The last few weeks have seen a flurry of reports and votes from the European Union's Parliament. Before I go into the votes and what happened vs what did not happen it is important to understand the structure of the EU because it is not what I for one would have expected. The way that this legislation works is it has to go through several different legislative bodies. The EU Parliament was the first step and now the legislation will move to European Commission and if it makes it through that then the European Council. All of this is to say that this was the first step of many and the odds of the legislation and rules changing are pretty high.
With that out of the way let's look at the legislation that was voted on and the results or impacts that it could have. The legislative package is called Markets in Crypto Assets Regulation or MiCA for short. If passed it would coordinate the European Union's approach to crypto.
Out of everything that this legislation contained the primary headliner was the idea of a ban on Proof of Work or PoW crypto mining. This was aimed at both Bitcoin and Ethereum as they are huge energy consumers and legislators have made comments previously highlighting their concern with this.
After the vote was held to ban this energy-intensive mining method and even though it failed headlines ran claiming that the rule was only struck down by 4 votes. This was an exaggeration as it was REJECTED with a vote of 32 to 23 with 6 abstaining. Even if the 6 abstaining voted against it would have failed by 3 votes. Then further compounding even if it did pass there would still be two more steps it would have to go through meaning.
Since most people tended to focus only on the mining part of this package it is important to talk about what did pass since the legislation did pass minus the Bitcoin ban. Similar to President Biden's Executive Order this legislation is designed to ensure the EU financial services regulatory framework is innovation-friendly and does not pose obstacles to new technological applications.
Four general objectives are stated in the framework which are
- The need for sound legal framework with clearly defined regulatory treatment of all crypto-assets that are not covered by existing financial legislation
- To support innovation
- To instill appropriate levels of consumer protection and market integrity
- To ensure financial stability.
While this framework does seem to do quite a bit and does it there are some noticeable gaps in it. These proposed framework rules would not apply to Central Bank Digital Currency (CBDC) or crypto assets like security tokens that could qualify as financial instruments like deposits, treasury notes, and derivatives. The big win with this is that it would provide crypto firms with a passportable license that would be valid between all countries that are part of the 27 nation block. This is roughly 450 million people in general.
If the EU becomes the first to hammer out this framework and passes this legislation into law then it could become the global standard due to the size and wealth of the block. Since the EU missed out on the Silicon Valley boom and they have been trying to attract and keep top talent this could be a boon for them! It will be something to continue to keep an eye on as it could end up being an impactful event if it ever gets through all of the different layers that it has to!
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