Fintech innovations in Europe could be delayed by newly passed and upcoming crypto regulation laws. On the other hand, the crypto market is gaining the legal status and transparency it needs to bring financial blockchain technology into the daily lives of Europeans.
On March 24, the MiCA – Markets in Crypto-assets Regulation – was passed
in the European Parliament. Its sponsor and main supporter is Dr. Stephan Berger.
The initiative was adopted by the European Commission on September 24, 2020, as part of a proposal for a regulatory framework for digital finance. The drafting of the document started in 2017, when the popularity of bitcoin and other cryptocurrencies skyrocketed. The latest version of MiCA is not yet law. The regulation is now being discussed in a trilogy of debates between the European Commission, the European Council, and the European Parliament.
The three institutions, which play different roles, have been negotiating throughout the development of MiCA. However, there are significant differences among the three versions of the draft legislation. Each version was developed during a different period, and the more recent documents contain more relevant terms and concepts. It is also believed that the Council's version is more rigorous and thorough than the Parliament's version.
The purpose of the debate among the three parties is to reconcile these different versions of the law.
The European Commission's version does not mention DeFi and NFT
, which did not become popular instruments until late 2020. In the European Council’s proposals, DeFi and NFT are discussed in several sentences.
Only late in the negotiations with the European Parliament's ECON committee was DeFi explicitly mentioned, and then only in the context of a special exception for a rather broad definition of decentralized autonomous organizations, or DAOs. This late version attempted to expand the list of persons that can offer cryptocurrencies in the EU, but the final version that was adopted is limited to legal entities.
The regulatory stance on stablecoins, which are referred to as "asset-linked tokens" in the draft law, remains controversial. The debate over stablecoins is very similar
to that in the U.S. The key difference is that the U.S. Congress appears to be resisting the Treasury Department's push to restrict the issuance of stablecoins by banks.
One important change in the House is that the latest version of MiCA eliminated the definition of algorithmic stablecoins as asset-linked tokens, meaning that decentralized stablecoins may no longer need to be licensed.
Originally, the law included a ban on the use of the Proof-of-Work algorithm due to its high energy consumption and infrastructure burden. The latest version of MiCA no longer mentions this ban, but the issue is still on the agenda of the three parties.
A finished legal framework for crypto-assets will not appear anytime soon, as the review by the three parties could take a long time. However, regulators know how badly society needs a clear set of rules, clarity, transparency
, and legality for blockchain-based
financial instruments right now.
An anti-money laundering bill targeting cryptocurrencies will be considered
in a separate trilateral round of deliberations immediately after the EU's proposed regulatory framework for crypto-asset markets is adopted by Parliament.
Two committees will vote on amendments targeting private wallets that may prevent crypto exchanges and service providers in the EU from interacting with wallets whose beneficial owners they cannot identify.
Passing laws in Europe is not a quick process, but it is the gateway to development for industries and technologies. In effect, it puts the crypto industry on par with the banking sector and makes it its alternative.