Either you adapt or you die - that’s the sentiment across the globe when it comes to the adoption of digital assets, including cryptocurrencies, by traditional banks.
And Europe, at the moment, is leading the global race, with Switzerland on top: not only can some of its residents now pay for their coffees using crypto, but their taxes too.
The European Union is catching up, with crypto assets becoming widely regulated when the Markets in Crypto-Assets Regulation (MiCAR) comes online on 1 January 2025.
“Europe became one of the leaders here, especially when we speak about this framework for regulation of crypto assets,” said Ilya Volkov, board member of Crypto Valley Association at the NGO’s Web3 Banking Symposium in Geneva last week.
The event brought together traditional and digital banks and blockchain service providers to discuss the adoption of the technology and crypto.
So, could Bitcoin end up in my regular bank account? Volkov’s answer is “for sure”.
“Customers of traditional banks are already asking them about access to cryptos,” said Volkov, explaining that the evolution of this technology is similar to the shift from paying with credit cards to Apple Pay or Google Pay.
Volkov said that the technology will become not just expected, but required by customers of traditional financial institutions.
“I think it's very important because it's more transparent, it's more efficient in terms of, costs,” he said, referring to how the technology behind cryptocurrencies, called blockchain, is decentralised.
This means it doesn’t require intermediaries, which shaves costs, while cryptography in blockchain - the network of computers used to store records of transactions - is seen as a guarantee to protect clients’ assets.
A quick crash course on cryptocurrencies
The market capitalisation of cryptocurrencies has recently swelled to more than $2.6 trillion (€2.4 trillion) worldwide, approximately half of Germany’s nominal GDP.
They function outside established financial systems and are not tied to tangible assets like gold or governed by central financial institutions. However, as a result, they tend to be more volatile than traditional currencies.
Cryptocurrencies are created through a computational process called mining, which is also the way transactions are officially entered on the blockchain.
Its decentralised nature, which chronicles every transaction across this network, assures transparency.
Investors and analysts increasingly consider crypto to be ‘digital gold’, as it is seen as safe, due to the use of cryptography which promises 100% safety against identity breaches.
Popular examples of cryptocurrencies include Ethereum and Bitcoin, the latter having just reached a new all-time high value. Critics of the concept however argue that its fair value - in other words, its intrinsic worth - actually stands at zero.
“Bitcoin has failed on the promise to be a global decentralised digital currency and is still hardly used for legitimate transfers, Ulrich Bindseil and Jürgen Schaaf, two officials from the European Central Bank (ECB), said in a recent blog post.
They said that Bitcoin isn’t suitable as a means of payment or as an investment, because transactions using it are still inconvenient, slow, and costly.
Pay for your morning coffee with stocks
Although attendees at the Web3 Banking Symposium also acknowledge that there is a lot to do to allow cryptocurrencies to work to their full potential, they already envision plenty of roles where they can thrive, including payment and investment.
Using cryptocurrencies is already spreading across businesses and clients in Europe, according to experts.
“For retail customers, blockchain can bring more transparency because when you pay, you can really track the transaction where your money goes, where it came and where it goes, which is a really good benefit,” said Volkov.
While crypto will serve as an alternative form of payment in the future, he believes that traditional local currencies will be still strong in the next decades.
Once blockchain technology is widely adopted and coupled with traditional financial technologies, tokenisation could be one of the most attractive advantages. The process turns various assets, including stocks and data, into digital tokens that can eventually be used for payments - even for things such as your morning coffee.
As for investments, “we see more and more real-world assets coming to blockchain - tomorrow we will be trading securities in the form of tokens on blockchain,” said Volkov.
Crypto Valley Association also believes that in the future, Bitcoin and similar cryptocurrencies could serve as a primary means of storing value, challenging the current system where centralised financial institutions gather and oversee funds.
“Now, with blockchains, I think we will have some kind of a requirement at some point from customers to manage assets in a decentralised manner where financial institutions will not have direct access to funds without a special permission or special request from customers”, said Volkov.
What will it take to make it a reality?
Cryptocurrencies gained popularity by operating beyond government control and outside regulatory oversight. However, for them to be widely used for payments and investments, they now need to be shoehorned into the traditional system with adaptable regulations ensuring safety.
The task, however, is enormous.
Not only are there more than 13,000 cryptocurrencies in existence, with almost 9,000 being active or valuable on the market but there are around 420 million users, with 31 million in Europe.
Approximately 18,000 businesses across the world started accepting them in the hope of gaining a competitive advantage.
Yet the crypto world still faces fragmented regulation, while it promises the advantages of transcontinental payments in a short time with low cost.
“It's about compliance requirements,” said Volkov. “When it comes to traditional financial institutions, traditional banks, they are following some complex regulatory requirements for anti-money laundering or ‘know your customer’ procedures [client verification, ed.].”
“So, these kinds of things are actually expensive when it comes to blockchain because we're speaking about a lot of transactions from different blockchains, different coins, and just big investment to set up properly the system inside traditional institutions,” he added.
To build a safe and transparent system, regulation needs to be harmonised. The European Union has already made headway by adopting the MiCAR.
“Crypto will be regulated [under MiCAR] in most of its ways, like traditional finance. So actually the step is being done now to be able to merge traditional banking with crypto finance and crypto assets, “ said Cecilia Peregrina from PwC Switzerland.
The Swiss example: Paying taxes in crypto
Returning to Switzerland’s place at the top of the European crypto payment and regulation table, the so-called ‘Playground of Europe’ has already set up a Switzerland crypto licence.
This measure requires crypto businesses to be licenced under the Anti-Money Laundering Regulations.
The Swiss Canton of Zug is one of the busiest places swarming with new crypto start-ups, where residents and businesses can pay their taxes in crypto.
Martin Burri from PwC Switzerland told Euronews Business that income taxes in Zug can be paid with Bitcoin or Ethereum up to an amount of 1.5 million Swiss francs (€1.56 million).
“Still, the tax base is determined in Swiss francs and is then converted into a cryptocurrency,” he said. “And I would expect that these [rules, ed.], will stay for a long while.”
Another example is the city of Lugano, in the canton of Ticino, where the town hall has recently expanded the list of taxes and municipal charges that can be paid in cryptocurrencies (they accept Bitcoin BTC and Tether USDT).
Specifically, Lugano has adopted a system in which residents scan a QR code on the invoice and then select which mobile wallet they want to use for payment.
Such measures are incredibly useful for the city’s crypto-savvy population: some 15% of residents use crypto in their day-to-day lives, as there are also more than 300 shops and venues accepting crypto payments in the city, including restaurants.
Switzerland's civil law serves as another benchmark to gauge European regulation, which experts say is lacking compared to its Swiss neighbour.
According to Peregrina, under Swiss law, transferring Bitcoin between individuals allows authorities to determine ownership and beneficiaries. Additionally, regulations govern how you can pass on Bitcoin to your children in the event of your passing.
“And also more importantly, if a financial institution goes bankrupt, what is going to happen with your Bitcoin?” she said. “Will the Bitcoin fall into bankruptcy and disappear?”
“Or will you actually be able to take them back and retrieve them from the company?” Peregrina added. “And this is something that the [European] regulation is not tackling.”
