On EU Approval of MiCA and Transfer of Funds Regulations
Note: I am no expert in this field and am therefore very open to corrections to any of the claims made in this article about the new EU crypto regulations. I have, for example, read mixed information about whether the regulations are meant for stable coins, not regular crypto coins, and would like to learn more about this. Please use the links at the bottom of the article to get in touch with any corrections or amendments.
Last week, the EU Parliament approved both the 'Markets in Crypto Assets' (MiCA) and Transfer of Funds regulations. While these regulations may pave the way for finance, they are detrimental to privacy.
This blog is about retracing the steps I've taken towards privacy using digital tools. I usually don't comment on current events. But the news from the EU this month seems significant enough to justify doing so now.
My main concern, based on what I've read and understood thusfar, is:
Where is the discussion about user data and state or company surveillance?
One EU politician who has voiced strong criticism on this ruling. I'll get to him later. But first, I'll summarise what I've learned so far and pose the questions I have, specifically as someone who owns and mines Monero (XMR).
What I am learning
There are in fact two new regulations that were approved by the EU Parliament last week, on Thursday 20 April 2023:
- MiCA (Markets in Crypto Assets) regulations
- Transfer of Funds regulations
The process for turning these proposals into law is as follows:
Proposal and revisions (2020) --> EU Parliament vote (20 April 2023) --> EU Council approves (likely June 2023) --> publication of text in EU's 'official journal' --> regulations go into effect 12 months later in 2024.
The regulations are intended to help defend the Euro against the success of stable coins tied to USD. They are also an attempt to limit money laundering. I'm reading they should help limit the financial risk for the client or consumer, putting more of the burden of such risk on the crypto companies and exchanges themselves. The regulations should provide transparency, making crypto less of a 'wild west' for newcomers. Finally, these new regulations should make it easier for crypto companies to set up shop in the EU, as they will only have to apply to one set of regulations, rather do so with every EU nation.
With last week's vote, the EU has jumped the gun on any attempts to solidify shared global agreements for the regulation of crypto currencies. Similar to GDPR, another EU initiative, other countries may "copy the EU's homework," if it turns out these regulations work.
But, while MiCA impacts all member states, the EU cannot enforce individual EU countries to turn the new regulations into national law.
Rhetoric
There is a lot of enthusiasm for these regulations amongst influencers and experts in the field. Here are some words and phrases I noted down as I did my research this week:
- landmark vote!
- at the forefront of token economy!
- not stifling!
- not anti-innovation!
- world first!
- protecting consumers!
- safeguarding financial stability!
- market integrity!
- clarity for the crypto industry!
- comprehensive regulatory framework for crypto in Europe!
- and a lot of If only this could happen in the US!
In discussions, the approval by the EU is also constantly framed in contrast to the lack of crypto regulation in the United States. Sam Bankman-Fried's FTX exchange's collapse is often mentioned. The EU is depicted as the smarter older sibling to the US in innovation, with the US constantly playing catch-up on regulations of new digital innovation, including GDPR.1
Concerns
My main concern is:
Where is the rational debate? Where are the critical, skeptical voices?
And also:
How will the Transfer of Funds regulations impact the individual user?
The enthusiasm seems driven by people in the crypto communities with their sights on making money, and by big companies that already know how to apply for these new regulations and will benefit right away. There is no focus in the discussion on the function of crypto currency as a form of digital cash.
This is where Monero comes into play. In my account of the steps I have taken, I have not yet come to the point when I learned about Monero, what it does, how to buy and use it and how to mine it. I was invited as a guest on Douglas Tuman's MoneroTopia show last month, and in that interview, I was able to explain what attracted me to this particular currency in the first place. It was digital privacy. There is a huge focus in Monero communities on the best ways to create a digital equivalent to cash, to be used in truly private financial transactions. The focus in these discussions is on protecting our right to privacy, rarely about making a lot of money quickly.
With the privacy angle on crypto currencies, here are some critical questions EU citizens should be asking right now:
- What will MiCA and Transfer of Funds regulations mean for the individual EU citizen who uses privacy coins like Monero to trade or store value?
- What will the resulting national laws in each EU country be, and how important are those compared the general EU regulations?
- How does the fact that a fungible2 privacy coin like Monero is nearly impossible to trace come into play?
- How does crypto mining fit into all of this?
- Why is there so little discussion about user data protection and safeguards against a surveillance state?
- What happens if a government asks a KYC (Know Your Customer) based company for information about an individual citizen?
