MiCA: ‘The fine details will matter’

MiCA: ‘The fine details will matter’

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An initial focus on impactful details of EU crypto law

A while before Markets in Crypto-Assets (MiCA) comes into effect and at least a year before it starts being enforced, the European Union’s regulation on crypto-asset markets has generally been met with applause from the industry. Regarded as the most comprehensive regulatory framework for digital assets to date, the regulation introduces numerous general requirements for crypto companies – ranging from prudential measures and market integrity to consumer protection.

But, as always, it’s the smallest details that truly matter – as emphasized by Binance CEO Changpeng Zhao shortly after the vote in the European Parliament was held.

Not so right away

The first provisions concerning two out of three categories of crypto assets, namely asset-referenced tokens, and money tokens, will only be implemented with MiCA on June 29th, 2024. The remaining ones will be applied by the end of next year.

The regulation refers specifically to crypto services that are partially decentralized, whereas fully decentralized services conducted without intermediaries fall outside the scope of its provisions. Nevertheless, the objectives of the regulation include increasing legal certainty, reducing regulatory decentralization in national systems, and enabling the introduction of cryptocurrencies through a unified licensing process.

In the name of crypto

Crypto asset service providers obtaining a license in any of the 27 EU member states will be able to operate legally and under the same conditions in all other member states. Previously, crypto firms had to apply for registration in each country separately, often taking advantage of the fact that many countries did not have their own regulations in this regard. Operating in an unregulated environment often fell into the gray area, affecting not only consumer trust but also business stability.

The European Union’s policy seems consistently focused on subjecting cryptocurrencies to precise regulation, enabling their coexistence in circulation alongside traditional forms of currency. Consequently, the regulation introduces various requirements, with particular emphasis on asset-linked crypto-assets and those categorized as e-money.

MiCA exerts regulatory pressure on entities involved in virtual assets while challenging the perception of cryptocurrencies as highly risky. By protecting clients from market threats, it will provide the opportunity to foster trust in cryptocurrencies. Furthermore, despite MiCA’s scope is limited to the EU, its impact extends far beyond. It establishes the European Union as a frontrunner in navigating the intricacies of this field and offers a regulatory framework that holds global significance, paving the way for ongoing enhancements worldwide.

Challenges still ahead

Despite its comprehensive nature, the MiCA regulation has certain limitations and areas of concern. Among the weak points, the lack of regulation of investment tokens can be considered a downside of the proposed regulation. If there are no national legal standards governing the issuance of investment tokens in each country, the issue of such assets will still be problematic.

Additionally, although the environmental impact of blockchain technology was expected to be addressed in the MiCA regulation, there was no introduction of a prohibition on the Proof of Work (PoW) consensus mechanism that is widely used by many projects, as initially feared.

Hit the road

Has the MiCA legislative process come to a close, or is it just the starting line of a long-distance endurance run?

To businesses, waiting for its implementation is definitely not the recommended course of action. Crypto firms are advised to start preparing for MiCA ‘Now – perhaps even yesterday,’ emphasized the Head of EU Policy at Chainalysis as she delves into the consequences of the legislation.

As is often the case when regulating innovative industries, a question arises about the extent to which the pursuit of increasing consumer safety may unintentionally restrict the development of market projects. Instead of encouraging innovative enterprises to seek opportunities in Europe and compete with America and Asia, there is a concern that these regulations may lead them to explore more liberal economies elsewhere for implementing their solutions.

Are we included?

As mentioned earlier, the new obligations and the need to adjust to the requirements, such as obtaining a permit for cryptocurrency exchange offices or implementing contracts with clients that prevent anonymity, apply to partially decentralized assets and services. However, the storage of private keys, which is the purpose of the Bitfold device, falls outside the scope of the MiCA regulation. To this point.

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