Cryptocurrencies in Germany: Present and Future
The phrase “made in Germany” represents high-quality products all around the world. When it comes to heavy industry and automobiles, Germany is in a leading position, but how is the country positioned with regard to the emerging technology of cryptocurrencies?
To begin our exploration of the state of cryptocurrencies in Germany, we take a look at the German mentality. For instance, the reader may already be familiar with the compulsive need for punctuality and orderliness exhibited by the typical German. While this is, of course, a broad stereotype, it nonetheless applies to most citizens and trickles into the business style as well. To put it another way: Germans love rules. So much so, that breaking a seemingly unimportant rule, like driving your bicycle on the walkway will get you funny looks if not a heated argument with a pedestrian.
Another reputation of the German people is their ingeniousness in solving problems and inventing new technologies. It is no coincidence, that many major car companies have their origins in Germany, such as Mercedes-Benz, BMW, Porsche, and Volkswagen.
But the creative capabilities will only get you so far. The other component in the German business style is a slavish drive to work and get things done. In the region around Stuttgart for example, where I come from, the proverb “Schaffe, schaffe, Häusle baun” (which translates roughly to “work, work, build a home”) characterizes the work ethic quite well.
One final note: Germans also love their privacy. This may be a remnant of the ever prying GDR with the “Staatssicherheit” known elsewhere as Stasi since it is most pronounced in Eastern Germany. The desire for privacy finds expression in the analog world with the common use of cash money instead of credit cards. But also in the digital realm with activist organizations like the Chaos Computer Club and the many Bitcoin Nodes hosted in Germany.
Now, that we understand the German mentality, we are prepared to dive deeper into the German crypto-space.
Germany has thriving communities for various crypto-projects. For instance, Bitcoin Meetups are held in almost all major cities on a regular basis.
The capital, Berlin, is especially advanced in this regard. Berlin is known as one of the Hubs for cryptocurrencies, with many companies having their operations situated there. There is even a co-working space named “Full Node” founded by the prediction market platform Gnosis and core contributor of the Cosmos Network Tendermint. The famous Room77 was the first bar worldwide to accept payments in Bitcoin and still does. Room77 sports not only of the oldest Bitcoin meetups, which takes place every first Thursday of the month, but also an established Monero meetup. Room77 is a place for hackers and enthusiasts to gather and exchange ideas, so it is not uncommon to find yourself beside a well-known developer. For example, the idea for LocalBitcoin was born in this place.
While Berlin has the highest concentration of happenings and companies, it is by no means the only city with active engagement for cryptocurrencies. To highlight only a few places:
- Leipzig is the home of another well-established Bitcoin meetup and the Honigdachs Podcast (a German Podcast centered around the “Honeybadger” a.k.a. Bitcoin).
- Frankfurt is the financial capital of Germany. The private university Frankfurt School of Finance & Management has its own research center and think tank for blockchain technology, called the Blockchain Center. The Blockchain Center is taking an academic approach and offers workshops and conferences.
- In Essen, there is a Blockchain Hotel as a location for meetups and conferences.
- In southern Germany, Munich is gathering momentum, with Bitcoin and Blockchain meetups and companies like Bernstein, which use the Bitcoin blockchain to secure intellectual property, and CryptoTax, a start-up that eases the process of preparing a tax report.
Adoption of Cryptocurrencies in Germany
With the talent pool being so broad and the vigor so plenty, it comes as somewhat of a surprise that the adaption of cryptocurrencies as an actual means of payment is lagging behind.
If you want to purchase the often mentioned coffee with, say, Bitcoin, most times you will not find any place that is willing to take the digital coin. Especially brick and mortar merchants are cautious to accept the new medium of exchange. This may be due to sheer ignorance of the technology, but partly also a sign of the overbearing bureaucracy – but we will get to that in a minute.
In the online world, the choices are more plentiful. The e-commerce store Shopinbit offers a broad pallet of electronic products to be purchased with Bitcoin (including Lightning Network Payments), Bitcoin Cash, DASH and Monero. Customers that want to purchase a very specific item that is not listed in the store can even use the concierge service to let Shopinbit handle the acquisition of said item and then buy it with the aforementioned currencies.
A more everyday need is fulfilled by the nationwide delivery service Lieferando. There you can order pizza and pay the bill with Bitcoin.
But before one can go shopping with cryptocurrencies, one has to acquire cryptocurrencies. This brings us to the other aspect of the adaption, which is buying and selling cryptocurrencies:
Germany has one of the oldest Bitcoin Exchanges in the world: Bitcoin.de. Since 2011 Bitcoin.de offers customers to trade Euro to Bitcoin and vice-versa. In the nine years of operation, the exchange has made a reputable name for itself and bridges the crypto-world with the traditional finance world. Bitcoin.de has a partnership with the Fidor Bank, which allows customers of the Fidor Bank to trade instantly with other customers of this bank on the platform. Users gather a reputation score to incentive honest behavior.
Other players are now entering the market as well, and as such the stock exchange Börse Stuttgart began trading Bitcoin in early 2020.
