After a relatively quiet weekend in regards to cryptocurrency price action, we want to focus this week on the regulatory side of the cryptocurrency industry and how it continues to unfold in Europe.
Thanks to Russia’s invasion of Ukraine and the sanctions that Russia has received from around the globe, the possibility for Russia to use cryptocurrencies in order to circumvent sanctions became very real.
Speculation on how Russia may or may not deploy cryptocurrencies in their country has forced the hands of Western lawmakers in both Europe and the United States, as they had to address a handful of the questions in regards to the actual legality of cryptocurrencies and blockchain tech that have been ambiguous until now.
The Biden administration made it very clear that they are aiming to welcome innovation and research in the US crypto industry with Biden’s executive order on crypto on March 9th.
What’s Going on in Europe?
The European Union had a very hotly-contested vote on whether or not to limit Proof-of-Work mining (Bitcoin Mining) on March 14th, which was rejected as it was deemed that such a harsh regulation would stifle the potential for growth of the blockchain industry in Europe. The decision not to proceed with banning Proof-of-Work was lauded by cryptocurrency enthusiasts around the world, as they saw this as a defining moment in governmental adoption/allowance of the industry.
However, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) met last week to vote on another cornerstone aspect of the global cryptocurrency industry: Centralization vs. Decentralization.
Packaged as an Anti Money Laundering initiative, ECON approved changes to Europe’s Transfer of Funds Regulations to consider ‘unhosted’/decentralized wallets as unlawful for centralized exchanges to transact with. This means that centralized exchanges (e.g. Binance, Coinbase, etc.) will not be permitted to transact with any account/wallet that isn’t directly linked to an individual through identity verification.
This is a major distinction by the EU, as they are attempting to erase any potential for anonymity in blockchain and Web3, which goes against the very idea of decentralized cryptocurrencies. The EU’s proposal will require that cryptocurrency exchanges must receive KYC (Know Your Customer) information before being allowed to transact with a decentralized wallet.
A centralized cryptocurrency wallet is any wallet that is directly offered by a major exchange, while a decentralized wallet is typically an account that can be opened without providing personal identification.
So What’s The Fuss?
The biggest fear for the industry is that the EU will stifle growth by facilitating transactions for existing giants and exchanges while creating roadblocks for smaller and more innovative blockchain-based service providers.
The biggest fear for the average European citizen is that they will automatically be taxed on all transactions regardless of the type thanks to new reporting policies.
The biggest fear for cryptocurrency users and enthusiasts is that the EU is infringing on the privacy of potential crypto users in order to centralize and reign in the booming industry from the hands of the real builders/developers out there.
It is understandable that the EU wants to regulate the emerging crypto industry in order to protect investors and prevent financial crime, but the new reporting requirements for exchanges are overkill in the eyes of many.
What Does This Mean for the US?
At the moment, the only major reporting requirement for cryptocurrency exchanges operating in the US is that they must provide trade logs for their users to the IRS for tax purposes.
However, outside of tax implications, it appears that the US is treading lightly for the time being when it comes to passing new regulations regarding cryptocurrencies. US policymakers recognize the opportunity for major growth and innovation in the industry and want to make sure not to create barriers for either retail or institutional crypto stakeholders.
Some analysts fear that the US may likely follow in the EU’s footsteps when it comes to reigning in the anonymous side of the blockchain industry, but we’re not so sure.
Just look at the UK, who is no longer an EU member state thanks to Brexit. Today, the UK’s Finance Minister declared the country’s desire to invite and adopt crypto/blockchain innovation with the goal of turning the UK into a global fintech hub.
While the EU is regulating their own crypto industry into potential oblivion, other Western nations are remaining open-minded (at least for the time being).
The nuances of how the crypto/blockchain industry is regulated in the coming months and years will likely set precedents for decades to come, so it is important to pay attention now and make investment decisions only after you’ve gained a solid understanding of why the news we see on a daily basis matters.
**If we discussed a cryptocurrency that you would like to trade but isn’t offered on your current crypto exchange, please see coinmarketcap.com in order to view a profile on any tradable cryptocurrency, as well as a list of exchanges that do offer the coin for trading.**
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