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Bank of Finland Releases Scathing Crypto Report, Calls Digital Currency a “Fallacy”

The Bank of Finland released a paper on June 21 titled “The Great Illusion of Cryptocurrencies,” explaining why they think the concept of a digital currency is a “fallacy.”

The paper, written by Aleksi Grym, Adviser on Digitalization and Head of the Digital Central Bank process in the Financial Stability and Statistics Department. It aims to explain how cryptocurrencies’ fundamental nature “shows how poorly understood the concept of money itself still is today” and how the Internet and social media have “muddled our sense of fact and fiction.”

In Grym’s words, cryptocurrencies are not real currencies but instead “accounting systems for non-existent assets.” He makes the argument that digital ledger technologies, like blockchain, are actually the same as other record keeping systems, but that their implementation for crypto is “unrelated to the fundamental characteristics of money:”

“For all intents and purposes, that ledger is a centralised ledger. The fact that there are multiple synchronised copies of it, distributed across a network, is irrelevant, as each one has the same data.”

The article cites several studies on Bitcoin (BTC) and cryptocurrencies with relatively negative views on crypto as either a speculative instrument or a bubble whose “fundamental value is zero.” Grym also discredits the idea of a central bank issued digital currency, noting that it would “practically mean bank accounts at the central bank.”

Grym then asks the question, “again, what is money?” noting that the definition has changed over time, but that money is normally described as functioning as a unit of exchange and having a store of value and a unit of account. The article notes that money, presumingly referring to crypto, is not created “out of thin air,” but comes from liquidity transformation.

According to the article, the main impetus for buying cryptocurrencies are either for criminal activities, creating a sense of community, security against “real or imagined” state oppression, and the thrill of trading. Grym then compares buying Bitcoin to the “intangible value” for some customers that buy “toys, fashion, art, club memberships, or firearms.”

Last week, Cointelegraph published an overview of all of the “FUD” (Fear, Uncertainty, Doubt) in the crypto sphere since Bitcoin’s inception, detailing the many comparisons to the Dutch “tulip mania” as well as the multiple Bitcoin “deaths” reported in the media.

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Spanish Authorities Arrest 11 In Crypto Money Laundering Ring

Operation Tulipan Blanca (White Tulip), coordinated by Europol and conducted by the Spanish Guardia Civil, has resulted in the arrest of 11 individuals for laundering more than EUR 8 mln via cryptocurrencies, according to a Europol press release April 9.

According to Europol, the investigation was centered around a crime ring which launders money from narcotics sales using credit cards and cryptocurrencies.

Launderers would pick up the illicit funds in cash, after which they would deposit them in small amounts into hundreds of third bank accounts. Since the cash was already circulating in the financial system, the ring just needed to transfer the illicit funds back to the drug dealers in Colombia. The criminals would then acquire credit cards linked with the accounts, and travel to Colombia where they would make withdrawals.

Once the criminals realized that cash withdrawals and bank operations were easy to track, they used cryptocurrencies instead, mainly Bitcoin. The suspects converted illicit funds to Bitcoin through an exchange, which they then changed to Colombian pesos and deposited into Colombian bank accounts the same day.

Through collaboration with Finnish authorities, police were able to establish that the exchange being used by the criminal ring was located in Finland, and collect the necessary information to track the culprits.

137 individuals are still being investigated by the Guardia Civil. The investigation shows that the suspects deposited over EUR 8 mln into 174 different bank accounts. Europol says it has organized special training “to assist law enforcement officers in identifying the use of cryptocurrencies by organized crime networks.”

Cointelegraph reported earlier today that the US Department of Justice (DoJ) seized backpage.com on charges that it laundered nearly half a billion dollars in illegal revenue, some via cryptocurrencies.

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Finnish Crypto Exchange Risks Collapse As Banks Refuse To Do Business

Finnish cryptocurrency exchange and crypto wallet services provider Prasos Oy is one step from being “frozen”, as most Finnish banks will no longer conduct business with them, Bloomberg reports March 9.

Founded in 2012, Prasos has seen a ten-fold spike of transaction volumes reaching $185 mln in 2017, which became a subject of concern among the banks.

