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EU to Vote Restricting PoW-based Crypto Assets

The European Union could see a major change in the cryptocurrency industry as proof-of-work (PoW) cryptocurrencies face an indeterminate future.

Proof-of-work cryptocurrencies are designed in an energy-intensive consensus mechanism.

PoW cryptocurrencies like Bitcoin have been added to a proposed legislative framework for governing virtual currencies, which is set to be voted by a European Parliament on March 14 local time and could limit the use of such currencies.

The current draft version of the Markets in Crypto-Assets (MiCA) framework has proposed switching from PoW cryptocurrencies to the more environmentally friendly proof-of-stake (PoS) consensus mechanism.

It says that crypto assets “shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union.”

The previous version of the MiCA framework saw heavy industry backlash as it contained language that appeared primed to prohit proof-of-work cryptocurrencies. The framework proposed a prohibition of crypto services that rely on environmentally unsustainable consensus mechanisms from 2025.

However, Dr Stefan Berger, EU parliamentarian in charge of the MiCA legislative framework, had noted that a final decision is yet to be made.

The provision also added that if a PoW consensus mechanism is operating on a small scale, it is exempt from having to meet sustainability standards.

According to the provision, if a PoW consensus mechanism is operating on a small scale, it is exempt from meeting sustainability standards. What qualifies as a small-scale operation has yet to be determined.

The EU has cited environmental concerns as to its main reason for cracking down on cryptocurrency in the radical proposal.

Even though Ethereum is under process to move from aPoW to a less energy-consuming PoS consensus, Bitcoin – the largest global cryptocurrency by volume traded – is unclear how it will transition from PoW.

EU Parliament Committee Rejects Proposal to Limit Proof-of-Work Crypto

The European Parliament’s Economic and Monetary Affairs Committee voted Monday, a move that quashed a ban on popular cryptocurrency Bitcoin across the European Union (EU). The committee voted against the ban on Proof-of-Work mechanisms underlying major cryptocurrencies like Bitcoin and Ethereum.

The committee decided to keep out the rule of the proposed Markets in Crypto Assets (MiCA) framework, the EU’s comprehensive regulatory package for governing digital assets.

The rule, which was introduced to the draft last week, aimed to limit the use of cryptocurrencies powered by an energy-intensive computing process known as proof-of-work across the EU’s 27 member states. The proposal was eventually repealed as a result of widespread opposition from the sector.

Dr Stefan Berger, EU parliamentarian in charge of the MiCA legislative framework, talked about the announcement on Twitter social media platform: “First stage win at #MiCA in committee! By accepting my proposal, members have paved the way for future-oriented crypto regulation. It is now a matter of accepting the report as a whole in the final vote & sending out a strong signal for innovation.”

However, Dr. Berger stated that the controversial paragraph has been withdrawn, and a final decision is yet to be made.

Switching to Proof of Stake

The use of Proof-of-Work (PoW) cryptocurrencies was uncertain following the draft of the European Union’s (EU) proposed legal framework for managing virtual currencies, known as the Markets in Crypto Assets (MiCA) framework.

The clause, which could have forced PoW cryptocurrencies to shift to more environmentally friendly mechanisms, failed to get the votes required in the parliament.

Major crypto assets like Bitcoin and Ethereum rely on PoW, a consensus mechanism underlying the digital assets that require a lot of energy to operate.

In recent months, the computing process has come under intense examination from legislators because of worries about the usage of energy. While the popularity of Bitcoin has grown, the controversy over its energy consumption and environmental impact has intensified.

As a result, some of the major cryptocurrencies like Ethereum and Dogecoin have shown intentions to migrate from the current Proof-of-Work (PoW) to Proof of Stake (PoS) crypto consensus mechanism. PoS refers to processing transactions and creating new blocks in a blockchain in an environment and efficient friendly manner.

However, there is still no consensus in the crypto community about the PoS model being better than PoW. Some users and well-known names in the market, like Jack Dorsey, have highlighted that the new method does not provide as much security to the network as proof of work offers. Meanwhile, there is no sign that Bitcoin, the world’s largest cryptocurrency, will migrate to the PoS system.

E.U and US Can Coordinate Effort "on a Shared International Approach to Regulating Crypto": EU Commissioner

Mairead McGuinness, a Commissioner for financial services, financial stability, and capital markets union at the European Commission, has called on the United States and the European Union to coordinate efforts concerning regulating digital currencies.

Mairead noted the innovative nature of digital currencies as they can help sustain the financial ecosystem through their speed and tamper-proof nature. He also highlighted the technology’s decentralised nature that has stirred the elimination of intermediaries that generally make financial transactions cumbersome.

