Digitization of payment transactions
The topics of crypto assets, crypto currencies and, in particular, crypto deposits are becoming increasingly important. This means that the trend is moving towards the digitization of payment transactions and the financial industry.
The basis is the Distributed Ledger Technology (DLT) — the technology of “distributed ledgers” — whose currently best-known technical implementation is the Blockchain architecture. The main difference to classic monetary systems and financial instruments is that transactions are legitimized in a decentralized manner and stored with the participants. Trust and manipulation security, which are ensured in the classic environment by a central authority — such as a bank — are carried out here via transparency and cryptographic processes. Ownership of crypto assets is represented by possession of a private cryptographic key.
New, forward-looking business areas for banks and financial service providers
For banks and financial service providers, this development offers great opportunities to develop new, forward-looking business areas. In particular, in the crypto deposit business, they can store, manage and secure crypto assets or associated private cryptographic keys for their customers.
Even if the central instances as trust anchors are eliminated in the field of DLT, banks can use their expertise in the implementation of regulatory requirements as well as their already existing competencies in dealing with cryptographic procedures (e.g. in authorization, online banking or PIN security) to create a good starting position in the market of services for crypto assets and cryptocurrencies.
Regulatory issues on crypto custody
For the acceptance and use of the new technologies, legal certainty, uniform requirements and an appropriate regulatory standard are needed.
To this end, the Act Implementing the Amending Directive to the Fourth EU Money Laundering Directive included crypto deposit business as a new financial service in the German Banking Act (KWG) at the beginning of 2020. In addition, the EU Commission launched a digital finance package in September 2020, the contents of which include the Proposal for a regulation on Markets in Crypto-assets (MiCA) and a pilot project for DLT-based securities. In June 2021, a digital alternative to the traditional paper certificate was also created with the entry into force of the Electronic Securities Act (eWpG). Finally, in July 2021, the go-ahead was given for the trial phase of the Digital Euro by the European Central Bank (ECB).
Crypto deposits and the Digital Euro are forward-looking tools that can strengthen the competitiveness of Germany and Europe. However, the regulatory framework for this is still very much in motion. For example, the technical design of the digital euro has not yet been determined. It is not expected to be introduced before 2023. The EU’s new MiCA regulation is also still being agreed.
Towards an individual crypto service
We follow the exciting developments in the field of crypto assets, crypto currencies and the Digital Euro for you and support you in the realization of your crypto deposit service. We gladly inform you about the possibilities to get involved in this innovative sector.