Here’s how Europe is Regulating Cryptocurrencies

Introduction.

Since the Bitcoin halving in May 2020, the cryptocurrency market has experienced several exciting bull runs and downturns. During this time, more institutional investors and regular citizens have invested in cryptocurrencies . As cryptocurrencies have grown in popularity, they have come under more regulatory scrutiny. Governmental and regulatory approaches to cryptocurrencies vary greatly around the world. At one extreme, El Salvador has passed legislation making Bitcoin legal cash, while China, which has the biggest concentration of Bitcoin miners, has launched a mining crackdown.

Meanwhile, the European Commission’s proposed Regulation in Crypto Markets (MiCA) is undergoing its initial readings in the Council and the European Parliament. This law will be included in the EU’s Digital Finance Strategy and is expected to have a substantial impact on how the crypto market operates in the EU. It’s a complicated (and 168-page-long) regulation with far-reaching consequences.

What does the regulation cover?

To begin with, the rule exempts the blockchain and distributed ledger technologies that underpin cryptocurrencies. It also doesn’t apply to digital currencies that are issued by governments and regulated by central banks. All other cryptocurrencies that aren’t financial assets, such as utility tokens and payment tokens, are included in this category.

Cryptocurrencies are based on decentralised distributed ledger technology (DLT), which means that no single person or entity can control or compromise them. This is what attracts people to cryptocurrencies, especially those who believe in the original Bitcoin ideas of open, democratic, and decentralized monetary exchange and governance.

Decentralisation, on the other hand, means that crypto users cannot turn to authorities in the event of a fraud, a cyber-attack, or an unintentional loss of funds. The proposed EU law addresses this issue to some extent by requiring cryptocurrency exchanges — “crypto asset services” — to adhere to consumer protection, transparency, and governance criteria.

These modifications will protect users from cyber-attacks, theft, and system failures that are the responsibility of cryptocurrency exchanges…