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 triggered cold sweats among players in the sector. Director of Blockchain Partner, the French leader in blockchain & crypto-asset technology support, who joined KPMG in March 2021, Claire Balva deciphers the consequences that European regulations could have on this new economy which is growing at full speed. At the end of 2021, the crypto market thus exceeded the threshold of 3 trillion dollars in market capitalization. That 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 crypto regulation. What changes could this future framework bring?
Claire Balva: The main objective of the MiCA regulations is to harmonize European legislation on cryptocurrencies because today, each country has more or less advanced on its side. In France, companies that allow to buy, keep or resell cryptos must register as a PSAN (Provider of Services on Digital Assets) with the Autorité des Marchés Financiers. The registration is issued if they prove that they have implemented certain specific procedures to, for example, check the identity of their customers and ensure a certain traceability. The advantage of harmonized regulations is that players in the crypto sector would only need a single license which would give them access to the entire European market.
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The regulations also aim to give NFTs (Non Fungible Token) the status of financial assets in their own right and to regulate stablecoins, these tokens that circulate on the blockchain but are pegged to traditional currencies such as the dollar or the euro. The idea is to regulate the creation of euro stablecoins which would be supervised by the European Financial Markets Authority.
Is it related to the concern that may have been generated by cases like the one that affected 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 companies which create stablecoins put in escrow the adequate amounts to guarantee their solidity by imposing, for example, regular audits. The aim is to protect consumers and avoid financial panics. But I think there is also a more political issue here, a desire to keep control over the euro.
Points of the MiCA regulations currently being negotiated have been controversial in recent weeks. Which ones and why?
One of the most problematic proposals has fortunately been set aside. The stated objective was to ask cryptocurrency protocols to have an architecture compatible with climate issues, and to prohibit platforms from selling cryptocurrencies that did not meet these requirements. It wasn’t very detailed, but it was clearly aimed at the system that underpins cryptos like 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 is asking them to change doesn’t mean they can do it overnight. Ethereum has been working for five years already to switch to a new consensus and this transition is still in progress.
As for Bitcoin, we know that its mode of operation will not change. This proposal therefore ultimately amounted 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 activity.
Proposals for so-called non-hosted wallets have also been criticized. What is it about ?
Another European financial regulation, called TFR (Transfer of Funds Regulation), is being drawn up, in parallel with MiCA. In this context, several avenues are being studied, in particular that of further tracing non-hosted or “non-custodial” wallets, which are wallets for storing digital money held by individuals themselves. They can take the form of a physical wallet, like the Ledger, or a mobile application. Their characteristic is not to depend on intermediaries centralizing 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 objective is to trace 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’s as if we asked, 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 crypto regulation?
Crypto exchanges are the new banks in the industry. That Europe wishes to harmonize national legislations and asks them for flow traceability seems logical to me. The hypothesis of controlling individual portfolios seems to me, on the other hand, disconnected from the field, from the real technical possibilities and from the very spirit of these new technologies. Regarding 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 maintain a strong euro, we must promote the development of these “stable” cryptos backed by the euro.
What problems could Europe face if its crypto sector does not grow fast enough?
This would have an impact on our economic sovereignty. Cryptocurrencies are doing to finance what the Internet has done to information. If we don’t take the appropriate measures to see the emergence of major players in our country, we will depend on foreign groups, especially Americans. It will be more difficult to regulate them and the financial data that these players will collect on European customers will give them an advantage. As the use of cryptos grows, more and more of our funds will also technically be “stored” in the United States, if we do not develop our own sector.
The crypto sector often highlights its disintermediated character. What advantages can a more decentralized operation bring?
Centralization in itself is not necessarily a problem. It is more a question of politics and whether or not to depend on intermediaries. The interest of cryptos is that they offer the possibility of choice. In the traditional financial world, you are forced to go through banks. This gives these entities very significant powers. Cryptos, 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 them. This rebalances the balance of power between these players and their potential customers.