Late last year the European Union drafted a set of rules that they intended to place on cryptocurrency. These rules were called the “Markets in Crypto Assets Framework” or “MiCA Framework”.
These rules have been in the works for literally years at this point, ever since the explosion in cryptocurrency values in the second half of 2020.
But it was not until this last week that the European Union voted on these rules, with the vote passing. 31 representatives voted for and 4 voted against.
Yet at the same time, 24 representatives abstained from voting entirely. That is nearly the same number of representatives that voted for the framework. Not only that, but this is also not the first time the framework has seen trouble in its lifetime, mostly due to how the parliamentary system works.
The MiCA framework saw its first reading in November of 2020. But it was not voted on until March of 2022. The complexity of the cryptocurrency issue meant that the framework needed to be rewritten several times—sometimes as technology was being developed around it.
Table of Contents:
Environmental Concerns 🌐️
Most of the MiCA framework is focused on controlling the oft-discussed “crypto mining farms”. These are collections of computers that are run 24 hours a day, seven days a week, operating at peak output.
That means that they get their value from the fact that the computer network that they exist on can prove where they have been at all times, as well as the speed at which they can be spent. Crypto mining means dedicating a device, usually a high-end computer, to helping that computer network run.
How Does Crypto Mining Work?
By mining crypto, you add value to the currency. That value is, at least partially, paid back to you for your work. As a result, crypto mining has become a popular method for making passive income.
The trouble is that running high end computers all day, every day produces a lot of carbon dioxide. And not only that, but it also creates a financial incentive to increase carbon emissions down the entire pipeline of the enterprise. Setting up a crypto mining farm is more than just running computers.
Remember, in order for those computers to run as well as they do, they need the best parts they can get. That means capacitors, superconductors, motherboards, and other parts that require precious minerals. These minerals are rare and need to be mined, transported, and refined into parts.
But it does not stop there. Do not forget about the electricity, the heat, and the heat built by the fans used to cool the computers. Every step of the process produces exponentially more carbon—and more profit. The more money you make mining crypto, the more money you can make through buying parts.
The MiCA framework seeks to put a hard cap on how much an individual can mine.
Economical Concerns 💸️
Most laws drafted on the handling of currency have the same goal: Prevent that currency from being used in Ponzi schemes and market manipulation. The only difference between this law and an ordinary currency law is that the currency just so happens to not be printed by any EU government.
Other than that, the possibility of schemes is the same. Even greater in some cases; most people imagine cryptocurrency to work just like stocks. You make money from buying it when it is cheap and selling it when it is expensive, right? But that is not quite true for cryptocurrency (or stocks, actually).
What Schemes is Crypto Used In?
Because cryptocurrency can be traded for other currencies (or appreciate through methods like staking and yield farming), you can actually make quite a bit of money off of cryptocurrency without ever selling it. And further, most countries do not have laws on the books about how to represent crypto in sales.
In fact, most countries in the EU do not even have laws identifying cryptocurrencies as a security. That means sales tactics that would be securities fraud if you did them with a stock are technically not illegal if you do them with a cryptocurrency. “Not illegal” is different from “legal”, but it is still a problem.
MiCA is meant to address this by giving cryptocurrencies a secure definition in the European Union.
Criminal Concerns 🚔️
While this is somewhat a hot-button topic, one of the most well-known uses for the actual expenditure of cryptocurrency is through criminal enterprises. This is becoming less common as official avenues of crypto use open up. But until 2020 it was hard to find someone spending crypto on anything legal.
You would think that it would be easy to track crime through cryptocurrency because of this. After all, one of the things that gives crypto value is that every coin is tracked through the blockchain. But there are no laws compelling criminals to reveal the contents of their blockchain applications.
This is an oversight that the MiCA framework seeks to correct in two ways: One, the transfer of crypto to a known criminal, criminal organisation, or terrorist organisation will be declared a crime. And two, if crypto has been transferred to such a person or persons, it will be tracked by the presiding authority.
Of course, all of this is just the first vote. European Union parliamentary votes move slow, and this bill is moving even slower than normal. It has its first draft and has passed its first reading. That means it still needs to be assigned to a council in order to be edited and amended for flaws and oversights.
After that, it still has two more rounds of reading, council assignment, and rereading to go. If it fails at any one of those steps, it will have to be reconstructed from the ground up to be heard again.
Not everyone loves these crypto rules. But whether or not they are passed into law remains to be seen.