Finnish banks do not have a codified set of regulations surrounding cryptocurrencies and the anonymous nature of cryptocurrency transactions could potentially run afoul of current Finnish anti-money laundering laws (AML). As a result, four banks; S-Bank, the OP Group, Saastopankki, and Nordea Bank AB closed Prasos Oy’s accounts in 2017. For now, Prasos has to manage all its clients’ transactions through one bank.

Tomi Narhinen, CEO of Saastopankki, commented that the anonymous character of crypto operations breaches the AML laws of the European Union (EU).

In most cases it’s practically impossible or at least very hard to do business with cryptocurrency dealers and exchanges, because it can be impossible to determine the origin of the funds,” said Narhinen.

Prasos’ CEO Henry Brade noted that the company is facing a critical situation. “The risk is that we’ll see our last bank account closed before we can get the next one opened,” Brade stated. “That would freeze our business.

The legal status of cryptocurrencies in the European Union was cast further into question in December 2017, when the EU decided to more closely regulate cryptocurrency exchanges in order to protect banks against money laundering and tax evasion.

Brade noted that the company has fully adapted AML measures, and it expects the authorities to formulate the necessary regulations.

“We’ve created identification practices, which we have taken into use in March, and they comply fully with anti-money laundering laws and regulations, even though authorities do not even require this from us as our business is not under regulatory obligations.”

Cointelegraph reported in February that Finnish authorities were confused by Treasury guidelines surrounding the storage of 2,000 confiscated bitcoins.

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Finland Mandates Cold Storage, Public Auctions for Seized Bitcoins

Finland’s government released new guidelines today that set out how law enforcement officials must handle cryptocurrencies they confiscate.

The official agencies in charge of storing the cryptocurrencies will now be prohibited from storing them on exchanges, and must instead keep them offline and inaccessible from the internet, a Bloomberg report states, citing official Treasury documents.

The ruling effectively means the agencies involved will need to identify some form of cold storage solution, in which they would maintain a wallet that does not have an active Web connection. Bloomberg said the Helsinki customs office would not indicate how it has been storing the cryptocurrencies until now.

The news source states that Finland’s authorities currently hold around 2,000 BTC that have been confiscated in raids since 2016, as per data from the customs office. At today’s prices, the 2,000 BTC is worth around $23 million, according to CoinDesk’s Bitcoin Price Index.

As reported by CoinDesk, in 2016, customs agents in Finland seized bitcoin and other items worth about €1 million at the time, in connection with the operation of an online dark market called Valhalla.

Asset treatment

The new guidelines go on to indicate that authorities must also treat cryptocurrencies as assets, rather than as currencies.

Once a court has ruled that the funds will not be returned to the owner, Bloomberg says, they may be exchanged for euros. The document recommends sales should take place through public auctions, rather than on cryptocurrency exchanges, for security reasons.

Other governments have faced the quandary of what to do with cryptocurrencies they confiscate – and as seen in the U.S., the solution is often simply to auction them off publicly.

While it’s not clear how they must store cryptocurrencies, U.S. authorities have held a number of auctions for seized bitcoins in recent years.

Most notable, perhaps, were the sales of cryptocurrency holdings seized from the now-defunct dark market Silk Road. One such sale held in mid-2014 offered 29,656 BTC (won by investor Tim Draper), and a later auction of 44,341 BTC took place in October 2015.

Combined, those 73,997 bitcoin would be worth $853 million at today’s prices.

Bitcoin and handcuffs image via Shutterstock

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at news@coindesk.com.

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OneCoin Promoter Targeted By Finnish Police in Ongoing Investigation

A police investigation in Finland into the OneCoin cryptocurrency investment scheme is accelerating.

The Finnish Broadcasting Company reports that, according to law enforcement officials in the city of Österbotten, an as-yet-unnamed OneCoin promoter is now the subject of an “economic crime case.”

“The…damage is over half a million euros,” said Antti Perälä, an official with the city police who is leading the investigation.

As many as 20,000 residents of Finland have invested in the scheme, which sees promoters selling packages of “tokens” that can then be redeemed for OneCoins through a centralized, online website. The OneCoin promoter is one of two individuals that are the subject of the financial crimes investigation, according to police sources.

