Fact CheckedLast Updated on May 20, 2022 by Stephan Lindburg
In an article which was published last month, the European Parliament outlined in broad strokes the various threats versus benefits related to cryptocurrencies. We took a close look at what their legal department had to say, and decided to touch certain issues we believe to be important.
The European Union’s primary focus is to protect users or investors in this case.
In their article, the EU states that the use of crypto-assets is “immensely promising”, but also problematic. They also want to help advance the technology while at the same time help protect users.
Risks Related To Crypto-Assets
The idea or concept of peer-to-peer transactions without intermediaries captivates the hearts and minds of many people. However, lack of regulation in the EU can create significant risks.
The Whole Ecosystem is At Risk
Starting with consumers, but also companies and the markets themselves are exposed. When dealing with crypto-assets vis-a-vis EU consumer coverage, its important to know that in most cases users will not be entitled to protection of funds. This can lead to instability in the financial markets and a spike in the fear index. In other words, the lack of transparency, and bad reputation digital currencies have received can lead to massive withdrawals and insolvencies in the major exchanges.
Financial crime is also heavily associated with digital currencies. Funding wars, conducting criminal activity, and laundering money are all almost tailor-made for cryptos.
Environmental Issues
The EU places great emphasis on green energy, and this conflicts with the huge amount of electricity which is needed to mine cryptocurrencies. This results in a high “environmental footprint” and contributes to the increase of electricity prices which are already on the rise due to the increase of the global population.
The Benefits of Regulation
The EU is currently drafting policies which help boost the potential of crypto assets while also curbing the risks. These policies are designed to create a new class or category of currencies which will be named Markets in Crypto-Assets (MiCA). Members of the European Parliament are hard at work forming these new policies, and it looks like things are on the right track and moving rather quickly.
Issues relating to transparency, disclosure, supervision of transactions, fees, safe-keeping of personal financial data, and security are addressed.
The issue of stable coins is also mentioned and discussed in detail, however it is not clear how this will be manifested in the final documents.
If you have any questions regarding the legal or regulatory aspect of certain trading apps, please reach out and message us. We have access to legal counsel specializing in digital assets.
