Cryptocurrencies continue to be one of the hottest topics and a constant source of debate. Much of the negativity that has surrounded the subject has stemmed from a lack of understanding of how digital currencies work, but substantial progress is being made. Countries around the world are rapidly developing their own legal framework to address the role cryptocurrency plays in a global economy, with more work still to be done. Jason Simon is a cryptocurrency and eCommerce specialist who has been following the activity closely. After recently discussing the overall global sentiment toward digital currency, he now takes a closer look at what the European Union (EU) is considering.
The EU was one of the first government bodies to take a significant step forward with cryptocurrency regulations. In 2016, it introduced a proposal meant to amend the Fourth Anti-Money Laundering Directive (AMLD) in order to include digital currency custodian wallets and exchange platforms under the guidance of the AMLD, clearing the way for the protection of cryptocurrency transactions and users. Explains Simon, “The proposal pointed out that cryptocurrency could be used as a form of payment, even though it wasn’t considered fiat currency. In 2018, the amendment was approved and the European Parliament adopted the text, effectively positioning the EU as a pioneer in the legitimization of cryptocurrency.”
In another example of the EU’s forward-thinking stance on cryptocurrency, even before it addressed the AMLD, the European Court of Justice ruled in 2015 that exchanging traditional currencies for cryptocurrencies, and vice versa, was to be considered a supply of services. Normally, these are required to be considered for a value-added-tax (VAT) as stipulated by the EU’s charter; however, buying and selling cryptocurrencies is exempt for all EU member states. Though cryptocurrency was created to work directly alongside fiat as another form of currency, defining trade transactions as a “service” was a step forward in recognizing Bitcoin and others for the capabilities they offer consumers.
When Bitcoin saw its major price breakout in 2017, increasing from under $1,000 to $20,000 in less than 12 months, a number of opportunities surfaced that allowed consumers to invest in cryptocurrency. They promised the same level of return would continue and plenty of them were nothing more than scams. The result was a push by certain regulators and government officials to reduce the level of attention focused on the ecosystem, warning of its high risks. Adds Simon, “Mario Draghi, former president of the European Central Bank (ECB) asserted in 2018 that investing in digital currencies was risky due to the high volatility and speculative prices. While there was some truth to the statement, there was no more risk to investing in cryptocurrency than there was in certain hedge funds. The only difference was the lack of widespread regulations that would have protected cryptocurrency investors.”
Since then, the sentiment has changed substantially and the ECB has become more involved in expanding the role cryptocurrency plays in finance. It has implemented a number of initiatives designed to explore how digital currency could interact with traditional financial alternatives and how obstacles could be addressed. In addition, the ECB’s new president, Christine Lagarde, has been somewhat more amenable to the introduction of a government-backed digital currency. Late last year, she asserted that the ECB “should be prepared to issue a digital euro” and, although still reluctant to accept Bitcoin, Ethereum and others as legitimate alternatives to fiat, realizes that digital currencies have a rightful place in finance.
Central bank digital currencies (CBDC) have already begun to see acceptance across the globe, with a number of countries developing their own versions. The same is expected out of the EU, and the CEO of cryptocurrency wallet and payments platform Zumo in the UK asserts, “This is an unstoppable trend. The key to the success of CBDCs is that they exist on the public blockchain so that there is interoperability between CBDCs and the potential to revolutionise cross border transactions isn’t lost.”