The investigation, revealed in August, is actually the second OneCoin-related inquiry launched in the country to date. A previous one, according to BehindMLM, was conducted by national authorities before ending with no charges filed.

Countries like Germany and India have moved in recent months to crack down on the scheme, which has been widely criticized as a fraudulent pyramid scheme, and regulators elsewhere have issued warnings to investors as well.

Notably, the Österbotten police official predicted that a wider investigation into OneCoin could be launched jointly between several law enforcement agencies within Europe or beyond.

“If there is a crime investigation around OneCoin, it will be bigger and involve several countries, in my opinion,” Perälä said.

Editor’s Note: Some of the statements in this report have been translated from Finnish.

Image Credit: Jne Valokuvaus / Shutterstock.com

The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [email protected].

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Singapore Tests Blockchain Payments for 19,000 Unbanked Migrants

A Singapore bank has signed an agreement which will see Blockchain payments help up to 19,000 migrants transact without banking access.

As local news outlet Business Times reports Wednesday, Maybank Singapore will leverage native startup InfoCorp Technologies’ CrossPay network to allow migrants in a giant dormitory to pay for purchases digitally.

CrossPay uses Blockchain for storing consumer identities and includes a private platform for making payments. At the other end, Maybank will settle the final amount with dormitory operator TS Group.

The migrant workers in the first site number 16,800, with a further 2,000 potential users due to come on board at a smaller site in Mandai later.

Discussing the move, InfoCorp CEO Roy Lai said the value of Blockchain lies in allowing those who could not afford online banking to transact securely.

“(Banking) solutions are not suitable for migrant workers as many of them have no experience with banking services,” he explained.

“Introducing CrossPay to migrant workers, therefore, makes sense as it is a solution that specifically caters to their needs.”

Migrant specific applications for Blockchain are gaining traction internationally. In September, Finland announced a partnership with local fintech startup MONI to issue Blockchain debit cards to the country’s incoming refugees.

There, too, immutable identity and payment tracking capabilities were a key attraction.

A CrossPay trial in Singapore meanwhile is set to show results in Q4 this year, with a fuller rollout in due course.

“We see the potential to work with InfoCorp on serving those with little access to conventional banking services,” Maybank’s head of global banking Amos Ong added.

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GoldMoney Integrates Bitcoin despite Peter Schiff’s Bubble Comments

Peter Schiff, a renowned investor, author, and financial commentator, who has consistently offered baseless condemnation on Bitcoin, has demonstrated why the demand toward Bitcoin and the cryptocurrency market can no longer be ignored.

On social media platforms, Schiff announced that GoldMoney, the parent company of SchiffGold, his gold businesses acquired in 2014, will be offering Bitcoin brokerage services to its clients. Schiff claimed that it is not an endorsement of cryptocurrencies but a response to the growing demand toward Bitcoin.

Bitcoin is not a bubble…

Throughout the past few years, Schiff has continuously described Bitcoin as a bubble. Schiff explained that Bitcoin was a bubble when the price of Bitcoin hit $2,000, $3,000, $4,000 and most recently, $5,000. In August, Schiff told Coindesk:

“There’s certainly a lot of bullishness about Bitcoin and cryptocurrency, and that’s the case with bubbles in general. The psychology of bubbles fuels it. You just become more convinced that it’s going to work. And the higher the price goes, the more convinced you become that you’re right. But it’s not going up because it’s going to work. It’s going up because of speculation.”

There definitely were bubbles in Bitcoin and cryptocurrency markets in the past. But, it is completely inaccurate to describe Bitcoin and the cryptocurrency market as bubbles. Schiff has always introduced the concept of intrinsic value to justify the superiority of gold over Bitcoin, but like any asset or currency, the value of Bitcoin depends on its market. Within the last eight years, the cryptocurrency market has become more liquid than the most liquid stock in the world, Apple.

