With an amendment to the Data Act, Europe wants to regulate smart contracts, while MP Stefan Berger points out that the amendment to the MiCA Act should not be misinterpreted as “a de facto ban on Bitcoin.”
The interest that has been awakened in society by the cryptocurrencies, and digital assets in recent years has seen the crypto industry face increased regulation globally. In Europe, lawmakers are aiming for greater control over PoW cryptocurrencies and smart contracts, with the introduction of two regulatory proposals that could undermine technological development and innovation in the region.
According to ChainalysisEurope is the largest crypto-economy in the world, recording a record volume of activity in cryptocurrency transactions and operations within the decentralized financial ecosystem DeFi in 2021. However, despite receiving more than $1 trillion in transactions, representing nearly ¼ of all the volume generated by cryptocurrencies globally last year, Europe wants to ban cryptocurrencies based on proof of work (Proof of Work – PoW), as Bitcoin, citing environmental concerns. In addition to this, it aims for greater control over smart contracts or smart contracts, undermining its decentralized and autonomous nature.
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Discussion on PoW cryptocurrencies
The European Commission has postponed the discussion on the amendment introduced by the European Parliament to the Markets in Crypto-Assets Act (MiCA), which seeks to prohibit the use and mining of PoW cryptocurrencies. Bitcoiners and the crypto community mobilized and spoke out on social media against this regulatory proposal, which could end up undermining technological development and innovation in Europe if approved, so the European Commission has decided to postpone its discussion, initially scheduled for this Monday 28th.
Patrick Hansen and Brian Brooks, the former acting comptroller of the currency in the United States, warned on Twitter about the consequences that would come with the approval of this proposal, which would make the use and mining of Bitcoin and other proof-of-work cryptocurrencies illegal in the 27 member countries of the European Union.
A few days later, German parliamentarian Stefan Berger, the lead rapporteur for the reform, announced that he had requested the cancellation of the debate in order to resume talks and seek a compromise that would provide an adequate legal framework for cryptoassets. Berger had said that the reform to the MiCA Act had a high probability of being approved. However, he noted that it is crucial that “Do not misinterpret this as a de facto ban on Bitcoin”.
European lawmakers have been pushing for a ban on cryptocurrencies like Bitcoin, saying they are environmentally unsustainable due to their energy consumption. In Sweden, the Financial Supervisory Authority and the Environmental Protection Agency in November pointed to the need to comply with the Paris Agreement as the main reason for banning Bitcoin use and mining in the region.
Smart contracts
The controversy in the crypto industry is not over. The European Commission has also introduced new rules to regulate smart contracts from the European Data Law. According to the proposal, to ensure the security and privacy of citizens' data in the European Union, smart contract developers will have to comply with new standards and regulations if the reform is approved.
The proposed regulation involves integrating a termination mechanism into smart contracts so that, in the event of an emergency, the contract can be stopped or shut down. Thibault Schrepel, an associate professor at Vrije University Amsterdam, said the reform would undermine the decentralized, autonomous and immutable nature of smart contracts. It would also force developers to redesign millions of smart contracts to comply with the regulation, if it is approved.
“The smart contract must include internal functions that can reset or instruct the contract to stop or interrupt the operation to prevent future (accidental) executions.”, states Article 30 of the proposal.
In 2019, the European Commission's Blockchain Observatory said that the nature and operation of smart contracts conflict with the current legal framework, by allowing operations in a decentralized, autonomous, immutable and anonymous manner.
Continue reading: The European Commission calls for stricter regulation of cryptocurrencies
