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Talking with Eva Kaili, VP of the European Parliament, on MiCA regulation

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Talking with Eva Kaili, VP of the European Parliament, on MiCA regulation

In an article I wrote for Cointelegraph, I commented on how the European Union has moved forward to regulate the crypto-asset market through Markets in Crypto-Assets (MiCA) and Transfer of Funds Regulation (ToFR). With this subject as a background, I had the privilege of interviewing one of the people who knows the most about regulating new technologies: Eva Kaili, vice president of the European Parliament. She has been working hard on promoting innovation as a driving force for the establishment of the European Digital Single Market. 

Check out the interview below, which covered key points about MiCA, some proposed legislative provisions proving to be more controversial than others, such as decentralized finance (DeFi) remaining out of scope, rules administered through self-executing smart contracts (Lex Cryptographia), decentralized autonomous organizations (DAOs) and more.

1 — Your work in promoting innovation as a driving force for the establishment of the European Digital Single Market has been intense. You have been a rapporteur for several bills in the areas of blockchain technology, online platforms, Big Data, fintech, AI and cybersecurity. What are the main challenges legislators face when introducing bills involving new technologies?

Technology develops rapidly, and innovative solutions need some space to be tested and developed. Then, policymakers need some time to understand how these technologies have been shaped, consult with stakeholders, and measure the expected impact on traditional markets. So, the optimal way forward is not to immediately respond to any technological development with a legislative initiative but rather to provide time to the technology to develop and to the policymakers to educate themselves, comprehend the benefits and challenges of innovative technologies, digest how they are supposed to affect the current market architecture and, then, suggest a balanced, tech-neutral and forward-looking legislative framework. To this end, in Europe, we adopt a “wait and see” approach, which leads us to safely proceed by answering three fundamental questions: (1) how early should the technological development be regulated? (2) how much detail should the proposed regulation include? and (3) how broad should the scope be?

In this context, new challenges may arise, amongst which to decide whether to use old rules to new instruments or to create new rules to new instruments. The former is not always viable and may have unintended consequences to legal certainty as amendments or modifications may capture a complex legislative framework. On the other hand, the latter needs time, consultation with stakeholders, interinstitutional scrutiny and more. In any case, it should be duly considered that the answers to these questions determine the growth of the market, the time to reach this growth and the impact of the said regulation to other markets, as there is also a geopolitical dimension to be considered while regulating new technologies.

2 — In 2020, the European Commission launched a Digital Financial Package that has as its main objective to facilitate the competitiveness and innovation of the financial sector in the European Union (EU), establish Europe as a global standard setter, and provide consumer protection for digital finance and modern payments. What does a regulatory framework need to consider to be a competitive advantage in a given jurisdiction?

As I mentioned, today, it is more critical than ever to consider the global geopolitical dimension and effect of a prospective regulatory regime regarding new technologies. You see, in the new global digital economy, the concentration of technological capacity increases the competition between jurisdictions. For example, technological inter-dependences and dependences between the dominant market players, and the geographic regions they control, are evident in Asia, Europe and America. In this context, digital products and services translate to power, have strong geo-economic implications, and facilitate “digital imperialism” or “techno-nationalism.” Thus, any prospective regulatory framework should be seen as a source of national or jurisdictional competitive advantage, generating robust, innovation-friendly, risk-immune markets. It may attract human capital to sustain innovation and financial capital to fund innovation over time.

These principles were the main driving forces for the DLT Pilot Regime and the Markets in Crypto-Assets Regulations, as we succeeded two milestones: creating a first-ever pan- European sandbox to test DLT in traditional financial market infrastructures and the first concrete set of rules regarding crypto, spanning from crypto assets, including stablecoins, to issuers, market manipulation and beyond, setting the standards of what a crypto market regulatory approach should look like and creating a competitive advantage for the European single market.

3 — Blockchain’s initial reputation as an “enabling” technology for fraud, illicit payments from drug dealers and terrorists on the “dark web,” as well as “environmentally irresponsible,” has created many obstacles to any regulatory treatment of the technology. In 2018, when you participated on a panel on regulation at Blockchain Week in New York, only small jurisdictions such as Malta and Cyprus were experimenting with the technology and had legislative proposals to regulate the industry. At that time, ignorance of the technology led to many regulators claiming time and again that blockchain was just a trend. What made you realize that blockchain was much more than just the enabling technology for crypto-assets and crowdfunding tokens?

