The MiCA (Markets in Crypto Assets) regulation introduced by the European Union is the first comprehensive cryptocurrency law to come into effect this year. For cryptocurrency users, this means a number of significant changes that aim to increase transparency, investor protection, and financial stability. Let’s take a look at how these changes will translate into everyday cryptocurrency use.
Greater user protection
The MiCA regulation introduces a number of mechanisms aimed at increasing the protection of cryptocurrency users. First of all, cryptocurrency service providers (CASPs) will have to meet strict registration and authorization requirements. Here are the specific aspects of this protection:
Obligation to register companies
Any company offering cryptocurrency services in the EU will need to obtain a license from national regulators. This process involves thorough vetting and approval by regulators, ensuring that only companies that meet high standards are allowed to operate in the market.
Protection of funds
Firms will be required to implement robust measures to protect user funds. This means that they will have to keep customer assets safe, minimizing the risk of loss or theft.
Monitoring market abuse
The regulation imposes a duty to monitor market abuse, including market manipulation and insider trading. Firms will be required to implement systems to detect and report such abuse to the relevant supervisory authorities. This will protect users from unfair practices that could affect their investments.
Storage of transaction data
MiCA regulations require cryptocurrency service providers to store detailed transaction data. This data must be available to regulators, ensuring that transactions can be traced and verified in the event of suspected criminal activity.
Increased transparency
Companies will also be required to publish white papers for the cryptocurrencies they issue, detailing the projects, technology, risks, and benefits for investors. Importantly, these documents will need to be approved by regulators.
Standardization of cryptocurrency markets
Each EU member state has the right to create its own cryptocurrency regulations, which means that companies must meet different requirements in different countries. For example, Malta and Gibraltar have created more friendly regulations that attract new companies, while other countries have a more restrictive approach. This fragmentation makes it difficult for companies to operate internationally within the EU, forcing them to obtain multiple licenses and meet different standards.
The MiCA regulation aims to unify these regulations across the European Union. This means that cryptocurrency companies will be required to obtain a single license that will allow them to operate in all member states. This will make the licensing process more transparent and less costly, which in turn will make the EU market more attractive to cryptocurrency companies.
Benefits for users
For cryptocurrency users, the introduction of uniform regulations means easier access to a wide range of cryptocurrency services. Here are some key benefits:
Lower transaction costs: A single EU cryptocurrency market could lead to lower transaction costs and fees as businesses will be able to operate more efficiently and at a larger scale.
Uniform conditions: Users will be able to benefit from the same standards of protection and transparency regardless of the country they are in.
A wider choice of services: By unifying the rules, more companies will be able to offer their services throughout the EU without having to obtain multiple licenses. This in turn will translate into more competition and wider choice for consumers.
Changes in stablecoins
MiCA introduces detailed regulations for issuers of stablecoins that are pegged to the value of traditional currencies such as USDT (Tether) and USDC (USD Coin).
First and foremost, stablecoin issuers will need to ensure that their tokens are adequately backed by maintaining financial reserves equivalent to the value of the coins issued. This means that each stablecoin will need to be backed by an equivalent amount of assets to ensure the stability of its value. In practice, issuers will need to maintain reserves in the form of cash or other readily available, highly liquid assets.
MiCA also gives the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) the authority to supervise stablecoin issuers. These bodies will be able to classify some stablecoins as “significant,” meaning they will be subject to more stringent regulatory standards. These criteria include the value of the tokens, their market capitalization, the significance of cross-border activity and the degree of interconnection with the financial system.
Prohibition on earning interest
One of the most significant provisions of MiCA is the ban on earning interest on stablecoins. Until now, users could earn passive income, among other things, through staking. For many investors, this may affect the attractiveness of stablecoins as investment instruments. Interest on staking could be really big.
White papers
As I mentioned at the beginning, MiCA requires cryptocurrency issuers to publish detailed white papers that contain key information about the project, technology, risks, and benefits for investors. These documents must be approved by the relevant regulators before tokens can be issued. Let’s take a closer look at what information white papers will have to contain and how it will benefit users.
Project description: Detailed information about the project’s objective, structure and planned development stages.
Technology: Explanation of the technology used in the project, including details about the blockchain or other technical infrastructure.
Risks: Description of potential risks associated with the project, both technological, market and regulatory.
Benefits for investors: Information about the potential benefits that investors can obtain from investing in a given project.
The project team: Information about key team members, their experience and role in the project.
Before tokens can be issued, white papers must be approved by the relevant supervisory authorities in the relevant EU member state. This means that these documents will go through a verification process to ensure their reliability and compliance with regulations. Supervisory authorities will have the right to submit comments or requests to supplement the white papers before their final approval.
MiCA and Proof-of-Work
The introduction of MiCA regulations has raised many concerns in the cryptocurrency community, especially in the context of a potential ban on the Proof-of-Work (PoW) mechanism, which is the basis of Bitcoin. This mechanism is criticized for its high energy consumption and negative impact on the environment. However, the current version of MiCA does not include a ban on PoW-based cryptocurrencies. Let’s take a closer look at the prospects for regulating this technology in the future.
Future regulatory prospects
The European Commission may propose additional sustainability regulations in the future that could affect the technology. Under the regulations, the Commission has until January 1, 2025, to present proposals to include cryptocurrency mining activities in the EU’s sustainability taxonomy.
The lack of a Proof-of-Work ban in MiCA is beneficial for current users and cryptocurrency miners based on this technology. However, potential future regulations could introduce additional requirements for energy efficiency and emissions, which could affect mining operations in the EU. Miners may be forced to invest in more sustainable energy sources or technological innovations that reduce energy consumption.
Final Thought
MiCA is a step towards creating a more transparent and secure cryptocurrency market in Europe. For users, this means both benefits in the form of better protection and regulatory clarity, but also some restrictions that may affect investment strategies. Prepare for these changes to fully exploit the new opportunities offered by a unified EU cryptocurrency market.
