The Baltic state has taken an open-arms regulatory stance on digital currencies and blockchain technology, with entrepreneurs converging on it and driving it towards becoming the cryptocurrency capital of Europe.
Despite the volatile nature of digital currency values, the global market is worth $275 billion, and Lithuania is excelling in issuing new digital currencies, or “Initial Coin Offerings” (ICOs) – over the past year, they have raised half a billion euros from ICOs and blockchain-based businesses.
The European Commission has said the influx of real cash for digital units is helping to fuel Lithuania’s economy, which is expected to grow by 3.1 percent this year – ahead of a 2.3 percent average for the rest of the EU.
But European central bankers and regulators have warned that cryptocurrencies can be a tool for criminals, helping them launder money by turning ill-gotten gains into untraceable digital credits and with no legislative platform in place, the risk for investors is growing.
Lithuania has been upgrading its internet networks to support data-heavy operations but Bank of England Governor Mark Carney called for a crackdown on cryptocurrencies, claiming it could be used for illegal activity and could disrupt the traditional financial system.
The concern in Lithuania is that the burgeoning cryptocurrency market could be a driving force to illegal money coming from the Russian criminal underworld.
Bank of Lithuania board member Marius Jurgilas said: “We don’t want Russian capital infiltrating into the local economy.
“We are constantly reminding everyone about the risks – ‘I don’t want to see 70 percent of your investors in your ICO coming from Russia’.
“An influx of non-transparent capital from Russia is not in line with our national interests.”
Without rules regulating cryptocurrencies in Lithuania, entrepreneurs raising money have far less accountability to their investors than they would in a more traditional initial public offering on the stock market.
Despite the fears, startup incubators are beginning to flood the Lithuanian capital of Vilnius in particular, fuelled by new investment from banks and venture capital firms.
BitDegree describes itself as “the world’s first blockchain-based education platform”, and founder Danielius Stasiulis said that people like him are leading a funding “revolution” in Lithuania.
According to Startup Lithuania and the Blockchain Centre in Vilnius, in the past year, new businesses ihave raised half a billion euros alone.
Lithuanian MEP Antennas Guoga insists that those pushing forward in the sector aren’t just reckless “crypto bros” but hard-working entrepreneurs looking to make an honest product.
He said: “We don’t know how it will go and where new protocols are being built.
“Most of the projects are just trying to deliver – they don’t get rich until the projects work out.
“Economically, we are still far behind Western Europe, but we don’t have much to lose.”