Early on, I realized that blockchain was the infrastructure for a wide range of applications that would transform market structures, business and operational models, and it would have strong macroeconomic effects. Today, while the technology is still evolving, it has already been perceived to be the backbone and the infrastructure of any IoT [Internet of Things] environment leveraging human-to-machine and machine-to-machine interactions. Its impact on the real economy is expected to be decisive, although it is not yet easy to predict in which way and under which conditions. Nonetheless, the rapid blockchain development has already forced both businesses and government leaders to reflect on (1) how the new marketplaces will look like in the coming years, (2) what would be the appropriate organizational setting in the New Economy, and (3) what kind of market structures should be formed in order, not only to survive the economic competition and stay technologically relevant but also to generate and sustain rates of inclusive growth proportional to the expectations of society. Critical to this end are both the European Blockchain Services Infrastructure projects and the European Blockchain Observatory and Forum initiative, which aim to give the EU a considerable first-mover advantage in the new digital economy by facilitating technological advancements and testing the blockchain convergence with other exponential technologies.

4 — On June 30, the European Union reached a tentative agreement on how to regulate the crypto industry in the bloc, giving the green light to MiCA, its main legislative proposal to regulate the crypto asset market. First introduced in 2020, MiCA has gone through several iterations, with some proposed legislative provisions proving more controversial than others, such as decentralized finance (DeFi) remaining out of scope. DeFi platforms, such as decentralized exchanges, by their nature, appear to be contrary to the fundamental principles of regulation. Is it possible to regulate DeFi at its current stage of development?

Indeed, the preliminary critique received from market participants, when the Markets in Crypto-Assets Regulation was presented back in September 2020, was that it excluded decentralized finance, which aims to decentralize financial services, making them independent from centralized financial institutions. However, as DeFi, ideally, runs with smart contracts in decentralized autonomous organizational architectures leveraging decentralized applications (DApps) with no entity to be identified, it could not be appropriately accommodated in the Markets in Crypto-Assets Regulation, which is explicitly addressing blockchain financial services providers that are, or need to be, legally established entities, supervised on whether they comply with specific requirements as regards to risk management, investor protection and market integrity, thus liable in case of failure, within a clear and transparent legal context.

DeFi, by design, lacks the characteristics of an “entity” at least in the way we are used to. Hence, in this decentralized environment, we need to rethink our approach as regards to what would constitute “the entity” that would bear the liability in case of misconduct. Could it be replaced with a network of pseudonymous actors? Why not? However, pseudonymity is not compatible with our legal and regulatory tradition. At least not so far. No matter what is the architecture, the design, the process and the characteristics of a product or service, everything and always should end up to a responsible person(or persons). I would say that the DeFi case reflects exactly the problem of lacking who to blame. So, decentralization seems much more challenging for policymakers.

5 — The European Union’s movement to regulate the crypto and blockchain industry started long before MiCA. On Oct. 3, 2018, the European Parliament voted, with an unprecedented majority and the support of all European parties, its “Blockchain Resolution.” How important is this resolution from a political economy perspective? How was the passing of the Blockchain Resolution instrumental in leading the European Union to take a regulatory lead?

The European Parliament’s Blockchain Resolution of 2018 reflected the views of how to approach, from a regulatory point of view, a technology which was (and is) still evolving. The main argument for the resolution was that blockchain is not just the enabling technology for cryptocurrencies and crowdfunding tokens but the infrastructure for a wide range of applications necessary for Europe to stay competitive in the New Economy. Based on this, the Committee of Industry (ITRE) of the European Parliament authorized the drafting of the resolution: “Distributed Ledger Technologies and Blockchain: Building Trust With Disintermediation.” And this was my part of political entrepreneurship that I felt I had to take on to unlock the demand for a regulation and trigger EU institutions to think of the prospect of regulating the uses of blockchain technology. So, when drafting the resolution, I was not merely aiming to create a basis of legal certainty but rather institutional certainty that would allow blockchain to flourish within the EU single market, facilitate the creation of blockchain marketplaces, make Europe the best place in the world for blockchain businesses, and make the EU legislation a role model for other jurisdictions. Indeed, the Blockchain Resolution triggered the European Commission to draft the DLT Pilot Regime and the Markets in Crypto-Assets proposals, reflecting the principles of technological neutrality and the associated concept of business model neutrality necessary to facilitate the uptake of a digital technology of critical strategic importance.