Mairead observed that the recent Executive Order issued by President Joe Biden and the Markets in Crypto Assets (MiCA) pursuit by the European Union are commendable first steps towards regulating cryptocurrencies. Still, he noted that since crypto is a global movement, regulators’ efforts are also meant to be global. He believes the US and the EU can champion this proposed global drive.

“I believe that the EU and the U.S. can together lead the way on a shared international approach to regulating crypto. Together, we can enable innovation in finance, while protecting consumers and maintaining financial stability,” he said in an OpEd published by The Hill.

Despite the innovative nature of cryptocurrencies as highlighted by Mairead, he did not turn a blind eye to the inherent risks associated , including environmental considerations. He noted that should global effort not be strengthened to regulate the space, investors will likely fall victim to bad projects that may swindle them of their cash.

In all, Mairead highlighted the exact aspects in which the two global powers can collaborate to make the nascent ecosystem acceptable and more efficient.

“A global agreement on crypto should first enshrine that no product remains unregulated. Second, supervisors should collect and exchange information globally. Third, any agreement must protect retail investors. Fourth, the crypto ecosystem should fully integrate environmental considerations,” he added.

There have been a lot of calls around the world for a combined effort to regulate crypto, seeing there is no border with the reach of digital assets. Whether or not this advice will be taken is yet to be seen by the core stakeholders to whom the appeal is made.

European Union Close in Agreeing on Crypto Regulations – Bloomberg

As the clamor for crypto regulations has continued to intensify, the European Union (EU) is close to agreeing on a comprehensive regulation that will govern the nascent digital currency ecosystem.

The news was broken by Bloomberg claiming to draw inference from sources familiar with the discussions between the 27 member states.

Per the Bloomberg report, the EU member states, currently chaired by France, are currently disagreeing on how to approach certain aspects of the Market In Crypto Assets (MiCA) bill. Some of the aspects that are highly contentious include how to incorporate Non-Fungible Tokens (NFTs) into MiCA, avenues to regulate stablecoins, and how to supervise crypto assets service providers operating within the region.

The sources affirmed that EU negotiators are considering placing a ceiling on stablecoin transactions, a move that will largely prevent the excessive use of these asset types as legal tender within the bloc. The capped transactions will particularly be applied to stablecoins that are not backed by the Euro.

As the sources confirmed, the member states are currently close to agreeing on these gray areas, and something meaningful may come up in the next meetings scheduled for June 14 and June 30.

Further complications that may impact the ongoing negotiations borders significantly on the subject of crypto mining and the impact of the supposedly excessive energy consumption. The EU at a time wanted to restrict Proof-of-Work (PoW) mining, the consensus that is being used by Bitcoin miners to validate transactions.

The push for this ban was rejected by the EU Parliament Committee back in March, a move that showed the entire regulatory proposal in MiCA is not primarily centered on cutting back the current status quo in the industry. With the broader industry anticipating the MiCA bill this year, the current reports are an indication that there is a green light at the end of the tunnel.

EU Plans to Bar Interest Payments on Deposits in Stablecoins

Europeans and the entire digital currency ecosystem have been potentially awaiting the Markets in Crypto Assets (MiCA) bill, which has been projected to be passed before the end of the year.

With a series of forecasts out in the open, Patrick Hansen, the head of Strategy at Decentralized Finance (DeFi) startup Unstoppable Finance, said the expected bill could come as early as this month’s ending.

Taking to Twitter to share a series of updates concerning the anticipated crypto markets bill billed to be the most comprehensive to date, Hansen said the last political trilogy meeting needed to pass the bill is set to take place on June 30. This is when the EU institutions (Council/Parliament/Commission) will be meeting under one roof.

While most issues have already been finalized, a few are still left hanging. One of these is related to the classification of Non-Fungible Tokens (NFTs) and how they are regulated within the region.

Hansen noted that the European Commission wants to add NFTs as a component of MiCA but that the Council and Parliament are initially against it, but are now more likely to make a compromise. Should NFTs be a part of MiCA, service providers like OpenSea, and Rarible or marketplaces operating in the region will be required to obtain suitable licenses.

The Deal About Stablecoins

According to the update shared, the major concerns with respect to stablecoins in the bill are already finalized and what applies to regular fiat-backed stablecoins is what will bind their algorithmic counterparts.

While there will be high regulatory requirements for issuers of both EMT (e-money-tokens) and ARTs (asset-referenced-tokens), the bill will ban Crypto Service Asset Providers from charging interest rates on stablecoin deposits. Unlike what many have also suggested, Bitcoin will not be banned in the region, affirming the earlier resolution not to ban Proof-of-Work (PoW) mining.

