New EU Crypto Law — Benefit or Threat?
What the vote means for crypto, who is affected and how crypto participants are affected.
On March 31, 2022 the European Parliaments lawmakers voted on a new set of (draft) laws concerning crypto currencies. The laws are part of an ongoing effort to generate an EU wide legal framework for blockchain and its affiliated currencies, called Markets in Crypto Assets (MiCA).
In order to understand what the implications on crypto markets might are, we first need to take a look at what the new law encompasses and how it impacts the status quo.
Scope and Origination
The ability to conduct anonymous asset transfers by the use of blockchain technology has long been a topic of fierce discussion. While blockchain enthusiasts often praise the privacy of a blockchain, governing bodies and regulators see it (partially) as a threat and as a breeding ground for illicit transactions.
The aim of the new regulation is to come closer in line with traditional financial markets where anti-money laundering (AML) and know-your-customer (KYC) rules dominate business conduct.
While in traditional markets banks often act as gatekeeper and middleman to ensure compliance, in crypto markets transfers can be conducted peer-to-peer and without regulatory oversight. Some crypto service providers such as exchanges require no or only limited KYC requirements and there is no global legal framework they have to adhere to.
The MiCA is Europes attempt to tackle these issues and gain more oversight.
Crypto-assets, including cryptocurrencies, are neither issued nor guaranteed by a central bank or a public authority. They are currently out of the scope of EU legislation. This creates risks for consumer protection and financial stability, and could lead to market manipulation and financial crime. The draft legislation differentiates between crypto assets in general, asset referenced tokens (ARTs), also called “stable coins”, and e-money tokens primarily used for payments.
(EU Parliament Press Office, 14–3–2022)
What does the draft legislation encompass?
The new set of laws presented by the European Parliament aims at removing the anonymity of crypto transactions in the face of the regulator. Meaning, that any transaction will have to trackable to its origin and must meet a set information standard. It also calls for a public register for service providers, as well as environmental tax implications for crypto mining activities.
- Crypto firms such as exchanges would have to obtain, hold, and submit information on those involved in transfers. This information would have to be made available to respective authorities.
- It was proposed to apply the traceability rule to transfers worth €1,000 or more, but under the cross-party parliamentary agreement, all transfers would be in scope.
- The proposal encompasses both hosted (e.g. exchanges) and un-hosted wallets (e.g. Metamask & Cold Storage).
- Exchanges are required to identify wallet owners, senders and recipients of crypto transfers.
- Parliamentary committees want the European Banking Authority (EBA) to create a public register of crypto asset service providers that may face a high risk of money-laundering and other criminal activities, including a list of non-compliant businesses.
- Potential tax implications for crypto mining activities based on the sustainability and environment impact.
What are the impacts?
For now, none. Although voted for by the EU’s lawmakers, the proposal has now to pass both parliament and national ministers, forming the EU Council, before it can be enacted.
Future implications of these rules might not be imminent but widespread;
- Individuals could be held accountable for collecting and submitting data on un-hosted wallets
- Exchanges have to collect, store and safeguard a vast amount of user data
- Limited visibility on what data is gathered, by whom it is used and for what purpose
While many in general welcome a EU wide regulation approach, the majority of industry leaders see the current draft as harmful to innovation. Some more critical voices even call it a “recipe for disaster” and a mechanism “to stifle crypto in Europe”.
A regulatory framework incorporating certain KYC and AML rules certainly can be a good thing and boost confidence in markets that in turn leads to more widespread adoption. In fact, many crypto companies have unveiled plans in improving KYC and AML standards already. Regulating on and off ramps between crypto and fiat can help with legal action in cases of fraud.
On the other hand we have to be careful not to repeat the regulatory nightmare that surrounds traditional finance today.
Blockchain or not, knowing exactly what information is gathered, where it is stored and for what purposes it is being used will be key. Entities that gather and centralize crypto transaction information inevitably become high value targets for data misuse and defunct the very core idea of decentralization.
Conclusion
Whether this new set of laws will really stifle innovation or lead to over-regulation remains to be seen. It will largely depend how these new laws are implemented and enforced, if they pass in the first place. There is also the question how other jurisdictions tackle similar concerns.
Crypto markets will continue to undergo heavy shifts in regulation, as does every new industry. The important part is maintain an open dialogue, invite all parties to the table and find common solutions that benefit the majority of participants.
A word from the Author:
Join “Inside the Block” on Telegram, Facebook, Instagram and Twitter to learn about crypto and blockchain. Follow the link below to find all our social media and contact details:
Make sure to subscribe and visit our other articles on Medium.com
Connect with Inside the Block on Social Media and real all available articles
Disclaimer: Any information in this article is based on my personal experience and has been written out of personal interest. This article has no promotional purpose, does not represent investment advice and any names, brands and tickers mentioned in this article are for illustrative purposes only. Use any of the associated links with care and at your own risk. Always do your own research.
Join Coinmonks Telegram Channel and Youtube Channel learn about crypto trading and investing
