The European Union and Germany’s Newest Steps to Combat Cryptocurrency Fraud
The new craze of Cryptocurrency is unlike anything the economic or monetary world have ever seen, with its combined involvement of investment and technology. It can be worth huge amounts, with one of its most popular currencies, Bitcoin, valued as of September 23, 2023, at $26,189.50 (USD). Unfortunately, one of its most unique aspects, the one that is meant to keep it safe, can cause people to lose the equivalent of their life savings if it is lost. This aspect is known as the cryptographic key.
One’s possession of their cryptocurrency is through this key, and quite literally anyone who owns or has knowledge of said key can grab and take the cryptocurrency. This happens often, and “by some estimates, about one-fifth of all bitcoins are now inaccessible due to lost passwords or incorrect sending addresses.” It is also well known that there still is a lack of regulations that help monitor these financial institutions' security measures in protecting consumers and their cryptocurrency. However, the European Union has added a new regulation to add new standards to protect their consumers; Their new strategy is called MiCA.
MiCA stands for “Markets in Crypto-Assets Regulation,” and it’s addition into EU Law will require a new development of regulatory and technological standards. Essentially, “with the new rules, crypto-asset service providers (CAPSPs) will have to take steps to protect consumers wallets and keys and will become liable if they lose investors’ crypto-assets or keys”. This is huge, since “keys”, also known as Cryptographic keys, are a huge part of the monetary and transactional cycle of cryptocurrencies. Currently, the key is only needed to gain access to an account tied to cryptocurrency. It is similar to a password, as it also is a grouping of letters and numbers. Once one loses their cryptographic key, their money is completely gone. Nothing can be done about it.
In order to combat these concerns, Germany has become a leader in protecting consumer/public interests by introducing a draft bill to double down on these new regulations. Their proposed bill is known as the Future Financing Act and executed through the Kreditwesengesetz (KWG); this act would help hold financial institutions accountable for keeping cryptocurrency from fraud. According to Section 26b(1) of KWG, “[a]n institution engaged in the crypto custody business shall ensure that the crypto-assets and private cryptographic keys of the customers are kept separately from the crypto-assets and private cryptographic keys of the institution.” Essentially, this section would make it more difficult to share encryption keys across accounts.
Another added section to address security concerns is highlighted in draft Section 46i KWG which finds that “crypto-value held in custody for a customer, within the scope of a crypto custody transaction, is deemed to belong to the customer, unless the customer has given his consent to dispose of it.” This portion ties into the recent events unfolded during the investigation of the now notorious company FTX, which was found to have stolen customers funds by allocating them out of customer’s accounts and using them for “undisclosed venture investments, lavish real estate purchases, and large political donations.” The new EU and German regulations help strengthen the protections for customers of Cryptocurrency, and the added safety measure will foster customer and consumer trust that will help push Cryptocurrency into the future.