Cryptocurrencies – a phenomenon that has been moving the world for over ten years. And legislators are becoming more and more interested. On Monday, the European Parliament’s Economic Committee voted on a new regulation of the virtual currency market, which the parliament has been preparing since 2019.
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“In the European Parliament’s Economic Affairs Committee, we have just rejected a proposal calling for a ban on crypto trading, such as Bitcoin in the EU,” said MEP Ondrej Kovařík (for YES, Renew Europe faction) on Twitter. The remaining parts of the regulation known as MiCa will be discussed by the European Commission (representing the EU as a whole), the European Parliament (representing citizens) and the European Council (representing the Member States) in the coming months in a so-called trialogue.
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In committee @Europarl_CZ for Economic Affairs (@EP_Economics), we have just rejected a proposal calling for a ban on crypto trading, such as #Bitcoin veil. #MiCA
It is very good news and the victory of common sense.– Ondrej Kovarik (@OKovarikMEP) March 14, 2022
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Markets in Crypto-asset regulation (MiCa), or regulation of virtual asset markets, is part of the Digital Finance Package, which the European Commission says is designed to prepare Europe for the changing market of the future. It is primarily a strategy in the areas of digital finance and retail, cryptoactive (MiCa) and digital security.
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In practice, this would mean the end of Bitcoin in the EU, and we hope that this step will not pass.
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“MiCa covers several key points. The first is private cryptocurrencies, and responds to 2017 events such as ICOs (the so-called initial offer of cryptocurrency, or its placing on the market, note. red.). It also deals with current issues, such as stablecoins, and a ban on so-called proof-of-work coins (see below, note. red.), ”Explains Jakub Jedlinský from the crypto consulting company Altlift. The economic committee has just rejected the aforementioned ban on proof-of-work.
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From the point of view of customers and investors, the first three points are generally positive, as they focus primarily on end-user security and should provide greater control over cryptocurrency intermediaries. ICOs and new stablecoins, or digital tokens linked to conventional monetary assets or at least covered by such assets, will have to include a so-called white paper, an introductory document on newly issued projects. The process will therefore be similar to listing a company.
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The measure on private cryptocurrencies was introduced mainly due to concerns about a Facebook project that wanted to launch its own cryptocurrency diem / pound. Facebook has given up on the project due to strong public pressure and security concerns.
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However, the last of these points, ie the ban on so-called proof-of-work currencies, has long been considered problematic by the community around cryptocurrencies and has been widely debated in recent days.
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“It would practically mean the end of Bitcoin in the EU. We hope that this step will not pass. It would mean that the EU will be among the few developing countries to which it should definitely not belong, “says Adam Chvaja from the Czech Cryptocurrency Association (CKMA) about the change, which MEPs rejected.
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Old but functional
Proof-of-work consensus is the concept on which most of the original cryptocurrencies work, including Bitcoin or Etherea. Blockchain transaction verification (it is a kind of global decentralized ledger, note. red.) consists in the fact that users provide their computer technology, which calculates complex mathematical equations for them and thus subsequently verifies individual transactions. However, this process uses a large amount of electricity, which is still largely produced from non-renewable sources.
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Restrictions on proof-of-work currencies were already included in the first version of the regulation, but were later exempted. In doing so, some MEPs probably wanted to respond to the sharp rise in energy prices and at the same time tried to prevent Russia from circumventing sanctions. Above all, however, sanctions prevent Russia from buying cryptocurrencies, so restriction of Bitcoin would not have a significant effect in this regard.
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Some proponents of the change mainly support a more sustainable and greener consensus, the so-called proof-of-stake, which does not need a large amount of computer technology to authorize individual payments.
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Europe is currently the largest market for cryptocurrencies, and a partial ban would put the EU in the lurch.
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The second largest currency, Ethereum, is preparing to move to a different consensus. In the future, it should announce Ethereum 2.0, which will operate on the aforementioned proof-of-stake consensus. But Bitcoin, for example, cannot switch to this system. “It is technically possible, but it would create a different currency. If part of the community does not accept it, there will be a so-called forka, ie the division of the currency, “says Jedlinský.
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According to him, it is good that there are many proof-of-stake currencies, but at the same time there must be some proof-of-work currencies such as Bitcoin or Monero. These are more stable, more decentralized, and are therefore more suitable for transferring more money, but at the cost of greater energy intensity.
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Anonymous currencies thrive
Although reducing the world’s largest cryptocurrency seems like a major step, markets are still growing, even with potential barriers in mind. “Europe is currently the largest market for cryptocurrencies and a partial ban would blow the EU in the foot,” says Jedlinsky.
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In the light of economic sanctions, which are currently decimating the lives of ordinary citizens in Russia, they are reinforcing cryptocurrencies aimed at the greatest possible level of anonymity. The aforementioned Monero or Zcash have grown by 30 percent since Russia’s invasion of Ukraine.
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So it is clear that although more robust and less environmentally friendly proof-of-work currencies are being delayed by the EU, they will be with us for some time to come. “It’s like new money being put into an ATM. He drives an armored car and there are soldiers. It pays off at that moment. But if I walk down the street with a thousand in my pocket, such protection will not pay off for me, “concludes Jedlinský.
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