With a law, Serbia plans to regulate cryptocurrency and blockchain

An increasing number of Serbian IT companies perform transactions in cryptocurrencies within the Blockchain system, leaving banks completely out of such. But, the national legislation still does not recognize this modern method of payment. 

In order to digitally improve the economic environment, work has begun on a draft law governing this area, and those who do business with virtual assets hope that their business will be significantly facilitated after the adoption of the respective legislation. 

Representatives of the blockchain industry in Serbia say that it is important to legally regulate this area, because it will enable our companies to stay in the country, instead of opening their branches in other countries. 

The Serbian blockchain initiative was created as an association of companies that deal with blockchain, but companies from other areas of business are also members. 

Blockchain is a new technology, which has enabled many players on the market to connect without intermediaries, and the new regulations will increase safety of environment for such businesses. By enacting the law on blockchain and cryptocurrencies, cryptocurrencies would be recognized as a financial instrument that can be used in business, and it is known that in Serbia there is a large number of entrepreneurs who are ready to sell their goods and services for cryptocurrencies such as bitcoin, lightcoin, safex, and with this law they could only be encouraged for that kind of business transactions. 

Next to the National Bank of Serbia (NBS), which facilitates drafting of the law, the representatives of the further listed official state bodies also participate – Government of Serbia, Ministry of Finance, Securities Commission, Anti-Money Laundering Administration, Ministry of Economy, Ministry of Trade, Tourism and Telecommunications, Belgrade Stock Exchange, as well as representatives of the economy and the academic public. 

The goal of enacting this law is to improve legal security in transactions with crypto assets, protect investments in crypto assets and ensure better position of Serbia in the international framework in terms of the attractiveness of the business environment related to trade in crypto assets.

What are cryptocurrencies and blockchain?

Cryptocurrencies are digital currencies that do not have a physical form in the real world, such as banknotes or coins. With cryptocurrencies, there is no issuer, that is, an institution, company or person behind a certain cryptocurrency, but they are managed by its users. The most famous cryptocurrency is bitcoin, which has had an explosive growth in value several times since its release in 2008. It also recorded a dizzying decline, so in January 2018, it lost a quarter of its value in just one day. According to the data of the portal Cointelegraph, which monitors the news about the crypto sector, on August 6, the value of bitcoin was 11,818 US dollars. Bitcoin is just one of the cryptocurrencies, and all of them are related to the blockchain system of transactions. 

Overly simplified, the blockchain is often presented as a virtual book that is on the Internet, and in which information about the transactions is recorded. Each page of the book is linked to the next, and each user of network has access to that book. Blockchain is currently used wherever there is any type of transaction, and it also serves as a tool for tracking goods. For example, when certain data is entered in the supply chain of certain goods at each of the “stations” within the blockchain “path”, all data and transactions that are processed at that time are updated on all computers from where the data was entered. This means that all transactions are forever recorded in that book and that they can never be deleted nor their order can be disturbed. This means that the blockchain is practically indestructible.

It’s not illegal, but it’s not in the law either

Business operations related to virtual currencies are currently regulated in Serbia only from the aspect of the application of the Law on Prevention of Money Laundering and Terrorist Financing, with the National Bank of Serbia in charge of supervision of the enforcement of this law.

According to the NBS, businesses engaged in virtual transactions are obliged, among other things, to “identify the client in the prescribed manner (for individuals by inspecting a personal identification document with a photo), to monitor its business, to create a list of indicators for recognition persons and transactions for which there are grounds for suspicion of money laundering or terrorist financing, to draw up appropriate internal acts, keep appropriate records, submit information, data and documentation to the Directorate for the Prevention of Money Laundering, etc. “.

However, there is still no special law that regulates this area, so performing a transaction with blockchain technology is not illegal, but it is not recognized by the current regulatory framework either. 

For people who are engaged in the Fintech industry in Serbia – a combination of finance and technology, it opens up a number of problems. 

One of major concerns for people who do business through blockchain technology in Serbia is finding a bookkeeping agency that would be able to record these transactions in the business books, but this should hopefully change once the new regulations are passed. 

The classification of cryptocurrencies is not clearly defined either, so some see them as money, some as digital assets, some as a speculative instrument. 

Therefore, it is still uncertain under which accounting category to subsume cryptocurrencies.

To pay or not with bitcoin?

It is possible to trade cryptocurrencies on stock market, so people from Serbia sell cryptocurrencies for dinars on the regular basis and then withdraw money from their bank accounts. 

All Serbian citizens who register on the stock market must abide to the AML requirements. Although this situation can be called a gray zone, new law should not be too restrictive but help further facilitation and improvement of doing business.

Countries with good legislation

There are many European countries that Serbia can look up to when it comes to legal regulation of blockchain technology, such as France, Portugal and Estonia. Estonia is even trying to be the center of Europe through regulations in the sense of trying to motivate companies dealing with cryptocurrencies and blockchain to register there and work from there. They do this through a licensing system that is much cheaper and simpler than, for example, in Malta, which is also trying to fight for its place. Outside of Europe, Japan is one of the first countries to enact regulations in that area.

Public administrations around the world use blockchain technology to monitor the flow of documents and money. It is important for Serbia that blockchain, after the gaming industry, is the fastest growing and the most important part of the IT industry. According to an international survey, out of 10,000 developers working in the world of blockchain, 400 of them are in Serbia. When the number of only those 20 companies from Serbia is compared with Germany, i.e. Berlin, which is considered as one of the centers of blockchain technology and in which there are 70 such companies, our country ranks very well.

Blockchain video summit of Serbia, UAE and India in October

Meanwhile, the Chamber of Commerce and Industry of Serbia (CCIS) announced that a blockchain video summit of Serbia, the United Arab Emirates (UAE) and India will be held in October, with a large number of representatives of companies and experts from Serbia, the UAE and India. 

According to the official website of the CCIS, the summit will be held with the aim of connecting and improving the cooperation of companies in innovative and fast-growing technologies.

As explained earlier, the UAE is one of the most innovative economies in the world, with an extremely wide range of application of blockchain technologies in various spheres of life and business, and with the inclusion of India as one of the global leaders in the IT industry, the virtual summit will open opportunities for Serbian, UAE and India companies.

It is interesting to know

The Government of Serbia has recognized blockchain technology as the fastest growing branch of the IT sector in Serbia, and the new regulations will provide additional incentives for investing in blockchain companies, which will contribute to their development and competitiveness on the world market.

For recent breach of personal data of the citizens of Novi Sad and lost of respective databases, the ransom was required to be made in cryptocurrencies. As Mayor of Novi Sad explained at the time, the hackers asked the city authorities to pay 50 bitcoins for ransom, which amounted to around 400,000 euros. The city authorities refused to pay ransom and implemented, after several weeks of difficulties in the functioning of the city administration, a new information system.

In the previous period, in the process of digitalization, the NBS implemented a number of international recommendations. 

At the suggestion of the Governor of the NBS, this area is already partially regulated in our country, i.e. in 2017, the international recommendations of the FATF regarding the prevention of money laundering and terrorist financing were implemented in our legal framework and platforms for trading virtual currencies have been under the supervision of the NBS ever since.

Serbia was one of the pioneers in the application of blockchain technology, which is why the representatives of this community hope that future legal solutions will bring clear rules in this part of the IT industry.