The regulatory framework being defined by MiCA is bound to be the most comprehensive in the world, and experts predict that it may guide other nations, including the United States, in formulating a law to govern the digital currency ecosystem.

EU Agreement on MiCA May Not Favor Stablecoins

After much deliberation and compromises from the European Commission, Assembly, and Council, a final agreement that builds the comprehensive framework for the digital currency ecosystem has finally been made.

Known as the Markets in Crypto Assets (MiCA) framework, the newly agreed regulation has been lauded by several industry figures and has been termed a landmark achievement that will favor the growth of the digital currency ecosystem in the European Union.

Beyond the region, expectations also abound that the new regulation will serve as a viable standard for other regions to also develop theirs.

With the final agreement signed, many permutations are now being made to highlight how the new comprehensive regulation will affect key participants in the industry.

The Stance of MiCA on Stablecoin

Ernest Urtasum, a member of the European Parliament shared the news about the finalized agreements on MiCA, adding amongst many things the stance of the bill on stablecoins.

“Agreement between the EU institutions on MiCA: we will have a common harmonized EU-wide regime for crypto-asset issuers and service providers, that will provide security for investors and support sustainability, while to reducing fragmentation and increasing legal clarity,” he said via a long Twitter thread, “MiCA provide safeguards against cases like the crypto-crash, the collapse of the stablecoin LunaUSD. Large stablecoins will be subject to strict operational and prudential rules, with restrictions if they are used widely as a means of payment, and a cap of 200€millions in transactions/day.”

The obvious cap placed on stablecoin transactions on a daily basis, however, may not work out as projected as stablecoin transactions run into billions of dollars.

According to data from CoinMarketCap, Tether’s (USDT) trading volume over the past 24 hours at the time of writing is pegged at $32.7 billion, a figure that is way above the defined threshold. While USDT is just one of the many stablecoins around, this particular clause of MiCA is being faulted by many industry stakeholders as a whole.

Earlier, agreements not to ban Proof-of-Work (PoW) mining had been enshrined into MiCA, thus eliminating future concerns about Bitcoin Mining in the region.

ECB to Warn Countries in the Eurozone about Crypto Regulation

The European Central Bank is reportedly on track to issue warnings to national authorities within the Eurozone about individual handling of the crypto ecosystem.

The European Commission, Parliament, and Council trilogy have agreed on the comprehensive cryptocurrency framework, Markets in Crypto Assets (MiCA), and a whole new set of concerns has been pointed out by the ECB.

This concern stems from the likelihood of national regulators within the Eurozone formulating and implementing a make-shift law to guide the interactions with the nascent asset class in the interim. While MiCA has been given the green light, its passage into law is scheduled for 2023, with implementation billed to commence 18 months after that.

That time is a very long one for most countries who may feel the urgency to protect their consumers and investing public.

“It makes sense that the ECB would want to prevent a collection of national laws on cryptocurrencies. For one thing, it could lead to operators shopping for favourable jurisdictions. Beyond that, it will create confusion for multinational operators and create an uneven playing field within the EU. On the other hand, MiCA is so very far away. That it has come so far is a positive sign. However, eighteen months is an eternity in the crypto space,” said Richard Gardner, CEO of Modulus.

The cryptocurrency ecosystem has witnessed many upheavals this year with the hacking of Crypto.com, the collapse of Terraform Labs LUNA and UST stablecoins, and the liquidations of Three Arrows Capital amongst others. Gardner noted that countries want answers to what will happen to investors who can be affected by the ongoing turmoil in the space, adding that he does not think countries will be waiting 18 months to get such answers.

In the ECB’s argument, only a unified implementation of MiCA will bring about the intended result of protecting investors and fueling growth across the board.

Crypto Regulation Takes New Leap as European Council Adopts MiCA

The European Union is drawing closer to adopting the comprehensive Markets in Crypto Assets (MiCA) regulation as the European Council has passed the framework through voting on Wednesday.

Regarded as a landmark move toward a regulated future in the European Union, the passage of the guidelines by the Council leaves the European Parliament as the only bridge toward the final adoption of the bill before the targeted implementation commences. The Parliament is billed to meet on October 10, where the body’s economic affairs committee is expected to vote on the proposals.

Should the Parliament pass the proposals, the next office move will be to integrate them into the official journal of the European Union to begin the process of its enforcement.

As noted, many details will still be analyzed as EU officials work up additional focal points in the proposal. Once settled, these additional statutes will be unveiled to the appropriate stakeholders.