6 — There are different blockchain architectures, especially those based on permissionless blockchains, which provide not only disintermediation but also decentralized governance structures with automation properties. As these structures advance, do you believe that in the future, there will be room for “Lex Cryptographia” — rules administered through self-executing smart contracts and decentralized autonomous organizations (DAOs)? And if so, what principles or guidelines should regulators take into consideration in this case?

The continuing technological advancements and the prospect of a decentralized global economy operating in real-time utilizing quantum technology, artificial intelligence and machine learning along with blockchain technology will soon lead to the development of “Lex Cryptographia,” as code-based systems will seem to be the most appropriate way forward to enact law effectively in this new environment. However, this would not be an easy task for politicians, policymakers and society at large.

Critical questions would need to be answered at the code level while navigating the “Lex Cryptographia” space: What would such a system be programmed to do? What kinds of information will it receive and verify and how? How frequently? How will those who maintain the network be rewarded for their efforts? Who will guarantee that the system would operate as planned when the regulation will be baked into the architecture of such a system?

The prospect of “Lex Cryptographia” requires us to widen our understanding of what would actually constitute a “good regulation” in this case. And this is a challenge for every jurisdiction in the world. I would say that a way forward would be to leverage, once more, on “sandboxing” — as we did with the DLT Pilot Regime — and create a solid yet agile space that will allow both innovators and regulators to share knowledge and gain the necessary understanding that will inform the future legal framework.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Tatiana Revoredo is a founding member of the Oxford Blockchain Foundation and is a strategist in blockchain at Saïd Business School at the University of Oxford. Additionally, she is an expert in blockchain business applications at the Massachusetts Institute of Technology and is the chief strategy officer of The Global Strategy. Tatiana has been invited by the European Parliament to the Intercontinental Blockchain Conference and was invited by the Brazilian parliament to the public hearing on Bill 2303/2015. She is the author of two books: Blockchain: Tudo O Que Você Precisa Saber and Cryptocurrencies in the International Scenario: What Is the Position of Central Banks, Governments and Authorities About Cryptocurrencies?

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California fraud cases highlight the need for a regulatory crackdown on crypto

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California fraud cases highlight the need for a regulatory crackdown on crypto

The California Department of Financial Protection and Innovation (DFPI) announced last month that it had issued desist and refrain orders to 11 entities for violating California securities laws. Some of the highlights included allegations that they offered unqualified securities as well as material misrepresentations and omissions to investors.

These violations should remind us that while crypto is a unique and exciting industry for the public at large, it is still an area that is rife with the potential for bad players and fraud. To date, government crypto regulation has been minimal at best, with a distinct lack of action. Whether you are a full-time professional investor or just a casual fan who wants to be involved, you need to be absolutely sure of what you are getting into before getting involved in any crypto opportunity.

California has toyed with setting up a crypto-specific business registration process for those looking to do business in the state. The proposed framework was vetoed by Governor Gavin Newsom as the resources required to establish and enforce such a framework would be prohibitive for the state. While this type of compliance infrastructure has not been employed yet, it points to concerns that regulatory authorities have related to the crypto industry.

There appears to be a pattern that new industries, especially those that garner as much international attention as crypto, are especially susceptible to fraud. One must go only as far back as cannabis legalization to find the last time California had to deal with fraudulent schemes at this scale.

Related: The feds are coming for the metaverse — from Axie Infinity to Bored Apes

It appears inevitable that California, known to be a first mover in regulation and compliance, will create some form of crypto-specific compliance infrastructure in the name of consumer protection. If history is any indication, once California releases its framework, other states will follow.