With regard to Bitcoin ATMs, Germany is not nearly as convenient as it’s surrounding countries like the Netherlands, Switzerland, Austria, the Czech Republic or Poland. ATMs are sparse and mostly operate in a regulatory gray zone. It is also for this reason, that LocalBitcoins actively blocks German IP-addresses and is not available in the country. More on that in the next section.
All in all, the adaption on its way, but not so far advanced that one can easily muster the daily needs with cryptocurrencies alone. A glimmer of hope is the recently announced pilot project by Ingenico and Salamantex. The Ingenico Group produces point of sales terminals for credit card payments and Salamantex provides the software to also accept Bitcoin, Ethereum and DASH. With this solution, the customer could pay in Bitcoin, while the merchant receives Euro. The pilot is set to go live in 2020.
Regulation of Cryptocurrencies
For the average HODLer, Germany is attractive in one regard in particular: The capital gains tax for profits made by trading with cryptocurrencies only applies if the virtual currency is sold within one year after the acquisition. In other words, under German law, a Bitcoin that is sold after one year of holding is not taxed at all. However, trades within one year of acquisition are taxed and this applies also to trades between two cryptocurrencies. For example, if you buy Bitcoin to later buy Ethereum, you have to document the price in Euro at the time of purchase and if you made a profit, this is subject to taxation. Needless to say that even with minor trading the bureaucratic overhead is extensive. Fortunately, tools like CoinTracking and CryptoTax are there to ease the burden.
Now we turn to the regulatory situation in general: As cryptocurrencies are a fairly recent invention, for a long time there was no specific regulatory framework for them. The aforementioned tax exemption originally applies to commodities like houses, but after inquisition also affects cryptocurrencies. Nevertheless, the lack of a crystal clear regulation causes a lot of uncertainty for the German crypto-industry. This results in a relatively high barrier to entry for start-ups.
The German Federal Financial Supervisory Authority, “Bundesanstalt für Finanzdienstleistungsaufsicht” (or short: BaFin), for instance, thought it in their jurisdiction to shut down Bitcoin ATMs in Germany because they believed it required a banking license. This license is not granted lightly and requires an applicant to not only have a minimum capital of €50,000 but also to have at least two directors with industry expertise. At the beginning of 2020, the BaFin announced that within the year custodial crypto-companies have to acquire such a license to operate legally.
As a result of the cumbersome effort to start a business in Germany, many companies and projects have opted for more lax regions in Europe, like Lichtenstein or Luxembourg for their headquarters and only base their operations in Germany.
Traditional Industries and Blockchain
Germany is home to many established companies, ranging from heavy industry, like Bosch, over the financial sector, with Commerzbank and Deutsche Bank, to car manufacturers, like Mercedes-Benz, BMW, and Porsche. With the rise of the “Blockchain”-narrative, these players became aware of and interested in utilizing the potential of distributed ledger technologies. To mention only a few examples:
- Famously BoschVC invested in the IOTA project, to explore its use for the Internet of Things.
- Mercedes-Benz is looking into using Blockchain Technology for its supply chain.
- BMW wants to use Blockchain for the digital passport of a car or to charge electronic cars more easily.
- And Daimler Trucks and Commerzbank ran a pilot project on the Corda blockchain for machine payments.
Even so, these endeavors focus on the rather vague “Distributed Ledger Technologies”, instead of existing cryptocurrencies, like Bitcoin, as a means of payment for customers. In my opinion, the rise of cryptocurrencies is about much more than only “the Blockchain as a new form of databank”, but this is a topic for another time.
These companies operate internationally and employ hundreds of thousands of people. Even if cryptocurrencies offer an advantage for them, it is not trivial to simply change course and pivot their processes. For this reason, they usually start smaller subsidiaries to experiment with the innovation. This allows them to keep up with the technological developments, with lean and mean start-up, while keeping the established business running as usual.
Fight Against Cybercrime, Money Laundering, and Terrorism
The last thing I want to mention about cryptocurrencies in Germany is, that not all Germans are so dedicated to following the rules. In 2019 the federal police force, Bundeskriminalamt (short: BKA) apprehended three German individuals for running the second-largest darknet market worldwide, the Wall Street Market. They confiscated over 550.000 Euro and a six-figure sum in Bitcoin and Monero.
This illustrates the effort undertaken by officials to clamp down on cybercrime, which is part of a grander fight against money laundering, the financing of terror and other illegal online activities. This could affect the use of cryptocurrencies as well, but also other uses of cryptography by the public. For example, in early 2019, the parliamentary undersecretary of the Federal Ministry of the Interior, Günter Krings, called for a ban of The Onion Router (short: TOR) to limit activity on the darknet altogether.
It is worrisome that tools like cryptocurrencies and encrypted networks are demonized for their possible nefarious uses since they can also be used for good and expand personal freedoms and fight tyrannical governments.
To sum it all up, Germany could be an attractive location for crypto-projects and business. The talent pool is large and the work ethic is ambitious. We can see many positive developments happening, that advance not only the use of cryptocurrencies but also the respective protocols and technologies. Unfortunately, the innovation is somewhat hindered by overbearing regulation, which results in unfulfilled potential.
That being said, if you get a chance to visit Germany, be sure to check out a meetup or two and network with the German community.