Bitcoin is money…

Schiff fundamentally believes that Bitcoin is not money. By definition, money is a medium of exchange and the value of it should be dependent on the market and users. But, the value of government-issued fiat currencies are manipulated by central banks and were enforced against the will of the people, like the US government replacing gold with the US dollar. Whether Bitcoin is money or not, is not decided by the government or central entities. There are many users, merchants, and businesses utilizing Bitcoin as money, a digital currency, and a store of value. Hence, Bitcoin is money.

According to McAfee and Bank of Finland

As security expert John McAfee stated:

“It costs $1000 to mine one Bitcoin. What does it cost to print US dollar? Which one is the fraud?”

More to that, the Bank of Finland further emphasized in its research paper that Bitcoin is a decentralized financial network that cannot be regulated and censored by central entities, as it operates its own economy in a peer-to-peer ecosystem. It further encouraged economists to study the “marvelous” structure of Bitcoin.

“Bitcoin is a monopoly run by a protocol, not by a managing organization. Familiar monopolies are run by managing organizations, with discretion to determine and then change prices, offerings and rules. Monopolies are often regulated to prevent or at least mitigate their abuse of power. [Bitcoin’s] apparent functionality and usefulness should further encourage economists to study this marvelous structure,” read the Bank of Finland research paper.

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Bank of Finland Researchers Praise Bitcoin’s Economic System as Revolutionary

Researchers from the Finnish Central Bank have asserted that the economic system of the digital currency Bitcoin is revolutionary.

In their September 5, 2017 report, Central Bank Research Hub economists Gur Huberman, Jacob Leshno, and Ciamac Moallemi stated that the virtual currency’s infrastructure provides a degree of protection against manipulation by bad actors through its protocol-layer dynamics.

Part of their report reads:

“Bitcoin is a monopoly run by a protocol, not by a managing organization. Familiar monopolies are run by managing organizations with discretion to determine and then change prices, offerings and rules. Monopolies are often regulated to prevent or at least mitigate their abuse of power.”

Other highlights of the report

The report also pointed out that because Bitcoin is run by a protocol, it does not need to be regulated. This is because the network always enforces Bitcoin’s code, and because users themselves determine fees (depending on how quickly they want their transactions confirmed)..

The authors also recommended that a deeper study on Bitcoin and its infrastructure should be conducted by other experts.

“[Bitcoin’s] apparent functionality and usefulness should further encourage economists to study this marvelous structure.”

Bank of Finland’s works on Blockchain technology and Bitcoin

It should be noted that the opinion of the researchers isn’t necessarily the official opinion of the Bank of Finland. Nonetheless, the document is still very important because of the central bank’s involvement with Blockchain and Bitcoin.

In 2016, the bank organized a seminar about Blockchain in its bid to support local research projects on the technology. The seminar attracted such participants as local academics, regulators, and companies.

Even though the report is technically only the opinion of a few individual researchers, it should be noted that as part of the Bank of Finland’s official research arm, their opinion likely carries significant weight.

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Finland Solves Refugee Identity with Blockchain Debit Cards

Finland has said it has “solved” the problem of refugee identity, using the Blockchain to record data of new residents.

As part of its commitment to support asylum seekers, Finland is providing arrivals with a prepaid debit card instead of cash, and linking the identity of cardholders to the Blockchain.

As Technology Review reports, quoting Finnish Immigration Service director Jouko Salonen, the issue of “strongly authenticated identity” is no longer a problem.

“We have found a way to solve that,” he told the publication.

The cards are the product of local startup MONI, and function more like a bank account replacement than a simple payment device.

In issuing them, Finnish authorities are able to track both spending and identity with the added benefit that the Blockchain data is immutable.

“Our purpose has always been financial inclusion, and especially to help people in developing countries,” MONI CEO Antti Pennanen added.

A cross-Europe effort to solve the problem of refugee identity is currently a topic of debate for the European Parliament.

A task force is looking into the options for using the Ethereum Blockchain to alleviate the problem, with the latest information showing an allocation of €850,000 ($1 mln) for 2017 having been half spent.

“[…] EU governments in partnerships with other countries and organizations (e.g. NGOs) need innovative solutions to manage increasing flows of migrants and their temporary stay in different countries,” the organization commented last month.”