MiCA: The regulation that could put an end to the Crypto Far West in Europe

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The MiCA Regulation (Market in Crypto-Assets) will enter into force twenty days after its publication in the Official Journal of the European Union, which is scheduled for June 2023. This regulation introduces a comprehensive legal framework that harmonizes regulatory requirements for crypto-asset services throughout Europe. In particular, it establishes uniform rules for the issuance and trading of crypto-assets, the authorization and supervision of crypto-asset service providers and token issuers with reference to ART (Asset-referenced token) and e-money (Electronic money token), consumer protection for the issuance, trading, exchange, and custody of crypto-assets, and the prevention of market abuse and the guarantee of the integrity of the crypto-asset markets.

The #MiCA covers crypto-assets that are not regulated by existing financial services legislation. The main provisions for those who issue and trade crypto-assets concern transparency, disclosure, authorization, and supervision of transactions. Consumers will therefore be properly informed about the risks, costs, and charges associated with their operations. Furthermore, the new legal framework will support market integrity and financial stability by regulating public offerings of crypto-assets.

The agreed text includes measures against market manipulation and to prevent money laundering, terrorist financing, and other criminal activities (AML). To counter the risks of money laundering, the European Securities and Markets Authority (ESMA) will establish a public register for non-compliant crypto-asset service providers operating within the European Community without the necessary authorization.

The MiCA aims to put an end to Crypto Far West in Europe, where the crypto-asset market has so far operated in a fragmented and often unregulated manner with no guarantees for investors. Thanks to the new legal framework, sector operators will be able to provide crypto-asset-related financial services throughout the European Union in a more uniform and transparent manner, with the guarantee for investors to operate in a regulated market controlled by competent authorities.

In other terms

MiCA or MiCAR (Market in Crypto-Assets Regulation) is the EU's first legislative act for tracking the transfers of crypto-assets, which was approved by the European Parliament with 529 votes in favor, 29 against, and 14 abstentions. The final text, agreed upon by the Parliament and the European Council in June 2022, introduces a comprehensive legal framework for crypto-assets throughout Europe that harmonizes regulatory requirements for crypto-asset services. The MiCA will enter into force twenty days after its publication in the Official Journal of the European Union, which is scheduled for June 2023.

The main provisions of MiCA concern transparency, disclosure, authorization, and supervision of crypto-asset transactions and will apply to crypto-assets not regulated by existing financial services legislation. The regulation establishes uniform rules for the issuance and trading of crypto-assets, the authorization and supervision of crypto-asset service providers and token issuers with reference to ART (Asset-referenced token) and e-money (Electronic money token), consumer protection for the issuance, trading, exchange, and custody of crypto-assets, the prevention of market abuse, and the guarantee of the integrity of the crypto-asset markets.

MiCA also introduces rules regarding TFR (Transfer of Funds) that will also apply to crypto-asset transfers. Specifically, information about the source of the asset and its beneficiary ("KYC"-Know Your Customer) must "travel" with the transaction and be retained by both parties.

The new legal framework will support market integrity and financial stability by regulating public offerings of crypto-assets, preventing market manipulation, and combating money laundering, terrorist financing, and other criminal activities.

Technical glossary:

AML (Anti-Money Laundering): measures to prevent money laundering, i.e., the process of transforming illegal money into legal money.
Algorithms: are sequences of logical and mathematical instructions used to solve problems or perform certain operations within a computer system.
ART (Asset-referenced token): a crypto token that represents a real-world asset, such as a commodity, a currency, or a stock, and that is linked to the value of the underlying asset.
Blockchain: A blockchain is a decentralized and distributed digital ledger that contains transactions. Each transaction is verified and validated by the network of nodes in the blockchain.
Consensus: Consensus refers to the process by which the nodes in a blockchain network reach agreement on the validity of transactions.
Cryptocurrency: A cryptocurrency is a form of digital money that uses cryptography to ensure the security of transactions and to control the creation of new units of currency.
Crypto-assets: digital representations of value that use cryptography to ensure security and immunity to fraud.
DEFi (Decentralized Finance): a term used in the cryptocurrency world to describe a set of decentralized financial applications built on blockchain technology. These applications seek to replace traditional financial institutions such as central banks, stock exchanges, and financial intermediaries, allowing users to access more open and decentralized financial services. Some examples of DEFi applications include decentralized exchanges, peer-to-peer lending and borrowing, mutual funds, and blockchain-based insurance.
EMT (Electronic money token): a crypto token used as a means of payment and that has a value equivalent to traditional currency.
Hash: A hash is a cryptographic function used to convert variable-length data into a fixed-length string.
ESMA: The European Securities and Markets Authority (ESMA) is a European Union agency tasked with protecting investors and ensuring the proper functioning of financial markets in the European Union.
KYC (Know Your Customer): a process by which companies verify the identity of their customers to comply with anti-money laundering and counter-terrorism regulations. The KYC process usually requires customers to provide personal information such as full name, address, date of birth, and personal identification number. This information is then verified by the company using public or private databases. The KYC process is aimed at reducing the risk of fraud and money laundering in financial transactions.
MiCA (Market in Crypto-Assets): European Regulation for digital assets that establishes a comprehensive legal framework for the issuance and trading of crypto-assets, the authorization and supervision of crypto-asset service providers and token issuers, consumer protection, and the prevention of market abuse.
Mining: Mining is the process by which new blocks are created within a blockchain.
Minting: the process of creating new tokens within a blockchain system.
NFT: Non-Fungible Token, is a type of cryptographic token that represents a unique and irreplaceable digital asset, such as a digital artwork, a video, or a music track.
Peer-to-peer (P2P): a communication and information exchange model between computers or devices, in which each node can act as both a client and a server, without the need for a central server. In other words, each device connected to the P2P network can share and access resources (such as files or data) directly with other devices on the same network, without having to go through a centralized infrastructure.
Peer-to-peer (P2P) cryptocurrencies refer specifically to the direct transfer of digital funds from one user to another without the involvement of a centralized entity such as a bank or financial institution. This is made possible through blockchain technology, which allows for the verification and validation of transactions through the participation of numerous network nodes.
Proof-of-stake is an alternative consensus algorithm to proof-of-work, where instead of solving complex mathematical problems, participants in the system stake a certain amount of cryptocurrency as a guarantee for transaction validity.
Proof-of-work is a consensus algorithm used by cryptocurrencies to ensure the security and immutability of transactions recorded within a blockchain.
Smart contracts are digital contracts that are executed automatically based on pre-programmed rules and conditions.
Stablecoins are a form of cryptocurrency designed to maintain a stable value, typically anchored to a traditional currency or another stable asset such as gold. They are used as a form of payment and stored as a store of value like a cryptocurrency, but with less volatility than other cryptocurrencies.
Transfer of funds, also known as "wire transfers" or "bank transfers," is the transfer of money from one bank account to another through a network of financial services such as banks, credit card companies, and online payment services.