The EU has been quite fragmented regarding the approach toward digital currencies, with most member nations issuing licenses and permitting crypto based on the approach and guidelines that are best known to their officials. The trend will change with the advent of MiCA as every member state in the EU will be guided by the common laws enshrined in the bill.

The entire offshoot of the digital currency ecosystem is billed to be impacted by the proposal in MiCA. There are concerns bordering on the suitability of provisions in the bill concerning non-Euro-denominated stablecoins. The bill puts a cap that might significantly impose systemic censorship on transactions conducted through the non-Euro-backed stablecoin.

The clause remains a volatile subject of discourse and French officials are particularly bent on maintaining the status quo in order to help bolster the sovereignty of the Euro currency.

European Parliament Ratifies MiCA Framework in Landslide Vote

The long-awaited Markets in Crypto Assets (MiCA) regulation has just scaled through the European Parliament as MPs voted massively in favour of the bill.

As reported by the Economic Committee Press, the bill received a 28:1 vote to scale, completing the tripartite deal needed to push the bill into its next implementation phase.

The European Parliament vote comes after the European Council also voted to pass the bill last week. As it stands, the European Union will now be more focused on perfecting the bill’s details to add it to the EU Journal, where the official implementation process will begin.

“It is important to ensure that the [European] Union’s financial services legislation is fit for the digital age and contributes to a future-ready economy that works for the people, including by enabling the use of innovative technologies,” said the MiCA text as of Oct. 5.

The MiCA bill has been the talk of the crypto world for a while now, and with the Parliament’s approval, the bill is one step closer to being implemented across the board.

Perfecting Individual Regulatory Roles

Despite the passage of the MiCA, each body of the European Union is making further studies into the industry. Based on this, the European Commission has put out a call for participation in a pilot trial in which it seeks to offer more in-depth monitoring of the Ethereum protocol and the Decentralized Finance (DeFi) activities running on it.

According to the European Commission’s document, the body’s top focus through this trial/study is hinged on the “automated supervisory data gathering directly from the blockchain to test the technological capabilities for supervisory monitoring of real-time DeFi activity.”

The DeFi world is quite advanced, and the industry is most expressive on the Ethereum blockchain. Notably, the European Commission’s move will help tame the growing industry and ensure comprehensive oversight of the industry.

The call for participation is out, and submissions are expected until December 1.

Danish FSA Orders Saxo Bank to Divest Crypto Holdings, Indicating Tightening Regulation

The Danish Financial Supervisory Authority (Finanstilsynet) on July 4, 2023, issued a directive to Saxo Bank, instructing the financial institution to divest its holdings in cryptoassets. This move is based on the current legal framework, which prohibits banks from trading cryptoassets for their own account.

Saxo Bank has been providing its customers with various crypto trading options via its platform. It offers a variety of crypto products, including ETFs (exchange traded funds) and ETNs (Exchange traded notes), which track the evolution of cryptoassets. Moreover, the bank extends an opportunity for customers to speculate in cryptoassets marketed as “cryptocurrency crosses.”

In addition to offering these services, Saxo Bank has been maintaining a portfolio of cryptoassets. This portfolio serves as a hedge against the market risks associated with the bank’s crypto product offerings.

However, according to Denmark’s Financial Business Act, an exhaustive list of permitted activities for financial institutions is provided, and trading in cryptoassets does not feature on this list.

Currently, the area of crypto trading remains unregulated. The Regulation on Markets in Cryptoassets (MiCA), intended to regulate this area, will not take full effect until December 30, 2024.

The Danish FSA has voiced concerns that unregulated trading in cryptoassets could potentially destabilize trust in the financial system. The FSA argues that legitimizing trading in cryptoassets without proper regulations is unwarranted, thereby classifying this activity as an unacceptable ancillary banking operation.

Saxo Bank had been trading in cryptoassets for its own account as a means of hedging risks associated with the provision of other financial products. This action, however, is deemed unallowable for Danish financial institutions under the current Financial Business Act.

Consequently, the Danish FSA has decided that Saxo Bank’s trading in cryptoassets for its own account falls outside the permitted business area for financial institutions. This has led to the directive for the bank to divest its cryptoasset holdings.

Historically, Denmark has been viewed as one of the most crypto-friendly nations globally, being one of the first jurisdictions to declare its stance on Bitcoin treatment. The Danish Central Bank does not regulate Bitcoin and doesn’t recognize cryptocurrency as conventional currency. Moreover, the Financial Supervisory Authority of Denmark does not regulate or prohibit the operation of cryptocurrency businesses, including Bitcoin operations, in the country.

However, this action against Saxo Bank may signal a potential pivot in Denmark’s approach, indicating a move towards stricter crypto regulation.