In May 2023, not far from the seaside resort town of Tivat on the Montenegrin Adriatic peninsula of Lustica, a conference on new technologies and blockchain was held that attracted little media attention at the time.
Some of the country's most senior officials were there, including then-Prime Minister Dritan Abazovic and Milojko Spajic, who would take over the premier's post in October 2023. Also in attendance was Vitalik Buterin, the founder of Ethereum, the second-biggest cryptocurrency (by market capitalization) after Bitcoin.
Podgorica made it clear that Buterin was more than welcome. A few months after the crypto confab, Buterin was granted Montenegrin citizenship. The government was optimistic that Buterin would "contribute to the development of the blockchain industry and the Montenegrin economy." Wooing Buterin was also part of a broader government plan to turn Montenegro into a new crypto paradise.
Could Montenegro really become a cryptocurrency haven? That could largely hinge on whether legislation being debated now in the Montenegrin parliament to regulate the electronic money market is eventually adopted by parliament. There have been concerns, in and outside Montenegro, about the European Commission's 2023 report on the country's progress toward accession to the EU, which noted disapprovingly the unregulated nature of the cryptocurrency market in Montenegro.
The lack of such laws in Montenegro hasn't stopped transactions from being conducted on crypto exchanges and purchases being made with cryptocurrencies, including for real estate. Cryptomining attempts have also been reported in Montenegro, along with the first cryptocurrency ATM being installed in an Adriatic resort town.
It also hasn't stopped crypto-schemers and backers from flocking to Montenegro, which has a small but well-connected community, according to Novak Svrkota, a crypto analyst, in comments to RFE/RL's Balkan Service.
"We came up with the idea of creating a crypto paradise in Montenegro. The crypto community is looking for a small country that is open and could pass crypto-friendly laws because the current laws in some countries are quite restrictive," explained Svrkota, who was a member of the government's short-lived Blockchain Directorate, a failed attempt to set rules for the crypto market in Montenegro.
In December 2023, Podgorica tried to woo another cybercurrency heavyweight. Spajic met with the leader of JAN3, a company that is focused on expanding Bitcoin. Also attending the meeting was Crown Prince Filip Karadordevic, the English-born son of the last Yugoslav king and a big Bitcoin booster.
Spajic first expressed Montenegro's eagerness to enter the burgeoning business of cryptocurrency in 2021, when he was serving as finance minister in the cabinet of Zdravko Krivokapic.
To that end, in November 2021, the Directorate for Cryptocurrencies and Blockchain was established. Among other goals, it was tasked with establishing the legal framework for regulating the mining and use of cryptocurrencies and blockchain, the technology underpinning all cryptocurrencies, and many other products like NFTs (Non Fungible Tokens). However, political infighting doomed the effort, and the directorate was ingloriously ditched in August 2022.
That setback didn't appear to dampen the enthusiasm. One of the benefits the cryptocurrency industry could bestow on the country, a report of the meeting said, was how "Bitcoin can help Montenegro tap into its hydroelectric potential."
Hydropower has been tapped around the globe to feed the hundreds of computers wired up to the cryptocurrency mining business. In Montenegro, the hope was that its ample waterways could be harnessed to supply the electricity demanded by cryptocurrency activities.
In April 2023, the Montenegrin Central Bank signed an agreement with Ripple, a provider of crypto and blockchain solutions, to jointly develop a pilot program for the launch of the first digital currency -- backed by the bank -- in the tiny Adriatic nation of around 600,000 people.
"The introduction of a digital currency or a national stablecoin, i.e., a stable currency, is another step toward the digitization of financial services and the expansion of the space for the availability of financial services to citizens," the Central Bank of Montenegro announced at the time.
The Kwon Affair
The biggest obstacle to Montenegro's crypto dream has been the arrest of South Korean Hyeong Do Kwon, the so-called king of cryptocurrencies. On March 23, 2023, when Kwon was traveling to Montenegro, he was apprehended by police at Podgorica's airport for traveling on a forged passport.
The founder of Terraform Labs, Kwon is wanted in South Korea in connection with a $40 billion crash of the firm's cryptocurrency that crushed retail investors around the world.
Along with Kwon, another individual linked to the cryptocurrency crash, whose name was not released by Montenegrin authorities, was arrested at the time.
Kwon and the other man had been hiding in Serbia but moved to Montenegro after South Korean investigators tracked their whereabouts and asked Serbian authorities to detain them, officials said. The two were arrested while trying to depart for Dubai using fake Costa Rican passports, the Montenegrin Interior Ministry said at the time.
To this date, Kwon's fate still remains unresolved, with him still detained at a prison facility in Podgorica. He is awaiting an extradition ruling amid international warrants for fraud.
The opposition in Montenegro has seized on the case, potentially threatening any further advancement of the country's cryptocurrency plans.
