Category Archives: De Nederlandsche Bank

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Dutch Central Bank Takes Closer Look at Exchanges

Dutch Central Bank Takes Closer Look at Exchanges

The Dutch Central Bank, De Nederlandsche Bank (DNB) has announced its plans to impose regulations on cryptocurrency exchanges in the country in order to counter money laundering and fundraising for terrorist activities.

In future, registering exchanges will need to ensure that any “unusual transactions” are reported and that exchanges’ KYC rules are tightened.

The new legislation was not completely unexpected by the Dutch cryptocurrency community. The central bank has long been unreceptive to the idea of digital currency, maintaining back in November of 2017 that Bitcoin had no real worth. According to DNB regional director Petra Hielksma at that time, “If something wants to be treated as money, you have to be able to spend, save and calculate with it.”

The Netherlands has been quick to find numerous worthy use cases for DLT, particularly in projects that support local communities, health, and civic pride. The larger community has been mainly positive towards cryptocurrencies too, despite the country’s Finance Minister Wopke Hoekstra proposing a ban on cryptocurrency advertising and trying to douse enthusiasm.

Arnhem, near the German border, has become the country’s crypto haven, where Bitcoin can be used to buy anything from bread to beer using Bitcoin and other major currencies. Despite the DNB’s concerns about cryptocurrency, approximately 60% of the households in the Netherlands have some cryptocurrency investment.

However, the DNB points to the more than USD 88 million reportedly laundered over 46 cryptocurrency exchanges around the globe during the past two years, as enough evidence that the government needs to take firmer measures with exchanges with regard to money laundering and other illegal activities.

In terms of expressing a social conscience though, the nation continues to demonstrate its progressive uses for blockchain by forming partnerships with the World Bank, the UN, and the EU Forum. Earlier this year, the Dutch government announced that the Ministry of Economic Affairs and Climate Policy had created a special unit devoted to researching the ways in which blockchain technology could be harnessed to provide reliability in the area of tech development while being energy sustainable.

 

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Dutch Financial Authority ”Seriously Doubts” Crypto’s Conformity with Licensing Laws

The Netherlands Authority for the Financial Markets (AFM) sent an official letter dated 13 June to marketing participants looking to offer cryptocurrency investments, stating the department had ”serious doubts” that cryptocurrencies can conform to licensing laws.

The primary reasoning given is that in part, the instabilities associated with managing cryptocurrencies are too great. The letter reads: “The AFM has serious doubts, partly because of the risks associated with cryptos and their management.”

These ”risks” were defined by the financial regulatory body as meaning companies offering cryptocurrency investments may well fall short on governmental licensing obligations, as the letter claims there is ”limited knowledge of these requirements for many market parties”.

The post concludes, “In combination with the risks associated with cryptos, the AFM has serious doubts whether managers of investment institutions in cryptos can meet the requirements for licensing.”

While cryptocurrency investment is not an activity directly regulated by the Netherlands’ Financial Supervision Act, the AFM notes on its website that there are circumstances where actions do fall within its legislative jurisdiction.

The Dutch crypto stance

These comments are not largely surprising, given the Dutch government’s generally critical stance on the cryptocurrency industry. While the field is still emerging, it will take time for all firms to be able to provide sound, reliable investment opportunities.

Earlier this month, Netherland’s central bank, De Nederlandsche Bank, stated that as blockchain technology now stands, it is not fit for purpose of being a payment system. A lack of scalability with large volumes of transactions was quoted as the main issue.

In May, a government report did quote cryptocurrencies to be ”low risk” in regards to the countries financial stability, so long as banks do not get involved in the processes. However, many in the industry believe bank involvement is required to provide legitimacy to cryptocurrencies that it is currently searching for, so this is not necessarily a positive statement.

 

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Dutch Central Bank Rejects Below-Par Blockchain System

The Netherland’s central bank, De Nederlandsche Bank (DNB), has posted a blog post saying that as yet, blockchain is not fit for purpose in terms of being a payment system.

The bank maintains that that DLT won’t suit the central bank’s existing financial structure primarily due to lack of scalability with large volumes of transactions. The DNB was referring to a series of tests conducted over a period of three years called project Dukaton, testing four DLT prototypes.

The Dukaton team applied different consensus algorithms and validation mechanisms in the later stages of the tests, after experimenting with an original prototype based on the Bitcoin blockchain.

The bank admits that the blockchain does offer benefits, in that it can increase the bank’s resistance to external attacks, but the downside pointed to poor levels in terms of “scalability, capacity, and efficiency”.

“The current payment systems are very efficient, can handle large volumes and provide the legal certainty of payment. The blockchain solutions tested show that they are not sufficiently efficient, with regard to costs and energy consumption, and they cannot handle large numbers of transactions,” the post read.

The bank is prepared to look again, further down the track, to see if a better-designed algorithm might better be able to meet the technological requirements of Holland’s financial system.

In similar work, South Africa’s central bank yesterday announced positive results for the trial of its blockchain-based system for interbank clearance and settlement, after conducting a 14-week proof of concept trial. The trial settled the country’s 70,000 daily payment transactions within two days using a Quorum blockchain platform, the same as that developed by JPMorgan.

The South African central bank has now established its own self-regulatory organization to oversee crypto industry developments aimed at preventing “systemic risk”, although the bank stressed it was cautious not to “throttle growth”.

 

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