The European crypto community has its eyes on Brussels. The EU institutions are currently developing several texts that will frame the cryptocurrency economy, most notably the MiCA (Market in Crypto Assets) project. But some of the hypotheses examined have caused cold sweats among industry players. Claire Balva, Director of Blockchain Partner, the French leader in blockchain and crypto asset technology support, who joined KPMG in March 2021, deciphers the impact European regulation could have on this new economy that is moving at full speed. grows. At the end of 2021, the crypto market crossed the $3 trillion market capitalization threshold. That same year, global investment in companies in the sector increased sixfold, from €5 billion to €30 billion 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 aim of the MiCA regulation is to harmonize European legislation on cryptocurrencies, because nowadays every country has more or less progress on its side. In France, companies that are allowed to buy, hold or resell cryptos must register as 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, for example to verify the identity of their customers and to guarantee a certain traceability. The advantage of harmonized regulations is that players in the crypto sector only need one license that gives them access to the entire European market.
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The regulation also aims to give NFTs (Non Fungible Token) the status of financial assets in their own right and to regulate stablecoins, those 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 stable euro coins, which would be overseen by the European Financial Markets Authority.
Does it have to do with the concern that may have arisen from cases like the one where Tether was affected? [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, for example, to ensure that companies that create stablecoins deposit the correct amounts to guarantee their soundness by, for example, imposing regular audits. The goal is to protect consumers and prevent financial panic. But I think there is also a more political issue here, which is the desire to maintain control over the euro.
Points of MiCA regulation currently under negotiation have been controversial in recent weeks. Which and why?
Fortunately, one of the most problematic proposals has been brushed aside. The stated goal was to request cryptocurrency protocols to have an architecture compatible with climate concerns, and to prohibit platforms from selling cryptocurrencies that do not meet these requirements. It wasn’t very detailed but it was clearly focused on the system underlying 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 security. Just because Europe asks them to change doesn’t mean they can do it overnight. Ethereum has been moving to a new consensus for five years now and this transition is still in full swing.
As for Bitcoin, we know that the way it works will not change. So this proposal ended up denying Europeans access to 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 began to seriously consider moving their activity.
Proposals for so-called non-hosted wallets have also been criticized. What is it about ?
In parallel with MiCA, another European financial regulation is being drawn up, called the TFR (Transfer of Funds Regulation). In this regard, several avenues are being explored, in particular those to further track down 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, such as the Ledger, or a mobile application. Their characteristic is that they do not depend on intermediaries who centralize the storage of cryptocurrencies. However, one of the proposed amendments proposes asking trading venues to identify users who receive or send to them a stream of these “non-custodial” wallets. The aim is to trace these flows indirectly, but on a technical level it would be very complicated to set up. And are we really supposed to do it? It’s as if in the future we asked to trace the money and verify the identity of every person who pays cash.
What directions would you like to see in future European crypto regulation?
Crypto exchanges are the new banks in the industry. It seems logical to me that Europe wants to harmonize national laws and asks them for traceability of flows. In contrast, the hypothesis of mastering individual portfolios seems to me to be detached from the field, from the real technical possibilities and from the spirit of these new technologies. With regard to stablecoins, the text’s philosophy 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 need to 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 fund what the internet has done to information. If we don’t take the right steps to see the emergence of major players in our country, we will be dependent on foreign groups, especially Americans. It will be more difficult to regulate them and the financial data these players collect on European customers will give them an advantage. As the use of crypto grows, more and more of our funds will also be technically “stored” in the United States, if we don’t develop our own industry.
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The crypto sector often emphasizes its disintermediate nature. What benefits can a more decentralized operation bring?
Centralization in itself is not necessarily a problem. It is more a matter of politics and whether or not to depend on intermediaries. The importance of cryptos is that they offer choices. In the traditional financial world you have to go to 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 it. This rebalances the balance of power between these players and their potential customers.