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 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.
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 and, in March 2022, decided to start negotiations on the final form of these rules with EU countries in the Council.
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.
The rules will cover transparency, disclosure, authorization and supervision of transactions. MEPs want the trading of certain “tokens” to be supervised by the European 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. By regulating public offerings of crypto-assets, the rules would ensure financial stability, while other measures tackle market manipulation, money laundering, terrorist financing and other criminal activities.
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.
Once MEPs have negotiated the final form of the bill with EU governments, it will need to be passed by the European Parliament as a whole and by EU countries.
These new rules are part of a broader digital finance package that supports the EU’s digital transition by encouraging innovation while ensuring consumer protection. The package includes new rules on the pilot scheme for market infrastructures based on distributed ledger technologyadopted by Parliament in March 2022.
What are crypto-assets, cryptocurrencies, tokens and stablecoins?
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.
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:
– Regulate 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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