The use of crypto assets or cryptocurrencies and the technology behind them is both promising and problematic. The EU wants to help stimulate the development and use of these technologies in the EU, while protecting users.
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What risks do crypto assets pose?
Part of the appeal of crypto assets is that they do not require a central ledger or institution, allowing for simple and secure transactions between two parties without an intermediary. However, this characteristic, combined with the lack of regulation (crypto assets are currently excluded from the scope of European legislation), creates significant risks.
Risks to consumers, businesses and markets
Users of crypto assets are not covered by European consumer protection rules and are often misled about the risks, which can cause them to lose their money. The widespread use of crypto assets without regulation can lead to financial instability, market manipulation, and financial crime. Since transactions are often done anonymously, cryptocurrencies are widely used in criminal activities. After the war in Ukraine, the countries of the European Union Limited trading exchanges based on crypto assets with Russian entities.
The environmental impact of cryptocurrency is significant. In fact, this technology uses huge amounts of electricity. According to estimates, the energy consumption of a bitcoin is equivalent to that of a small country.
Advantages of the new European cryptocurrency regulations
The European Union is currently working on new rules to enhance the potential of crypto assets while protecting citizens from the threats they pose. MEPs revised and amended the Commission’s proposal. a temporary agreement This was completed by Parliament and the Council in June 2022. It now remains to await final approval from the European Parliament as well as from the EU countries.
In order to encourage the development and use of these technologies, the new rules will aim to provide legal certainty, support innovation, protect consumers and investors, and ensure financial stability.
Ensure financial stability and consumer protection
By regulating public offerings of crypto assets, the rules will ensure financial stability. These will cover transparency, disclosure, authorization and oversight of transactions. MEPs want the exchange of “tokens” to be supervised beforeEuropean Securities and Markets Authority And the European Banking Authority.
Companies using crypto assets will need to better inform consumers of the risks, costs and fees that may be involved.
Parliament also adopted the rules in March 2022 on Use of distributed ledger technologies Regarding “blockchains” and crypto-asset trading. These technologies allow the recording of interactions and the transfer of crypto assets. The purpose of this legislation is encouragement Develop crypto asset exchange solutionswhile maintaining a high level of financial stability, transparency and market integrity.
Reducing the carbon footprint of cryptocurrencies
for Reducing the high carbon footprint cryptocurrencies, MEPs are calling on the committee to prepare new rules to include any cryptocurrency mining activity that contributes significantly to climate change in the rating system for sustainable activities.
Prevent the use of cryptocurrencies for criminal purposes
In April 2022, Parliament agreed to start negotiations with EU countries on the rules for this It would allow tracking and identification of transfers of crypto assetsTo prevent money laundering, terrorist financing and other crimes.
Fighting fraud and tax evasion
In October 2022, Parliament called on EU countries to improve Harmonizing taxes on crypto assets. According to the institution, they should be subject to fair, transparent and efficient taxation, but the authorities should also consider the simplified tax treatment of occasional merchants and small transactions. Members also mentioned that blockchain can facilitate efficient tax collection.
What are crypto assets, cryptocurrencies, tokens, and stablecoins?
The encrypted assets They are digital assets that can be used as a medium of exchange or for investments. Unlike traditional banking, there is no need for a central ledger – it is based on distributed ledger technology that allows transactions to be securely recorded by a network of computers. It is private and is not issued or guaranteed by a central bank or public authority. The term “encryption” means security. These currencies are secured by cryptography.
The first crypto asset to emerge was bitcoins, which were introduced in 2008 as Cryptocurrency (An alternative payment method for currencies issued by central banks). In 2020, there were 5,600 different cryptocurrencies, with an estimated global value of €250 billion. This generation of crypto assets is generally not backed by assets with intrinsic value, and their value is often highly volatile, which limits their practical use, turning them into a risky form of investment rather than currency.
Tokens and stablecoins
Tokens are the newest crypto assets. They are usually issued to raise capital for new entrepreneurial projects or start-ups.
The introduction of new products such as stablecoins (stable digital currencies), which can provide a more stable method of payment since their value is backed by real assets, provides new opportunities for innovation and wider use.
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