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EU digital currency regulations | The Good, The Bad, The Ugly

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EU digital currency regulations | The Good, The Bad, The Ugly

EU digital currency regulations | The Good, The Bad, The Ugly

What is the good, the bad and the ugly about EU cryptocurrency laws? The EU regulatory framework in crypto asset markets is not good. But it does provide a level of clarity for the United States. To receive the latest articles in the field of digital currency rules and regulations, stay with us on Pooyan Music site.

While U.S. regulators like SEC Chairman Gary Gensler make disingenuous claims that there has been transparency around digital currency for years. The European Union took real action in April by approving crypto asset markets. Although imperfect, it was a vital step in the right direction for our industry. It was a signal to the United States that it would be left behind if it continued to stand and rely on outdated regulations.

There are many problems in the blockchain industry that the traditional regulatory framework does not adequately address. This leads to frustration and wasted resources. While Web3 applications have shown great potential, they are still a hybrid of this traditional financial system. Of course, a remix dedicated to improving efficiency, openness and fairness for all participants.

MiCA: A necessary but moderate step forward for regulation

In short, our regulations try to prevent people from doing bad things to others. Examples include sending or receiving terrorist money to facilitate terrorist acts or fraudsters making fraudulent claims to investors.

In a more technical sense, the laws governing these operational standards are: anti-money laundering and anti-terrorist financing laws, securities and commodity laws, market infrastructure regulation.

Despite the SEC’s insistence that existing regulations broadly cover these three topics, many elements manage to slip through the cracks of these nearly 100-year-old definitions, rules, and penalties. To a large extent, we can attribute that problem to two things.

One is the classification of digital assets. Are they commodities or securities or do they fall into an entirely new category? Digital tokens often exhibit the characteristics of one, both, or neither. This creates an important problem for existing frameworks.

The second is that the pace of innovation is far greater than the rate at which traditional slow financial regulatory frameworks can accommodate. Governments have a responsibility to establish regulations that are strong enough to prevent misconduct and protect stakeholders, yet flexible enough to accommodate the advances promised by this growing industry. How are these authorities supposed to compete with a smart contract that can be deployed in minutes and then upgraded the same day to have a completely different set of logic and parameters?

EU digital currency regulations | The Good, The Bad, The Ugly

EU digital currency regulations | The Good, The Bad, The Ugly

MiCA: The Good

The best part of MiCA? Stricter rules and bigger penalties for crypto asset service providers who lose client funds! This is a long-standing problem in crypto where exchanges and wallets have no responsibility if users are hacked or compromised and lose their assets. Which leads to the loss of tens of billions of dollars without any option for users. This is unacceptable and has directly contributed to the irreversible destruction of many people in our industry by bad actors.

MiCA: The Bad

Although its main purpose is to prevent market manipulation, most of the manipulation takes place outside the EU. So it doesn’t directly help many people. It may help indirectly, as it signals to the market that regulators are moving towards it. Although it depends on the punishments that are applied to the judge when he hears the cases

Central bank digital currencies are notably excluded in the future. While it may be seen as a positive that DeFi is not included, the vast majority of on-chain transactions and activities are DeFi, and it is disappointing that this was overlooked.

MiCA: The Ugly

Unfortunately, there are many disturbing or ugly elements in MiCA that readers should be aware of, not least if they are EU citizens. The TRAVEL Act dramatically increased the monitoring and recording of financial transactions and online activities, forcing service providers to identify the recipient as well as the sender for each transaction.

A very low threshold of €1,000 for reporting leads to increased monitoring, compared to the traditional US$10,000 threshold for banks. Given that the vast majority of financial crimes are committed by banks and larger institutions through money laundering and other fraudulent activities, it is disturbing that ordinary people are scrutinized under these Orwellian levels.

It requires formal approval from regulators before launching tokens or liquidity. This will dramatically stop the number of legal projects in the EU, directly and indirectly. It is hard to imagine that the queues are short and the process is fast. Governments have proven time and time again to be slow and inefficient when it comes to new technologies.

There is another fundamental problem with any EU regulation that bears repeating. The fragmented nature of the EU court system makes it difficult to draw meaningful conclusions about the impact of future individual judgments. In short, this is a minor win for Web3 and requires a lot more work by regulators around the world.

This is in stark contrast to the US judicial system, which has traditionally, if not Web3, been a solid foundation of legal rulings. A scattered set of rulings makes it difficult for other countries to actually comply with MiCA. Instead, they will likely wait for the United States to provide its own regulatory framework and guidelines.