If GDPR is a defining moment in consumer data protection, MiCA may point to responsible crypto management
If GDPR is a defining moment in consumer data protection, MiCA may point to responsible crypto management
There has been a lot of noise over Finance Minister Nirmala Sitharaman’s reply to a question in Parliament recently about the Indian government’s stance on cryptocurrencies. Some headlines even went so far as to suggest that there was a new plan to ban crypto in India.
According to my reading, the finance minister’s reply only suggests that India’s central bank wants a ban on cryptocurrencies, but any law to “regulate or ban crypto” can only take effect after significant international cooperation .
an uninterrupted asset
this is true. Crypto is an internet-native asset that is not limited by geographic boundaries. To transfer crypto, one does not need a pipeline or shipping container. Requires a stable internet connection and some fundamental knowledge of crypto services that will allow to transfer crypto assets to anyone in the world.
Furthermore, crypto assets are not issued or controlled by any enterprise. There are currently over 19 million bitcoins in circulation, out of a total limited supply (hence, shortage) of 21 million bitcoins. Any one of the estimated 75 million crypto wallet holders can own these bitcoins, or fractions of them (called satoshis or sats).
How then can such uninterrupted financial assets be regulated? How can regulators monitor the flow of capital in and out of their jurisdiction? The answers to these questions will lead us to a framework for regulating the crypto industry. Fortunately, there is a global consensus on this aspect.
This June, amid all the attention on inflation and the associated capital market turmoil, the European Parliament and the Council, the EU’s legislative arm, came to a tentative agreement on the long-awaited rules on crypto, namely the regulation of the market. Crypto-Assets, or MiCA.
It took two years of brainstorming and negotiations to get Europe here. But before we analyze mica, it is important to understand why European regulations are remarkable.
In terms of the number of Internet users, the European market is economically second only to the United States and behind Asia. Nevertheless, Europe is the global benchmark on technology regulations. The General Data Protection Regulation, or GDPR, first published in 2016 and implemented in 2018, marked a turning point on consumer data protection and privacy, not only in Europe but around the world.
The GDPR introduced a framework for obtaining user consent and introduced several progressive rules such as the right to be forgotten. The Supreme Court of India has also held that the right to privacy is a fundamental right and an integral part of the right to life and liberty.
setting standards
Now, Europe is showing us the way to regulate crypto assets. So, how does the MiCA intend to regulate assets not limited by geography? It proposes to regulate crypto asset services and crypto asset issuers. By regulating these entities, Europe seeks to provide consumer protection, transparency and governance standards, regardless of the decentralized nature of the technology.
For example, under the MiCA, crypto asset service providers will be liable in case investors lose their assets, and will be subject to European market-abuse regulations, including market manipulation and insider trading.
Then, MiCA puts forward specific rules for stablecoins, properly demarcating them from other crypto assets. Under the proposed rules, issuers of stablecoins — asset-referenced tokens being the term it uses — are subject to greater levels of compliance and declaration. Under Mica, stablecoin issuers must maintain reserves to cover all claims for coins, and implement a process for immediate redemption when holders want it.
TeraUSD example
it’s important. The recent collapse of TeraUSD, an algorithmic stablecoin that did not have sufficient reserves and relied primarily on a demand-supply balance with its sister coin, Luna, caused significant losses to retail and institutional investors. If the laws proposed by Europe take effect, TeraUSD issuers would have to maintain a 1:1 reserve, which would prevent banks from roaming the crypto market.
To be clear, Europe still has some distance to go for these proposed rules to be implemented. But as GDPR did for data protection, Europe has led the way in regulating crypto that enables responsible businesses and protects users. It won’t be too long for other nations to follow suit.
Ashish Singhal is the co-founder and CEO of CoinSwitch