Cryptocurrencies and blockchain technology have been slowly but surely changing the world since their inception in 2008. Satoshi Nakamoto, the creator of Bitcoin, released the white paper explaining the functioning of Bitcoin, a peer-to-peer payment system based on distributed ledger technology, also known as the blockchain. This technology introduced an alternative to the current financial verification system, eliminating the need for middlemen and a centralised authority.
A lot of things have happened in the crypto world since then. Bitcoin was just the first step; it is currently regarded as a store of value with no real utility. In 2015, a new project called Ethereum launched and revolutionised the crypto space. Ethereum was a direct improvement over Bitcoin in that its programming language called solidity, which allowed anyone to build composable applications on top of it.
The ability to create composable applications on Ethereum, called dApps (decentralised applications) gave rise to decentralised finance, or DeFi for short. DeFi is an experimental, decentralised, permissionless and trustless financial system directly challenging the traditional foundations of finance. It is very clear that DeFi, cryptocurrency and blockchain technology are slowly becoming more and more influential. What used to be a highly volatile, speculative, and dangerous market is slowly gearing up to revolutionise the world the same way that technologies like the internet did. An important emphasis would be the fact that DeFI is still in its infancy and carries a lot of risk, so, as we say in the crypto space, DYOR (do your own research) and be careful out there!
Due to the increasingly fast-paced progression of this new technology, with hundreds of new projects launching every day, several jurisdictions are currently in a rush to become the new Silicon Valley for cryptocurrencies.
A Promising Outlook
In 2019, Cyprus demonstrated a clear intention to become one of the first countries to introduce favourable regulations for blockchain technologies. In 2019 the National Strategy on Decentralised Technologies and Blockchain plan was approved by the council of ministers. It recognises the growing importance of blockchain technologies, encourages their use and outlines the way forward to implement blockchain technologies for use in everyday lives. Since the plan’s introduction, more than 19 strategic projects and 28 e-governance projects have seen approval and adoption in public services.
Furthermore, the academic community of Cyprus has been active in the field of blockchain technologies. The University of Nicosia became the first in the world to offer a masters in degree in digital currencies in 2015. The Cyprus Blockchain Technologies Ltd is a non-profit, collaborative organisation which facilitates collaborations between Cypriot academic institutions, regulators, banks as well as other tech companies.
Through the Council of Ministers decision N.85.629, the Cypriot Government has formed a working group actively working to implement and develop blockchain technology, as well as enhance the legal framework in Cyprus. Currently, there are three sub-committees in this working group, focusing on the development of 1) blockchain technology and its implementation, 2) the guidelines for future deployments of the technology in the public sector and 3) the proposed regulatory framework on blockchain technologies.
This, along with the speech given by the Deputy Minister of Research, Innovation and Digital Policy Kyriacos Kokkinos at the 3-day tech festival “Reflect 2021” indicates a clear willingness of the Cypriot Government to become a hub for innovative technologies, blockchain technology being one of them.
Current Cyprus Law on Cryptocurrencies
In Cyprus, as is the case in the majority of EU countries right now, blockchain technologies and cryptocurrencies are mostly unregulated. That said, the legal framework of Cyprus does mention cryptocurrencies, mainly in the amendment to Law of 2007 (188(I)/2007), which aims to implement the 5th Anti Money Laundering Directive (AML). The abovementioned law classifies cryptocurrency as a virtual representation of value not regulated nor guaranteed from a Central Bank or Public Authority and which isn’t considered a flat currency, e-money or a financial instrument. Along with this, CySEC (Cyprus Securities and Exchange Commission) issues guidelines regarding cryptocurrencies and is responsible for issuing licenses to Crypto Asset Service Providers (CASPs).
Conclusion
It might be an attractive idea to see Cyprus as a major runner in the race to become the next Silicon Valley of cryptocurrency and blockchain technology. However, the outlook of the Central Bank of Cyprus on cryptocurrencies appears to be antagonistic, which is significant considering CBC is a major authority that all financial institutions in Cyprus follow.
In the end, Cyprus will have to follow EU law. One of the key objectives of the EU has been the harmonisation of laws amongst member states. Cyprus must follow EU regulations and implement directives into national law, or face sanctions from the commission, as was the case with the infamous golden passports. Thus, it is hard to predict whether Cyprus will have the leeway to introduce a more favourable legal framework for investors and companies, as the EU is still developing the new regulatory framework for cryptocurrencies.
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