One of the key final changes in the draft of the text was to remove the clause stating only amounts over 1000 euros need to be registered or declared. In the final draft, any transacted amount must be declared.
Worst-case scenario
As we move into the future, here's a potential worst-case scenario that may not be that far off:
- Cash is phased out completely; we can already see this happening in metropolises like London, where even buskers have card readers
- Banks introduce CBDCs (Central Bank Digital Currency) to replace cash, with every transaction recorded and stored
- Privacy crypto coins like Monero are made illegal
If the above were to become a reality, then individuals passionate about privacy who do not wish to break the law face a real dilemma. Should I declare my transactions? Should I give up hope on the ideals for digital cash that drive projects like Monero? Should I consider breaking the law? In this situation, the state will have failed to uphold the rights of the individual: If I want to give my child some money for a good school report, I give them cash. The idea of reporting such a gift to the bank or company is ludicrous. But in the above scenario, all such personal transactions would be documented by default, unless you break the law. That is not progress. That is state surveillance.
The politician & unhosted wallets
The only politician I've found so far who has articulated these counter arguments is German lawyer and MEP Gunnar Beck. He added the following to the proposed text:
Minority Position
Although I fully support the intention of the proposal to increase awareness and concrete action to tackle money laundering in Europe, I oppose the report as it deletes the de minimis threshold recommended by FATF, imposes unrealistic burdensome reporting, as well as unfair liability to compliant CASPs especially in relation to unhosted wallets.
By going beyond the FATF rules, crypto users with private, self-controlled wallets will be discriminated against and treated differently than people with cash. Every single transaction is potentially ātravel rule eligibleā and would have to be reported. This is a blatant violation of data protection law and is reminiscent of the behaviour of totalitarian surveillance states. Source
Beck has also written an article in Breitbart on the topic.3 This, unfortunately, is not the most nuanced platform, nor are Beck's party's politics; we find allies in surprising places these days.
The last section (that I've put in bold) is poignant. I looked further into the EU text, and indeed the term 'unhosted wallets' appears in it. I had to look up what exactly is meant by an 'unhosted wallet'. To my surprise, an unhosted wallet is any wallet that is not on an exchange. So apps that I currently use, like Monero Wallet, Cake Wallet, and hardware wallets by Ledger and Tresor are all 'unhosted'.
Add to this that all transactions will need to be reported, even those below 1000 euros, and I don't see how a company like Cake Wallet can feasibly continue supporting Monero. I have reached out to them on Twitter, but not heard back yet.
Conclusions
I'm very interested to learn more about how companies like Cake Wallet, who focus on trading Monero and Bitcoin, will respond to this new law, when it comes into effect in 2024.
The libertarian screw the government- they will never be able to see my Monero stance doesn't sit well with me. I don't want to live a life of paranoia. I'm not a criminal, plus, I'm not tech-savvy enough to be sure I don't make mistakes. When I make an exchange on LocalMonero in such a future scenario, how can I be sure the person on the other end isn't working for the government? If transacting Monero becomes illegal in the EU, and therefore a focus of policing, won't such fiat bank accounts on LocalMonero be blacklisted and paid extra-close attention to?
I am not a hacker. I am not a criminal. The whole purpose of my blog is to show how digital privacy tools can and should be mainstream. I do have a strong conviction that we have a right to cash. Cash seems like such an innocuous, simple tool, but I have hunch that the removal of this tool, that enables us to make truly private financial transactions between individuals, will mark the beginning of detrimental changes in our society, and a serious reduction in personal privacy for all of us.
Documentation
https://www.europarl.europa.eu/doceo/document/A-9-2022-0081_EN.html#_section2
EU Documents
MiCA
2020/0265(COD)Digital finance: Markets in Crypto-assets (MiCA)
20/04/2023 Decision by Parliament, 1st reading
Transfer of Funds regulations
2021/0241(COD)Information accompanying transfers of funds and certain crypto-assets
20/04/2023 Decision by Parliament, 1st reading
Updates
After posting, I found this article from the European Pirate Party "Pirates: New EU crypto rules will harm NGOs and whistleblowers"
u/ArticMine from XMR Core Team pointed me to this letter the Monero Policy Working Group sent to the European Commission after the publication of the first draft of the proposal in 2020. It's a very interesting read.
Interesting discussion between ArticMine and midipoet on Reddit (late April, early May 2023).
16 May update (Reuters) https://www.reuters.com/technology/eu-states-approve-worlds-first-comprehensive-crypto-rules-2023-05-16/
-----Discuss on Reddit-----
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