The Dangers of Cryptocurrencies and the Benefits of European Legislation | News | European Parliament

The use of crypto-assets or cryptocurrencies and the technology behind them is both extremely promising and problematic. The EU wants to help stimulate the development of these technologies and their use in the EU, while protecting users.

Learn more about the digital transformation in the EU.

What risks do crypto-assets represent?

Part of the appeal of crypto-assets is that they don’t require a central ledger or institution, allowing 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 for consumers, businesses and markets

Crypto-asset users are not covered by European consumer protection rules and are often misinformed about the risks, which can cause them to lose money. The widespread use of crypto-assets without regulation could promote financial instability, market manipulation and financial crime. Since transactions are most often done anonymously, cryptocurrencies are widely used for criminal activities. Following the war in Ukraine, EU countries have limited trading exchanges based on crypto-assets with Russian entities.

Environmental impact

The ecological impact of cryptocurrencies is considerable. Indeed, this technology uses huge amounts of electricity. According to estimates, the energy consumption of bitcoin is equivalent to that of a small country.

Learn more about the Green Deal and EU actions against climate change.

The benefits of the new European cryptocurrency regulations

The EU is currently working on new rules to boost the potential of crypto-assets while protecting citizens from the threats they pose. MEPs reviewed and amended the Commission’s proposal. A provisional agreement on this was concluded by the Parliament and the Council in June 2022. It now remains to wait for the final approval of the European Parliament as well as of 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 guarantee financial stability.

Ensuring financial stability and consumer protection

By regulating public offerings of crypto-assets, the rules would ensure financial stability. These will cover transparency, disclosure, authorization and supervision of transactions. MEPs want the exchange of certain “tokens” to be supervised by theEuropean Securities and Markets Authority and European Banking Authority.

Companies that use crypto-assets will need to better inform consumers about the risks, costs and fees they may entail.

Parliament also adopted rules in March 2022 on the use of distributed ledger technologies in connection with “blockchains” and the trading of crypto-assets. These technologies allow the recording of interactions and the transfer of crypto-assets. The purpose of this legislation is to encourage the development of crypto-asset exchange solutionswhile maintaining a high level of financial stability, transparency and market integrity.

Reducing the carbon footprint of cryptocurrencies

For reduce high carbon footprint cryptocurrencies, MEPs call on the Commission to prepare new rules to include any cryptocurrency mining activity that substantially contributes to climate change in the classification system of sustainable activities.

Prevent the use of cryptocurrency for criminal purposes

In April 2022, Parliament agreed to start negotiations with EU countries on rules that would allow the tracing and identification of transfers of crypto-assetsto prevent money laundering, terrorist financing and other crimes.

Fight against fraud and tax evasion

In October 2022, Parliament called on EU states to better coordinate the taxation of crypto-assets. According to the institution, they must be subject to fair, transparent and efficient taxation, but the authorities should also consider simplified tax treatment for occasional traders and small transactions. Members have also stated that blockchain could facilitate efficient tax collection.

What are crypto-assets, cryptocurrencies, tokens and stablecoins?

Crypto-assets

The crypto-assets 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 – they are based on distributed ledger technology which allows transactions to be recorded securely by a network of computers. They are private and are neither issued nor guaranteed by a central bank or a public authority. The term “crypto” connotes security. These currencies are secured by cryptography.

Cryptocurrencies

The first crypto-assets to emerge were bitcoins, introduced in 2008 as cryptocurrency (alternative payment method to currencies issued by central banks). In 2020, there were 5,600 different cryptocurrencies, with an estimated global value of 250 billion euros. This generation of cryptoassets are generally not backed by assets with intrinsic value, and their value is often quite volatile, which limits their practical use, turning them into a form of risky investment rather than a currency. useful.

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 could provide a more stable method of payment since their value is backed by real assets, offers new opportunities for innovation and wider use. .

Learn more about what the EU is doing to take advantage of digital opportunities:

Regulating artificial intelligence

European data strategy

The European Digital Markets Act and the Digital Services Act explained

Why is cybersecurity important and what is the EU doing about it?

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The Dangers of Cryptocurrencies and the Benefits of European Legislation | News | European Parliament


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