Pressed by political foes, Spajic finally admitted in late December 2023 to having met Kwon but said he wasn't aware of the arrest warrants out for him. That admission didn't douse the political flames. During campaigning for Montenegro's 2023 general elections, former Prime Minister Dritan Abazovic tried to tar Spajic by accusing him of secretive business dealings with Kwon.
That accusation took on extra gravitas when a senior interior minister added what appeared to be damning details.
"The laptop [belonging to Kwon] also contains evidence of joint business between Spajic and Kwon. It may be a legal business with one of the most wanted fugitives, but it is the subject of an investigation," said Adzic.
Soon afterward, prosecutors launched a probe into any ties between the two, but the investigation came up empty.
Mining In Montenegro
Efforts to create new virtual coins via so-called mining have continued off and on in Montenegro, although it has not been profitable for years, according to experts who spoke to RFE/RL's Balkan Service. Cryptominers use high-powered computers to solve complex mathematical problems in order to verify transactions on the network. As a reward for their work, they receive cryptocurrency tokens.
Earlier this month, a citizen of Serbia tried to smuggle cryptocurrency mining hardware worth several thousand euros into Montenegro but was caught by customs officials and border police. His current fate remains unclear.
The first case of cryptocurrency mining uncovered by police in Montenegro was reported in 2020, when police arrested two individuals and seized 250 computers in the basement of a building in Podgorica. The arrests were not linked to the mining but to the illegal use of electricity in the mining, which is a very energy-intensive process requiring specialized hardware.
IT expert Boris Radovic said that cryptocurrency mining -- once a profitable business -- is now largely a loss maker, due to the huge amount of time and energy needed.
"I had personal experience with mining. After five months of 'work,' four virtual coins of one cryptocurrency were mined -- worth about 800 euros. As I did not convert them into real money in time, they lost their value. Now they are worth about 120 euros, which can barely compensate for the price of electricity that was used while they were being mined," Radovic explained to RFE/RL.
Legal Gray Area
Just exactly how widespread cryptocurrencies are in Montenegro is difficult to gauge, according to Svrkota; however, they appear to be favored by those who want to hide their transactional tracks.
"Cryptocurrency is used for purchases of real estate, especially luxury villas on the coast, where developers often get part of their earnings in digital money," Svrkota explained. "It is often used by people from countries like Ukraine and Russia, which are under sanctions, to avoid complications that come with interacting with the banking system."
A virtual currency ATM was even spotted at a private club in Tivat, a picturesque Adriatic coastal town in the southwest of the tiny Balkan country, late last year. The club's owner, Yong Hon Kong, a Malaysian citizen, told police he had legally acquired and imported the device but had never put it into service for technical reasons.
At the time, officials said the crypto ATM was an illegal device.
"There is no legal basis to carry out that trade. Everything related to trade through that device is illegal," said then-Finance Minister Aleksandar Damjanovic.
A lawyer for Kong told RFE/RL that the device remains on the premises of the club and that no legal action has been taken against his client.
Regular Montenegrins can also try their luck, Svrkota said, by registering to trade on global cryptocurrency exchanges.
One of them is Marija from Podgorica, who told RFE/RL that seven years ago she invested by buying a small amount of Bitcoin, the most famous digital currency.
"It was out of curiosity to try my luck without any expectation of making money. It was interesting to watch the amount in the digital wallet grow every day. At the moment when the value of bitcoin reached 10 times its value, I sold and used the money to pay for an exotic honeymoon trip and an exotic wedding trip for me and my husband," said Marija, who requested her last name not be used.
Although she turned a profit, Marija said she no longer trades in cryptocurrencies.
Radovic, the IT expert, said he has made and lost money trading in cryptocurrencies.
"You never know if something will rise or fall to nothing. Fluctuations in the crypto world are far greater than in the classic stock market," Radovic noted.
While individuals may be making (or losing) money on cryptocurrency in Montenegro, none of it is going into the coffers of the state thanks to the lack of legislation regulating it.
"The state loses because it does not have control over money flows and there are no tax benefits. Regulation would bring some security to companies and people who deal with it, as well as an incentive to develop businesses. And it would give the banking sector a free hand in providing services for exchanging cryptocurrencies or investing," Svrkota said.
The Finance Ministry told RFE/RL that preparations have begun on drafting a law that will regulate crypto assets in accordance with Markets in Crypto-Assets Regulation (MICA), hailed as a landmark framework created by the European Commission that focuses on maintaining financial stability. It entered into force in June 2023.
The Finance Ministry cautioned that it was unable to give any time lines on the adoption of any regulatory legislation. And the Central Bank states that they are working on national standards that would be harmonized with MICA.
In the meantime, Montenegro's Central Bank has cautioned potential investors of the risks associated with cryptocurrency trading.
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