion dollars.

However, in 2022 there were mass withdrawals of digital money from their Anchor protocol, destabilizing the terraUSD and luna currencies that became worthless, and a firm worth tens of billions completely collapsed.

The judiciary will still determine what caused this breakdown and mass withdrawals and what role the suspected founders played in all of this, whether they withdrew the money. Terraform Labs tried to justify that they were the victim of a competitor's attack, but they never identified which ones, nor did they present clear evidence for those claims.

According to the Forecast portal, Do Kwon and his partner destroyed hundreds of thousands of people, many of whom lost their life savings. The police in South Korea also linked some cases of suicide to this collapse and estimated that this case caused damage worth 58 billion dollars for 280 thousand people in that country.

The collapse of Do Kwon's Terraform Labs led to a crisis in the global crypto market and a drop in the value of other cryptocurrencies as well. Thus, at the end of 2022, some of the largest and most reliable crypto projects began to fail, and the most famous cryptocurrency - bitcoin - significantly lost its value.

In September 2022, Kwon was charged in South Korea with fraud and violation of the Capital Markets Act. Then Interpol also issued a red warrant for him at the request of the South Korean authorities. In October of the same year, Do Kwon appeared on Unchained, a podcast hosted by a journalist specializing in cryptocurrencies Laura Shinn and he said that some mistakes were made, but that it was not a fraud or a pyramid scheme.

In October 2022, South Korea's Ministry of Foreign Affairs thought Kwon was in Singapore. However, South Korean prosecutors soon confirmed that he had gone to Europe via Dubai. At first, it was suspected that he settled in Serbia, because he registered his address there. Then, in March 2023, he was arrested at the Podgorica airport, from where he allegedly tried to return to Dubai with a fake passport. It is not known how and why Do Kwon ended up in Montenegro.

The Do Kwon case, just a few days before the 2023 parliamentary elections, shook the election campaign. After he was arrested, Do Kwon sent a letter to several addresses of Montenegrin officials in which he allegedly stated that Spajić had asked him to get involved in financing his campaign. He allegedly also claimed that he had known Spajić since 2018. The prime minister at the time tried to use this case for political purposes. Dritan Abazovic, suspecting Spajić of ties to Do Kwon. According to analysts' estimates, this somewhat damaged the electoral result of the Europe Now Movement (PES), but even more so Abazović himself, who became an unacceptable partner for Spajić's party, which nevertheless received the most votes.

Spajić denied all the accusations. He stated that Do Kwon was arrested thanks to him.

"Do Kwon is a fraudster who defrauded millions of people, including my friends and the company I worked for, when we invested in the project in early 2018, which is why we had the special satisfaction of reporting him as soon as we found out that he was hiding in Black He is burning, and a private plane is waiting for him to go to Dubai," Spajić told Vijesti at the time.

He also said that he met with Do Kwon in 2022, but that he could not know then whether he was wanted.

Do Kwon's firm Terraform Labs recently filed for bankruptcy protection in the US Bankruptcy Court in Delaware. The filing states that the bankruptcy filing will allow the company to "execute its business plan while undergoing ongoing legal proceedings."

What is the legal regulation of the crypto industry in the world

Due to these and similar cases, laws have been passed in numerous developed countries that try to regulate the field of cryptocurrencies. Although states currently have no influence over the cryptocurrency market itself, they can impose a tax on this digital money, and the world's fiscal profession is trying to find ways to do so. In Singapore, for example, cryptocurrencies are defined as a service, in the US as a capital asset, and in Germany as private money.

In June 2022, laws were introduced in the EU to ensure the identification and tracking of crypto-assets in order to prevent various criminal acts. The EU Markets in Crypto-Assets Act (MICA) is the Regulation of the European Parliament and the Council on crypto-asset markets. Also, the 6AMLD Directive is valid, which regulates this issue from the point of view of money laundering and terrorist financing. Thus, companies that want to deal with cryptocurrencies are required to meet certain conditions and obtain licenses.

In Croatia, the Income Tax Act treats cryptocurrency as a form of investment, and this money is defined as income from capital. It is not the possession of cryptocurrencies that is taxed, but the income generated by the sale of these assets.

