FinTechs belonging to this category offer financial services using crypto currencies. This category also includes FinTechs utilising blockchain and distributed ledger technologies (DLT) upon which Bitcoin and Ethereum are based, among others. FinTechs develop and do research in this field in order to create new services – e.g. crypto currency exchange markets, wallet providers, NFTs-related services, new payment services, "smart contracts" or new clearing and settling services.
Attitude of the country towards financial services using crypto currencies
Although it may not seem like it, given the size of the country and population, Czechia was recognised as one of the early adopters in crypto currencies and DLT (blockchain) alongside global giants. Under the leadership of Czech citizen Marek Palatinus, the world's first mining pool, named after Palantinus' nickname Slushpool, was created in 2010 to mine Bitcoin. Another first for the Czech Republic was in the field of hardware wallets for storing crypto currencies: since 2012, the Trezor wallet has been on the market. As a center of action became historically Paralelní Polis, a project combining art, social sciences and modern technology, with its Institute of Cryptoanarchy as one of the leading concepts of the project. Its café was the first that accepted payments only in virtual currencies and regularly hosts meetings and workshops of the biggest Czech experts in crypto currencies and DLT, including lawyers. The global trend is further confirmed by the large number of Bitcoinmats across Prague, which opened virtual currencies to the public.
In Czechia currently operates Rockaway Blockchain Fund, the largest venture capital fund focused on blockchain and DeFi in Europe, with a $100 million dollar target and rising. Also, the local biggest e-commerce company, Alza, is highly involved in crypto currencies, allowing to pay with Bitcoin for everything (and with Litecoin and Ethereum for selected items as well).
Obligations and requirements to provide financial services using crypto currencies described above
For crypto currencies themselves, already in 2017, the CNB adopted the approach “do not protect, do not harm”. For buying or selling exchange tokens (term used by the CNB for crypto currencies / virtual currencies) in one’s own name for Czech crowns or other fiat money, or for the execution of payments between buyers and sellers solely to pay for the purchased exchange tokens, the license is not needed (and cannot be given as CNB does not recognize this a regulated activity).
The license is needed for trading with crypto currencies derivatives, managing the assets of investors (of a fund) invested in crypto currencies and transferring funds in connection with the organization of trades with crypto currencies. There is no special license regarding crypto currencies: the subject that wants to perform regulated activities involving crypto currency will need to obtain the respective license, e.g., for an investment company/fund under the Czech Act on Management Companies and Investment Funds (transposing both AIFMD and MiFID II in parts regarding investment firms) or for payment services provider pursuant to ZPS. Based on the chosen model, the costs for a license differ significantly.
The apparent legal necessity is to be compliant with Czech AML Act, which included "virtual currency" since 2017. Currently, the Czech AML Act does not define “virtual currency” anymore, but it covers “virtual assets” and the obliged person is defined as a “person providing services related to a virtual asset”. Also, it is necessary, pursuant to Article 28(1) of the Trade Licensing Act, to obtain trade authorisation for the provision of services related to virtual assets. This can be done both for natural and legal persons, with total costs varying only in thousands of Czech crowns.
Additional comments regarding the legal situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
There are still discrepancies regarding the accounting of crypto currencies. Ministry of Finance, to set a uniform procedure for accounting with crypto currencies, issued a communication entitled: "Communication Ministry of Finance on Accounting and Reporting for Digital Currencies.", which contains the procedure the crypto currency entities should account for in the double-entry accounting system. The Ministry of Finance's communication is based on the CNB's approach described above and leads to the recommended approach of accounting for virtual currencies as inventory "of its kind" within the meaning of Section 9 of Decree 500. By this approach, the Ministry of Finance has admittedly chosen the easier version of the so-called uniform approach, since the motive for holding or acquiring the crypto currencies is, with few exceptions, not considered.
Market size for financial services using crypto currencies and biggest companies in this business area
The total volume of crypto currencies bought by Czechs in 2021 allegedly increased to CZK 4.5 billion. It follows from the data of the largest domestic trader Bit.plus. Bitcoin remains the dominant currency, accounting for more than half of the trades. The total number of transactions and number of users in the Czech Republic is unknown.
Additional comments regarding the economic situation for financial services using crypto currencies or what FinTech’s must be aware of in this business area
Various crypto currencies are mined or were even created in Czechia. Therefore, the manipulation of prices and pump and dump schemes is often present on Czech crypto currency markets.
The economic situation regarding the 9,9% inflation rate in January 2022, the highest rate in Czechia since 1998, greatly supports alternative value preservers, crypto currencies included. Therefore, the volume of traded and bought crypto currency may still rise as Czech are looking for options to save their money from this inflation.