Federal and state representatives have been attempting to draft legislation to establish financial standards for crypto with little luck to date. At the federal level, Senators Cory Booker, John Thune, Debbie Stabenow and John Boozman co-sponsored a bill to empower the Commodities Futures Trading Commission (CFTC) to serve as the regulatory body for crypto, while Senators Kirsten Gillibrand and Cynthia Lummis co-sponsored a bill to establish more clear guidance on digital assets and virtual currencies. Lawmakers have even reached out to tech luminaries such as Mark Zuckerberg to weigh in on crypto fraud.

Cryptocurrencies, California, CFTC, Legislation, Law, Scams, Fraud, Bitcoin Scams
Source: Chainalysis

None of these or other similarly crypto-focused bills are expected to pass in 2022, but this level of bipartisan cooperation has been unprecedented in recent times. The collaboration should reflect just the sheer magnitude of the need for a regulatory framework. Said another way, Democrats and Republicans speaking to one another about anything should stop the presses, but the fact that they are co-sponsoring multiple bills should tell us that there is a monumental requirement for guidance.

How should one approach investing in the crypto space if the government is not going to establish controls for crypto? There are a few general points that one should consider if they are presented with a crypto investment opportunity.

Related: GameFi developers could be facing big fines and hard time

When reviewing any opportunity, do your due diligence! Do not take anyone’s word without some level of substantive support. If crypto is not an area of expertise, reach out to professionals who do have qualified experience. Make sure to utilize crypto monitoring and blockchain analysis tools, if possible, as part of the vetting process.

A common strategy of fraudsters is putting undue pressure or artificial timelines on a potential close. Slow down the process and use any and all time necessary to make an investment decision.

If it sounds too good to be true, it probably is. As overplayed as the cliché may be, it does bring up a valid point. There have been instances of schemes offering to pay initial and ongoing dividends for any new investors that are brought in and for additional dividends to be paid from any investors that those new investors bring in. If this sounds like a pyramid or multi-level marketing scheme, that’s because it is. Terms like “No Risk Investment” get thrown around as well. Ultimately, if no one knows where the opportunity is coming from, beware.

While crypto can be a fun and electrifying topic with many legitimate opportunities, there are bad players who will take advantage of the lack of government oversight and the excitement of overenthusiastic or undereducated investors.

Zach Gordon is a certified public accountant (CPA) and vice president of crypto accounting for Propeller Industries, serving as fractional chief financial officer and adviser to a portfolio of crypto and Web3 clients. He has been named a Forty Under 40 CPA, sits on the Digital Assets Committee for the NYSSCPA and has been working with crypto clients in a variety of capacities since 2016.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

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NFT space bridges passions for tennis legend Maria Sharapova

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NFT space bridges passions for tennis legend Maria Sharapova

Tennis legend Maria Sharapova appeared at the Binance Blockchain Week Paris 2022 to share her interest in nonfungible tokens (NFTs).

During an exclusive interview with Cointelegraph, Sharapova mentioned that “she is exposing herself to this new world of crypto and Web3,” noting that the sector will help her better engage with her fans. Sharapova was also one of the strategic investors behind MoonPay’s Series A financing round, yet she mentioned that she aims to bridge her personal experiences to the digital world moving forward.

Maria Sharapova (right) with Cointelegraph senior reporter Rachel Wolfson (left) at Binance Blockchain Week Paris 2022. Source: Rachel Wolfson

Cointelegraph: What are you doing here today at Binance Blockchain Week Paris?

Maria Sharapova: I’m crypto curious and would like to figure out how to bridge the incredible physical experiences that I’ve been able to have with my fans over so many years. I’m now finding ways to include experiences in the digital world, so that’s what I’m most excited about. Also, as a female entrepreneur, I believe it’s important to pave the way for other women to enter Web3. Money is a topic that I feel we don’t speak enough about as women.

CT: Do you have plans to launch an NFT project?

MS: I’ve been looking at this space for several months now, as I’m someone who is more in favor of opportunities for the long haul. When I saw the opportunity to bridge physical with digital experiences, I knew I wanted it to be a long-term experience for myself. Storytelling is very important and it’s a huge component of Web3. I think stories will be told better for both parties when thinking about a project long-term.

Recent: The Caribbean is pioneering CBDCs with mixed results amid banking difficulties

CT: Do you think NFTs can help create better fan engagement?

