The European Greens in the European Parliament support legislation to impose order on the world of decentralized finance, especially cryptocurrency, which is seen by many as a digital “wild west”. Cryptocurrency transactions involve no central banking authority, are supported by no government, and assets can be bought and sold anonymously.
Green politicians support moves by the European Union to regulate the world of cryptocurrency and push for further measures to impose some control on the markets for other digital assets.
What is Cryptocurrency?
Cryptocurrencies, such as Bitcoin and Ethereum, are digital assets that share the same underlying structure, a blockchain that records all transactions and confirms ownership. The blockchain is a decentralized ledger that can be viewed by anyone and cannot be changed.
Digital transactions are packaged into “blocks” which are “chained” together, allowing an audit of prior history. This enables the verification of any transaction as well as confirmation of ownership of digital assets.
Individuals trade with each other directly. There are no intermediaries, and no associated delays, fees and barriers to access. There is no regulation by a centralized authority such as a bank and no government support.
Cryptocurrency is seen as the future of currency as it solves problems in traditional centralized finance. It also allows anyone anywhere in the world to have equal access to money and without delay, banking fees or permission from any governing authority.
Problems with Cryptocurrency
While cryptocurrency responds to problems in the traditional world of finance, it also raises new concerns regarding consumer protection, money laundering and also the impact on the environment.
Cryptocurrency is a high risk investment. The size and volatility of the market can be seen in the recent collapse, with the total value of cryptocurrencies falling from 3 trillion $US in 2021 to under 900 billion $US today.
The lack of regulatory oversight can encourage market manipulation and fraud. The value of cryptocurrencies is determined by speculation and is not tied to anything tangible, as the American Dollar was once based on gold and is now linked to the American economy. This makes it difficult to find stable patterns for investing and the small investor is most at risk.
Furthermore, the anonymity of transactions and the opportunity for multiple related transactions, or layering, facilitates money laundering, to hide the origins of ill gotten gains.
Finally, there are environmental concerns as the infrastructure to support cryptocurrencies requires a large amount of electricity for its computing power.
Planned and Proposed Legislation
The European Parliament has recently agreed on new measures known as the Markets in Crypto Assets Regulation (MiCA). Expected to become law at the end of 2023, these measures would impose new identity checks to combat money laundering, controls to prevent market manipulation and abuse, and also disclosure of energy consumption.
This would be the first comprehensive regime governing crypto assets and a significant benchmark for consideration in other jurisdictions, like the US and the UK.
European Greens support this initiative and want to take these measures a step further. Green Members of the European Parliament from Spain, like Ernest Urtasun, and Denmark, like Kira Marie Peter-Hansen, have proposed regulating the world of non-fungible tokens (NFTs). NFTs show ownership of other digital assets, which could be pieces of art, videos or music.
Under their proposal, anyone acting as an intermediary in the trading of digital assets that represent proof of ownership of artworks or collectibles would be covered by EU anti-money laundering legislation. This would require them to identify new customers and investigate suspicious transactions.
However, the Greens have failed to gain wide support for their proposal as the European Commission wants to leave more detailed anti-money laundering procedures for a wider overhaul that covers all financial sectors including traditional banking.