The eyes of the European crypto community are on Brussels. EU institutions are currently working on the development of several texts to frame the cryptocurrency economy, in particular the MiCA (Market in Crypto Assets) project. However, some of the hypotheses examined have triggered cold sweats among the players in the industry. Claire Balva, Director of Blockchain Partner, the French leader in blockchain and cryptoasset technology support, who joined KPMG in March 2021, is deciphering the ramifications of European regulations on this new booming economy. By the end of 2021, the crypto market has thus crossed the $3 trillion threshold in market cap. In the same year, global investments in companies in the sector increased sixfold, from €5 billion to €30 billion between 2020 and 2021.
L’Express: Europe is working on a new crypto regulation. What changes might this future framework bring?
Claire Balva: The main purpose of MiCA regulations is to harmonize European legislation on cryptocurrencies, because today each country has more or less advanced on its side. Companies that allow buying, holding or reselling crypto in France must register as a PSAN (Service Provider in Digital Assets) with Autorité des Marchés Financiers. The record is issued, for example, when they prove that they have followed certain specific procedures to check the identity of their customers and ensure certain traceability. The advantage of harmonized regulations is that players in the crypto sector need only one license, which will allow them to access the entire European market.
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The regulations also aim to give NFTs (Fungible Tokens) the status of financial assets in their own right and to regulate stablecoins, these tokens that circulate on the blockchain but are pegged to traditional currencies like the dollar or euro. The idea is to regulate the creation of euro stablecoins, which will be overseen by the European Financial Markets Authority.
Is it related to the concern that incidents like the one affecting Tether might have created? [NDLR :le groupe Tether a créé une crypto stable adossée au dollar, mais Bloomberg et la Commodity Futures Trading Commission l’ont accusé d’avoir menti sur la taille réelle de ses réserves de dollars assurant la stabilité de leur coin].
Yes, the idea is to ensure that companies that create stablecoins, for example, place sufficient amounts in escrow to ensure their soundness by performing regular audits, for example. The aim is to protect consumers and avoid financial panics. But I think there’s also a more political issue here, the desire to keep control over the euro.
The points of the MiCA regulations currently being negotiated have been controversial in recent weeks. Which and why?
One of the most problematic proposals was fortunately set aside. The stated aim was to require crypto currency protocols to have an architecture compatible with climate issues and to prohibit platforms from selling cryptocurrencies that do not meet these requirements. It wasn’t very detailed, but it was clearly geared towards the so-called proof-of-work system that supports cryptos like bitcoin as well as ether. [NDLR : chaque mineur doit faire réaliser des calculs complexes à ses machines ; le premier à trouver la solution gagne le droit de “miner” un bloc, c’est à dire de valider un ensemble de transactions et de remporter la récompense associée]. The problem is that these are global protocols. And we are talking about very complex and controversial changes in terms of security. Just because Europe wants them to change doesn’t mean they can do it overnight. Ethereum has been working for five years to transition to a new consensus, and that transition is still ongoing.
As for Bitcoin, we know the way it works will not change. Therefore, this proposal ultimately meant banning Europeans from accessing certain cryptocurrencies like bitcoin or ether in the medium term. All of this has caused a lot of concern within the European crypto community. Some entrepreneurs in the industry were starting to seriously ask themselves the question of moving their operations.
Proposals for non-hosted wallets have also been criticized. About what?
Another European financial regulation called TFR (Fund Transfer Regulation) is being prepared in parallel with MiCA. In this regard, several avenues are being worked out, in particular more monitoring of non-hosted or “not in custody” wallets, which are wallets for storing digital money held by individuals themselves. They can take the form of a physical wallet such as a Ledger or a mobile app. Their characteristic is not to depend on intermediaries that centralize the storage of cryptocurrencies. But one proposed change proposes to ask trading platforms to identify users who receive or send streams from these “non-custodial” wallets. The goal is to monitor these streams indirectly, but on a technical level it would be very complex to set up. And do we really have to do that? It’s as if we wanted us to track cash in the future and verify the identity of every cash payer.
What aspects would you like to see in the future European crypto regulation?
Crypto exchanges are the new banks in the industry. It seems reasonable to me that Europe wants to harmonize national legislation and require stream traceability from them. On the other hand, the hypothesis of controlling individual portfolios seems to me disconnected from the field, the real technical possibilities and the spirit of these new technologies. Regarding stablecoins, the philosophy of the text is too focused on risk prevention, not enough on the development of this new economy. There are many stablecoins in dollars, but few in euros. If we want to maintain a strong euro, we must encourage the development of these “stable” cryptos backed by the euro.
What problems could Europe face if the crypto sector does not grow fast enough?
This will have an impact on our economic sovereignty. Cryptocurrencies do it to finance what the Internet does to information. If we do not take appropriate measures to see the emergence of big players in our country, we will become dependent on foreign groups, especially Americans. These will be more difficult to regulate and the financial data these players will collect about European customers will give them an advantage. As the use of cryptos increases, technically more of our funds will be “stored” in the US unless we develop our own industry.
The crypto industry often emphasizes its agentless character. What advantages could a more decentralized operation provide?
Centralization is not necessarily a problem in itself. It’s more of a matter of politics and whether or not to depend on intermediaries. The interest of cryptos is that they offer choice. In the traditional financial world, you have to go through banks. This gives these entities very important powers. On the other hand, cryptos offer more options: If you find their services of good quality, you can use them on major exchanges. But you can also use your digital currency without going through them. This rebalances the balance of power between these players and their potential customers.
Source From: Google News