The use of cryptocurrencies 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 cryptocurrencies represent?
Part of the appeal of cryptocurrencies lies in the fact that they do not require a central ledger or institution, allowing simple and secure transactions between two parties without an intermediary. However, this feature, combined with the lack of regulation (cryptocurrencies are currently excluded from the scope of European legislation), poses significant risks.
Risks to consumers, businesses and markets
Crypto-active users are not covered by European consumer protection rules and are often misinformed about risks that could cause them to lose money. The widespread use of cryptocurrencies without regulation can promote financial instability, market manipulation and economic crime. Since transactions are most often carried out anonymously, cryptocurrencies are widely used for criminal activities. Following the war in Ukraine, EU countries restricted trade in Russian entities based on cryptocurrencies.
The ecological impact of cryptocurrencies is significant. In fact, this technology uses huge amounts of electricity. According to estimates, bitcoin’s energy consumption is equivalent to that of a small country.
Learn more about the Green Agreement and the EU’s action on climate change.
The benefits of the new European rules for cryptocurrency
The EU is currently working on new rules to increase the potential for cryptocurrencies while protecting citizens from the threats they pose. MEPs reviewed and amended the Commission’s proposal and decided in March 2022 to open negotiations on the final formulation of these rules with EU countries in the Council.
To promote the development and use of these technologies, the new rules will aim at creating legal certainty, supporting innovation, protecting consumers and investors and guaranteeing financial stability.
The rules will include transparency, publication, approval and supervision of transactions. MEPs want trading in certain “tokens” to be monitored by the European Securities and Markets Authority and the European Banking Authority. Businesses using cryptocurrencies will need to better inform consumers about the risks, costs and fees they may incur. By regulating public supply of cryptocurrencies, the rules will ensure financial stability, while other measures tackle market manipulation, money laundering, terrorist financing and other criminal activities.
To reduce high CO2 footprint cryptocurrencies, MEPs call on the Commission to draw up new rules to include any cryptocurrency mining activity that contributes significantly to climate change in the classification system for sustainable activities.
Once the MEPs have negotiated the final form of the bill with the EU governments, it must be adopted by the European Parliament as a whole and by the EU countries.
These new rules are part of a broader digital finance package that supports the EU’s digital transformation by encouraging innovation while ensuring consumer protection. In March 2022, the Danish Parliament adopted new rules on the pilot scheme for market infrastructure based on distributed ledger technology, adopted by the Danish Parliament in March 2022.
In April 2022, Parliament decided to enter into negotiations with EU countries on rules that would enable the tracking and identification of transfers of cryptocurrencies to prevent money laundering, terrorist financing and other crime.
What are cryptocurrencies, cryptocurrencies, tokens and stack coins?
That 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 makes it possible to record transactions 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” means security. These currencies are secured with cryptography.
The first cryptocurrencies to emerge were bitcoins, introduced in 2008 as cryptocurrency (alternative payment method for currencies issued by central banks). By 2020, there were 5,600 different cryptocurrencies with an estimated global value of 250 billion euros. This generation of cryptocurrencies is generally not supported by intrinsic assets, and their value is often quite volatile, limiting their practical application, making them a form of risky investment rather than a currency.
Tokens and barn coins
Tokens are the latest cryptocurrencies. 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 payment method as their value is supported by real assets, provides 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
– European law on digital markets and the law on digital services explained
– Why is cybersecurity important and what is the EU doing about it?