In 2021, the Law on Digital Assets entered into force in Serbia, which, among other things, defines terms such as virtual currencies, digital tokens, crypto machines. In addition to defining these basic terms, the law regulates the issue, trade and provision of services related to digital assets. The supervisory authorities for cryptocurrencies are the National Bank of Serbia and the Securities Commission.

In Montenegro, in 2022, a similar law was being prepared by the then Directorate for Blockchain and Cryptocurrencies at the Ministry of Finance and Social Welfare. However, that bill was never adopted.

In some media, they stated that they are planning to adopt a legal framework for cryptocurrencies during this year. Until the publication of this text, we did not manage to get an answer from the Ministry of Finance regarding the legal framework.

Cryptocurrencies are becoming increasingly popular in sanctioned countries

In 2022, the EU, tightening sanctions against Russia due to the war in Ukraine, banned Russians from providing cryptocurrency services and blockchain transactions.

"Existing restrictions on cryptoassets have been tightened by banning all cryptoasset holding wallets, accounts or custody services, regardless of the amount of funds in the wallet," reads a press release published by the European Commission (EC).

This happened because, after almost all Russian banks were excluded from the largest international banking transfer system SWIFT, and Visa and MasterCard companies left the Russian market, cryptocurrencies became one of the most popular ways for Russians to make transactions.

The question of whether cryptocurrencies can be misused to circumvent sanctions also arose because of Iran, when in 2022 a high-ranking Iranian official Alireza Pejman-Pak online X reported that Tehran used an unidentified cryptocurrency for the first time to pay $10 million for imported goods to an unnamed trading partner. He also announced that the use of cryptocurrencies will increase in foreign trade. This was understood in the EU as a message from Iran that it had found a way to circumvent international sanctions.

What are cryptocurrencies and blockchain and how did they come about?

Although there is no officially accepted definition, cryptocurrencies are alternative digital currencies created with the help of highly complex code systems that provide transaction security, anonymity and control.

The European Banking Authority (EBA) defines cryptocurrency as a digital representation of value that is not linked to conventional money, but is accepted by natural and legal persons as a means of exchange. They can be transferred, stored and traded electronically, and their value is measured by supply and demand.

In 2008, Satoshi Nakamoto is believed to have developed Bitcoin, one of the most famous cryptocurrencies. Nakamoto is a pseudonym of a person or group of persons, and even today it is not known who is behind that name.

The value of one bitcoin changes on a daily basis. In the beginning, it was worth less than a euro, and at the time this text was written, it was 43.047,40 euros. Bitcoin reached its highest value in 2021, during the quarantine caused by the pandemic.

The main reasons for the increase in the value of bitcoin is that the number of this currency is limited - there are only 21 million bitcoins and there will never be more, while the amount of other currencies changes. Also, in order to mine bitcoins one has to use huge amounts of electricity and expensive equipment.

The rise of bitcoin prices in the past, writes Moneyweb magazine, was also contributed to by the risk of an economic collapse caused by the COVID-19 pandemic, when central banks around the world printed money en masse.

Nakamoto also designed the first blockchain database that contains information about all transactions that have ever been carried out, and this database has the role of "intermediary", that is, to ensure the security of the transaction. It consists of smaller databases (blocks) that are digitally connected to each other, and contain all the information about various digital transactions - data from the birth certificate, title deeds, contracts... Once some data is entered into the blockchain, it can no longer be changed.

Even with blockchain, once sent, money cannot be returned, as there is no central institution or company overseeing the transactions. The consequence of such an arranged system can be room for numerous frauds.

This text was created as part of the project "Ecological networks - the key to development based on preserved nature" implemented by the NGO Montenegrin Society of Ecologists. The project is supported by the Center for Civic Education (CGO), within the program "CSOs in Montenegro - from basic services to policy formulation - M'BASE" financed by the European Union and co-financed by the Ministry of Public Administration. The content of this text is the sole responsibility of the NGO Montenegrin Society of Ecologists and does not necessarily reflect the views of CGE, the European Union or the Ministry of Public Administration.

photo: CDE
Disclaimer
photo: CIN-CG

Bonus video: