Facebook's decision to enter into the realm of financial services spurred lawmakers around the world into action, necessitating a discussion of EU and US crypto regulations, which are very different from each other.
Following the announcement by social media giant Facebook that it plans to launch its own cryptocurrency by 2020, U.S. President Donald Trump felt compelled to voice his feelings regarding Bitcoin and cryptocurrencies.
In a recent tweet, the president said he is "not a fan of Bitcoin" and that its value is "based on thin air". Continuing, he stated that if big tech companies like Facebook wish to launch cryptocurrencies they must first follow proper regulations to "become a bank." Initially, the cryptocurrency market was not negatively affected by the news but further comments from U.S. Federal Reserve Chairman Jerome Powell resulted in a 10 percent loss on the markets.
The comments and ensuing furor within the cryptocurrency community highlight the stark differences between cryptocurrency regulations in the European Union and the United States.
Different methods of interpreting the law
The main difference stems from the legislation that is already in place in the two markets. The EU's relatively new and far more complex system requires a decision process that encompasses several sovereign nation-states, whereas the U.S. benefits from pre-ordained legislation going back centuries that clearly defines the process between state and federal decision making.
Due to the U.S. operating on a 'common law' system, cases are dealt with independently and often rely heavily on a final ruling from a single judge. For this reason, many small crypto-related projects have received penalties from the U.S. Securities and Exchange Commission (SEC) over the years for not properly following regulatory measures.
In the EU, no such fines have been imposed as the process of developing a regulatory framework must be established first - and that could take years. In the meantime, rather than simply issue fines, the EU is providing constructive advice to banks and financial institutions on how best to deal with cryptocurrencies.
"The European Commission and European parliament have set up the EU blockchain observatory and Forum to map the blockchain initiatives going on in Europe and to gather inputs for the European Commission on regulatory issues like smart contracts, ICOs, and secondary markets", said Peteris Zilgalvis, head of startups and innovation at the European Commission, in an interview with Forbes magazine last year."
EU Regulations Viewed More Favorably
Alex Alexandrov is the CEO of Coinpayments, one of the largest and most diverse crypto payment platforms available today, and founder of the Velas AI-enhanced blockchain network. He believes the EU provides a better regulatory environment for cryptocurrencies.
"EU, in my opinion, is farther ahead in crypto laws and has created a much better environment for banking and regulations. USA tends to focus more on punishment vs guidelines, while the EU is working toward allowing businesses to feel they are wanted and working with new industries in a much clearer way," he says
Most recently, the EU nation of France has begun to improve its regulatory environment with the approval of several crypto-related projects by its financial watchdog the Financial Markets Authority. “We are in talks with three or four candidates for initial coin offerings”, said FMA executive director of legal affairs Anne Marechal, speaking to Reuters. “We will have a legal, tax and regulatory framework.”
The move aligns it more closely with other crypto-positive European nations like Switzerland and Malta, both of which have been key in helping to promoting blockchain technology in the EU. These benefits prompted Alexandrov to base his new blockchain venture, Velas, in the Swiss canton of Zug - often referred to as 'Crypto Valley'.
"This is one of the reasons why my newest venture Velas or Virtual Expanding Learning Autonomous System, is based in Zug, Switzerland," he said, although he admits that the U.S. does lead the sector in technological development. “USA still harbors tremendous talent and is generally on the cutting edge when it comes to innovation in the tech space."
While a positive attitude towards growing and developing the industry is necessary, proper regulations are also required in order to ensure the safety of customers. Currently, blockchain companies can operate largely without restriction in the EU and elsewhere, often putting consumers at significant financial risk.
Facebook's decision to launch a cryptocurrency attracted understandable concern due to the company’s prior bad record in securing customer data. With a user base of its size, systemic failures could result in drastic knock-on effects for the global economy. As the crypto space grows and develops, government agencies need to work alongside blockchain firms in order to establish a safe working environment for all.
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