The European crypto community has its eyes on Brussels. The EU institutions are currently working on the development of several texts that will frame the cryptocurrency economy, in particular the MiCA (Market in Crypto Assets) project. But some of the hypotheses studied have sparked cold sweats among industry players. Director of Blockchain Partner, the French leader in support of blockchain technology and crypto-assets, who joined KPMG in March 2021, Claire Balva decodes the consequences that European regulations could have on this new economy that is growing at full speed. At the end of 2021, the cryptocurrency market thus exceeded the threshold of 3 trillion dollars in market capitalization. In the same year, global investments in companies in the sector increased sixfold, from 5 to 30 billion euros raised between 2020 and 2021.
L’Express: Europe is working on a new regulation on cryptocurrencies. What changes could this future picture bring?
Claire Balva: The main objective of the MiCA regulations is to harmonize the European legislation on cryptocurrencies because today every country is more or less advanced on its side. In France, companies that allow you to buy, hold or resell cryptocurrencies must register as a PSAN (Digital Asset Service Provider) with the Autorité des Marchés Financiers. Registration is issued if they demonstrate that they have implemented certain specific procedures to, for example, verify the identity of their customers and ensure a certain traceability. The advantage of harmonized regulations is that cryptocurrency operators would need a single license that would give them access to the entire European market.
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The regulations also aim to give NFTs (Non Fungible Tokens) the status of financial assets in their own right and to regulate stablecoins, these tokens that circulate on the blockchain but are anchored to traditional currencies such as the dollar or the euro. The idea is to regulate the creation of euro stablecoins that would be supervised by the European Financial Markets Authority.
It is related to the concern that may have been generated by cases like the one that hit Tether [NDLR :le groupe Tether a créé une crypto stable adossée au dollar, mais Bloomberg et la Commodity Futures Trading Commission l’ont accusé d’avoir menti sur la taille réelle de ses réserves de dollars assurant la stabilité de leur coin].
Yes, the idea is to ensure, for example, that the companies that create stablecoins put in escrow the appropriate amounts to guarantee their soundness by imposing, for example, periodic audits. The goal is to protect consumers and avoid financial panic. But I think there is also a more political issue here, the desire to maintain control over the euro.
The points of the MiCA regulations currently under negotiation have been controversial in recent weeks. Which ones and why?
Fortunately, one of the most problematic proposals has been shelved. The stated goal was to ask cryptocurrency protocols to have an architecture compatible with climate problems and to ban platforms from selling cryptocurrencies that did not meet these requirements. It wasn’t very detailed, but it was clearly aimed at the system that underlies cryptocurrencies such as bitcoin but also ether and is called proof of work. [NDLR : chaque mineur doit faire réaliser des calculs complexes à ses machines ; le premier à trouver la solution gagne le droit de “miner” un bloc, c’est à dire de valider un ensemble de transactions et de remporter la récompense associée]. The problem is that these are global protocols. And that we are talking about very complex and controversial changes in terms of security. Just because Europe asks them to change doesn’t mean they can do it overnight. Ethereum has been working for five years to move to a new consensus and this transition is still ongoing.
As for Bitcoin, we know that its mode of operation will not change: this proposal, therefore, ultimately boiled down to prohibiting Europeans from accessing certain cryptocurrencies such as bitcoin or ether in the medium term. All of this has caused a lot of concern within the European crypto community. Some entrepreneurs in the sector were seriously beginning to ask themselves the question of moving their business.
Proposals for so-called non-hosted portfolios were also criticized. What is it about?
In parallel with the MiCA, another European financial regulation is being prepared, called TFR (Transfer of Funds Regulation). In this context, various avenues are being studied, in particular that of further tracing non-hosted or “non-custodial” wallets, which are wallets for the storage of digital money held by the same individuals. They can take the form of a physical wallet, such as the Ledger, or a mobile application. Their characteristic is that they do not depend on intermediaries who centralize the storage of cryptocurrencies. One of the amendments that has been proposed, however, suggests asking trading platforms to identify users who receive a flow from these “non-custodial” wallets or send to them. The goal is to track these flows indirectly, but on a technical level it would be very complicated to set up. And are we really meant to do it? It is as if we ask, in the future, to trace the cash, and to verify the identity of each person who pays in cash.
What directions would you like to see in future European cryptocurrency regulation?
Cryptocurrency exchanges are the new banks in the industry. It seems logical to me that Europe wishes to harmonize national laws and ask them for the traceability of flows. The hypothesis of controlling individual portfolios, on the other hand, seems to me disconnected from the field, from the real technical possibilities and from the very spirit of these new technologies. As for stablecoins, the philosophy of the text is too focused on risk prevention, not enough on the development of this new economy. There are many stablecoins in dollars, but few in euros. If we want to keep a strong euro, we need to promote the development of these “stable” euro-backed cryptocurrencies.
What problems could Europe face if its cryptocurrency sector doesn’t grow fast enough?
This would have an impact on our economic sovereignty. Cryptocurrencies are doing to fund what the internet has done to information. If we do not take the appropriate measures to see the emergence of major players in our country, we will depend on foreign groups, particularly Americans. It will be more difficult to regulate them and the financial data these players collect on European customers will give them an edge. As the use of cryptocurrencies increases, more and more funds will also be technically “stored” in the US if we don’t develop our industry.
The cryptocurrency sector often shows its disintermediate character. What are the advantages of a more decentralized operation?
Centralization itself is not necessarily a problem. It is more a question of politics and whether or not to depend on intermediaries. The interest of cryptocurrencies is that they offer a choice. In the traditional financial world, you are forced to go through the banks. This gives these entities very significant powers. Cryptocurrencies, on the other hand, offer more options: you can use them through major exchanges, if you find their services of good quality. But you can also use your digital money without going through it. This balances the balance of power between these players and their potential customers.