MS: Absolutely. NFTs are about finding ways to communicate with the right communities interested in what I’m doing within a different type of space. For example, I was seen on a television screen every week playing tennis for so many years, yet I no longer have that platform on a daily basis because I retired a couple of years ago. The Web3 experience has given me access to my fans in entirely new ways. I feel like I’m more engaged with them, as opposed to them just being engaged by watching me compete.

CT: As a female entrepreneur and former athlete, do you have plans to get more women involved in Web3?

MS: I want to allow women to have a space where they experiment with Web3. For example, I was 17 when I won my first grand slam and social media was in no way part of that experience. It took years for me to get comfortable with social media over time. I think Web3 is also an area where one has to get out there in order to learn and grow from it. As I mentioned earlier, the conversation about money, finance, crypto and blockchain is a taboo conversation. People may feel that unless they know about these topics, they shouldn’t speak up. But I think this should be the other way around — you learn a lot more if you ask questions and get involved.

CT: Why did you decide to invest in MoonPay?

MS: I want to diversify my portfolio. In the beginning, my investments were around consumer goods. For example, I invested in the sunscreen brand Supergoop early on. I am now exposing myself to an entirely new category.

CT: What do you think are the biggest challenges associated with Web3 and how can we overcome these?

MS: I’d love to see the quality of Web3 experiences come through a bit more and improve, specifically in the digital space.

Recent: Are decentralized digital identities the future or just a niche use case?

CT: Any additional comments?

MS: I’m really interested in the NFT space because it bridges my passion for fashion, interior design and creating spaces that are unique to individuals and communities. I’ve become more interested in this space because it has more of a design perspective. It’s also an entirely new revenue stream that both artists and women are discovering.

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Bill Aims to Limit Crypto Mining in Kazakhstan Only to Registered Companies

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Bill Aims to Limit Crypto Mining in Kazakhstan Only to Registered Companies

Bill Aims to Limit Crypto Mining in Kazakhstan Only to Registered Companies

New legislation proposed in the parliament of Kazakhstan will allow only authorized miners to mint digital currency, if adopted. The draft has been designed to comprehensively regulate the industry and reduce what its sponsors label as uncontrolled consumption of electricity in the sector.

Lawmakers in Kazakhstan Submit Crypto Mining Law, Seek to Curb ‘Gray’ Mining

Members of the Mazhilis, the lower house of Kazakhstan’s parliament, have put forward a new bill introducing rules for the extraction of cryptocurrencies in the country. Under its provisions, only companies registered at the Astana International Financial Center (AIFC) or non-resident entities that have agreements with licensed data centers, will be permitted to mine digital coins.

Kazakhstan became a magnet for crypto miners following China’s crackdown on the industry and the influx of mining businesses has caused a growing power deficit. AIFC, the Central Asian nation’s financial hub, is in the focus of government efforts to place the country’s growing crypto sector under oversight. Earlier this year, exchanges registered there were allowed to open accounts with local banks.

The current procedure for notifying authorities of mining activities is voluntary, the crypto news outlet Forklog noted in a report on the legislative attempt. The process is regulated by an order issued by the minister of digital development. Only a third of all mining companies operating in Kazakhstan have registered, Member of Parliament Ekaterina Smyshlyaeva revealed.

“The uncontrolled use of electricity by ‘gray’ miners poses a threat to the energy security of Kazakhstan,” the lawmaker insisted. Smyshlyaeva added that the current legislation does not regulate the mechanism for the sale of the mined cryptocurrency or the role of local financial service providers and the circulation of digital assets. “The procedure for their production and the establishment of property rights to them are regulated only at sub-legislative level,” she explained.

According to Kazakhstan’s State Revenue Committee, the contributions of crypto mining entities to the state budget reached $1.5 million in the first quarter of 2022. In July, President Kassym-Jomart Tokayev signed into law a bill amending the country’s Tax Code to impose higher tax rates on crypto miners. The levies now depend on the amount and average price of electricity consumed for the minting of bitcoin and other cryptocurrencies.

Do you expect the new law to reduce the number of entities authorized to mine cryptocurrencies in Kazakhstan? Tell us in the comments section below.

Lubomir Tassev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.

Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

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