The EU leads in blockchain regulation
Blockchain is drawing government scrutiny around the world as regulators seek to crack down on fraudsters, limit its environmental impact and protect investors and enthusiasts from the technology’s potential downsides. The EU and the US currently take the lead in blockchain regulation, although other countries, such as China, have taken the easier step of banning it entirely.
However, this relatively new technology will require a careful hand when it comes to regulation. Overly onerous restrictions can limit potential economic benefits, while a laissez-faire approach can enable fraud, money laundering and worse. This month, PYMNTS examines how the US and EU thread this needle in their current and evolving blockchain regulations.
United States executive action kicking blockchain regulation in high gear.
Until now, cryptocurrency oversight was primarily based on the Securities and Exchange Commission’s (SEC’s) interpretation and enforcement of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act and Investment Advisers Act of 1940. In most cases, cryptocurrencies are. have been considered securities, and cryptocurrency exchanges and issuers are required to register and disclose market activities to federal regulators in the same manner as other investments under the SEC’s supervision.
The President Joe Biden administration is looking at further cryptocurrency regulation, but the most pressing issue is the clarification of whether cryptocurrencies should be defined as securities or commodities. Classifying them as securities would continue their current jurisdiction under the SEC, but a new congressional bill would change their classification to commodities, placing cryptos under the control of the Commodity Futures Trading Commission (CFTC) instead. However, both the SEC and CFTC chiefs acknowledged that not all cryptocurrencies are created equal, and a case-by-case analysis may be necessary.
Placing cryptocurrency oversight under CFTC control would be a game-changer, as industry players see the agency as a more crypto-friendly regulator than the SEC and more willing to issue new regulations. Still, if the CFTC were to gain new powers to regulate crypto, it would likely consider new fees on crypto industry players to pay for the enforcement of new regulations, since the agency is much smaller than the SEC.
The EU focuses on the blockchain’s environmental concerns.
The European Parliament’s Committee on Economic and Monetary Affairs recently approved the Markets in Crypto-Assets regulation, which requires crypto-asset service providers to disclose their total energy consumption. While it does not specifically mandate cryptocurrency companies to reduce their carbon footprints, the hope is that these providers will voluntarily become more energy efficient under public pressure.
This energy-focused regulation follows initiatives in other parts of the world to limit cryptocurrency mining due to environmental concerns. China, for example, banned cryptocurrency transactions altogether, and the state of New York passed a moratorium on cryptocurrency mining and started a study on the harm of proof-of-work (PoW) mining. Some cryptocurrencies, such as Ethereum, are already moving to a proof-of-stake (PoS) technique to mitigate these damages.
