EU Regulation of Crypto-Assets (MiCA): EU Parliament Publishes Report and Votes on “Proof of Work” in the Context of Sustainability
On March 23, 2022, the European Parliament published the text of a report adopted on March 14, 2022, by its Economic and Monetary Affairs Committee (ECON) on the European Commission’s proposal regarding the Markets in Crypto-assets (MiCA) Regulation (“Proposed Regulation”). MiCA is part of the European Commission’s Digital Finance Strategy.
The draft Proposed Regulation included three main elements for ensuring uniformity in regulating crypto-assets within the EU: first, having a uniform legal framework for crypto-assets; second, protecting consumers and safeguarding against market manipulation and financial crime; and finally, including crypto-assets mining within the EU taxonomy for sustainable activities.
Uniformity and Consumer Protection Elements Pass
The first two elements were passed and are now part of the latest version of the Proposed Regulation. First, the key provisions cover compliance with transparency, disclosure, authorization and supervision of transactions and follow a growing trend of regulatory oversight of crypto-assets around the world. This Proposed Regulation also would develop measures to combat money-laundering and terrorist financing. Second, the key provisions would create a framework to strengthen supervision to maintain consumer protection and market stability.
But Limitations Regarding “Proof of Work” Do Not Pass
The third element, regarding sustainability in the context of mining, was voted out of the Proposed Regulation. This element aimed to limit the use of “proof of work” regarding the mining of cryptocurrencies. This form of cryptographic proof may be considered by some to be potentially environmentally damaging, using a large amount of energy. The vice chair of the European Securities and Markets Authority (ESMA) called for a ban of “proof of work” in January 2022 due to environmental concerns. The latest version of the Proposed Regulation now excludes this potential limitation regarding the “proof of work.”
First, with many nations and regulators rushing to increase their supervision of crypto-assets and DLTs, close monitoring of the regulatory landscape remains essential, especially at the EU level and regarding the potential use of a regulatory passport. Second, environmental and sustainability concerns remain on the rise and may continue to play an important role in crypto regulation in the future and, moreover, in the context of ESG considerations.