The EU’s new crypto legislation called MiCA: All you need to know
The EU is renowned for its swift activeness in regulating areas where need be. The EU has now set a global standard for regulating blockchain-based assets such as cryptocurrency and even NFTs. With the emergence of cryptocurrency and its attributes, the European parliamentary committee has passed a new regulatory framework for crypto assets. What is this legislation all about?
What are crypto assets?
Crypto assets are digital assets based on public ledger technology. This is any digital currency that is encrypted and decentralized. It uses cryptography to secure its transactions. They enable secure online payments without the use of third-party intermediaries. Examples include Ethereum, Bitcoin, and Stablecoin.
What is in MiCA – Markets in crypto-Assets regulation?
The EU Commission published a proposal to regulate crypto assets in March 2022. This was called the “Markets in Crypto-Assets Regulation” (MiCA).
Before the MiCA, there was a regulatory vacuum at the EU level concerning cryptocurrency. This posed a challenge to innovations and concerns consumers’ protection against illicit activities. Hence, MiCA was proposed to help facilitate Distributed Ledger Technology and protect users and investors in the European Union. On 14 March, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) adopted the draft on MiCA with 31 votes in favour, 4 votes against and 23 abstentions.
The MiCA streamlines a set of laws that regulates all cryptocurrencies across the Member States. It includes rules for the distribution of digital assets, the license of crypto-asset services, and consumer protection rules. The regulation comprises 4 categories:
- Rules applicable to the issuance of crypto utilities
- Rules applicable to the issuance of asset-referenced tokens
- Rules applicable to the issuance of crypto-assets of electronic money
- Rules applicable to providers of crypto asset services.
An interesting introduction by MCA is the obligation to publish a whitepaper in order to issue some digital assets. MiCA also aims to introduce crypto licenses for exchanges. With this legislation, crypto platforms must now obey higher consumer protection rules.
The controversial amendments and reactions to the MiCA
There are many benefits that one can clearly see from this new legislation. However, some parliament groups, such as the Greens and S&D, were not pleased with the passing of this new legislation. This is because one of its provisions championed a crypto ban. It inadvertently limited the use of certain kinds of cryptocurrencies, such as Bitcoin and Ethereum.
The provision aimed to mitigate the environmental impact of the high energy computational method these crypto-assets used. Specifically, it targeted the proof-of-work method. The implication was that cryptocurrencies that use high energy for their production would need to be shifted. The crypto will then utilize a different consensus mechanism that uses less energy. If not, it would no longer be accessible in the EU.
After an outcry from the crypto industry, members of the European Parliament asked the Commission to present them with a legislative proposal. The proposal is to include any crypto-asset mining activities that contribute substantially to climate change by 1 January 2025 in the EU taxonomy. That is, a classification system for sustainable activities.
The parliament then amended the provision with no ban on Proof-of-Work cryptos.
In conclusion, the MiCA regulation seeks to enhance innovation and fair competition. It does this by creating a framework for issuing and providing services related to crypto-assets. Furthermore, this regulation means financial stability and better monetary policy risks for crypto users with transparency in fraud or cyber attack cases.