“If Europe has to remain competitive, it has to be more pragmatic regarding crypto,” MEP Pereira says

Both pieces of regulation provoked debates in the crypto community, as the European Parliament (EP) was discussing banning Bitcoin. MEP Lídia Pereira (EPP), member of the ECON committee, submitted numerous amendments to MiCa, and she is currently taking part in the Trialogue (formal negotiation among the EP, Commission and Council) regarding the Transfer of Funds regulation.

In a study entitled “Digital currencies and energy consumption,” the IMF examined energy consumption of crypto assets based on their design elements to evaluate the ideal mechanism for developing central bank digital currencies. In this research the IMF recommended moving away from the proof of work design such as Bitcoin. What do you think about this recommendation, because the idea about banning Bitcoin was also floating in the Parliament. How does the regulation addresses this issue of sustainability?

In MiCa, there is a proposition for a delegated act in relation to the proof of work design. Therefore, it should be addressed in a in a later stage. In the Parliament, there is big resistance from the left to even allow the existence of crypto assets in general and particular cryptocurrencies. There have been several attempts to kill or undermine different initiatives such as MiCa and the Transfer of Funds, that are now in the Trialogue.

This resistance to crypto has been promoted, I don’t know how to say it in a cordial way, for lack of knowledge in relation to the functioning of crypto currencies. The solution found by the Parliament rapporteur for MiCa was to leave this responsibility for the Commission and deal with the proof of work design in a later stage.

The crypto community often says that energy consumption per transaction comparison omits the necessity for traditional payment systems and institutions to keep large buildings and thousands of people. Don’t you think that they have a point, when they say it cannot be compared?

What I think is not correct is this ideological stance, which is using the environment to fight financial innovation. This is one thing. Another thing is; we cannot be demanding all sectors of society to contribute to the energy transition and leave some sectors out. The crypto world, which is part of the financial environment, has to be involved and they also have to play their part.

I think it could be done through an incentive mechanism, similar to what is happening in the US. We know that in the near future, current energy sources are not going to be competitive. Therefore, we should incentivise the use of renewables for the functioning of areas of our society such as crypto transactions, and blockchain. It is not only about crypto currencies, but blockchain as a whole.

I think this is where we have to find balance, because otherwise it would be unfair if some of us were committed to do our part to reach carbon neutrality by 2050, while there could be others who go in a different direction instead.

Staying with stable coins, the regulation also aims to create a stable regulatory environment and protect consumers. We have seen the disastrous fall of Luna and Terra; after Terra’s peg to the dollar collapsed. Do you think that MICA, or other regulation, can prevent the next Terra/Luna?

Preventing a financial disaster is always rather complicated and hence the reason why the regulatory framework has changed so much in the past 15 years. Lehman Brothers also collapsed and what we witnessed with Luna is a similar situation with different complexity because of the actors involved.

What we have to assure is that we address consumer and investor protection. I think, that what we are doing in terms of regulation is exactly in that direction. At the same time, we don’t want to undermine the potential of financial innovation. In particular, we don’t want to halt progress in the emerging payment system market that might derive from this new industry.

Another topic that is also widely discussed, is the question of human rights. Recently, human rights activists from 20 countries submitted an open letter to the United states Congress in support of responsible crypto policy and praising the role of Bitcoin and stable coins as essential tools aiding democracy and freedom.

The group, including Garri Kasparov, provided multiple instances from around the world where crypto is assisting people, for instance in Cuba, Afghanistan or Nigeria. Do you think that maybe the emphasis put on user identification could hamper the role that crypto plays now among human rights advocates ?

I think that there is a bit of a mistrust towards users and the functioning of blockchain in general. There is this perception that whoever uses the cryptocurrencies is somehow connected to criminal activities. I also understand the concerns regarding human rights related to privacy and we have to address that.

On the other hand, we have to acknowledge that identification and verification policies play a role in investor and consumer protection. What I question is if it’s necessary to monitor every single transaction, especially if there is the possibility to use alternative means of payments for small transaction that are not observed.

Looking at the bigger picture in the use of blockchain, the Transfer of Funds regulation, will set the threshold for transactions that will need to be identified and verified. I think I might be a bit intrusive if we consider, that we have alternative means of payment that do not require such level of verification. Additionally, I don’t think we have to treat everything in equal basement – regarding smaller or larger amounts – I think we should adopt a risk-based approach instead.

The crypto industry critiqued the threshold for monitoring payments and the KYC requirements. People from the industry argue, that as soon as you introduce rules and require firms to seek authorisation, you can immediately stifle innovation. What do you think? Isn’t MiCa going against innovation?

I cannot tell if it undermines innovation. However, I think it might lead Europe to a less competitive status in terms of attracting businesses related to crypto assets such as trading platforms. If that happens, then obviously it will slow down innovation.

I am asking, because in the explanatory memorandum to the regulation (MiCA) you can read that the regulation has four broad objectives such as consumer and investor protection, market integrity, legal certainty, financial stability for stable coins. What I found interesting is, it says it aims to support innovation by promoting the development of crypto-assets and the wider use of blockchain. Could you give an example how will MiCa contribute to innovation in the EU? We should after all strive to remain competitive in the global scale?

If we want to remain competitive, we have to be a bit more pragmatic in the way we deal with crypto currencies and crypto assets. I believe that one way to do it is exactly what I was saying earlier. We have to find balance between what is absolutely necessary from an investor protection point of view, and what is relevant to adopt to assure that businesses can flourish.

In this industry we talk mostly about start-ups and Europe has to have the capacity to help these start-ups to develop into larger companies. If we won’t have it, then the big markets, which are the US and Asia will be beneficiaries of our absence.

That is from the point of view of the industry, but let’s talk about individuals. We have seen that many people sent aid to Ukraine in the first days of invasion. Don’t you think that regulation’s emphasis on identification could discourage individuals from making similar payments?

Well, that only depends on what threshold we’re talking about. Until now, we don’t have any clarity on the matter and it will depend on the result of the Trialogue regarding the Transfer of Funds regulation.

What do you think is the future of crypto in the EU? Are stable coins the future, it is de-fi or more controversial concepts as NFTs?

I will depend on the stakeholders and actors of the financial ecosystem. I think Europe has to understand, that there is substantial growth in users of crypto assets on the continent. Just in the past 12 months, there was a significant increase led by younger people; between 25 and 35 years of age.

There is already a market of around 30 million users in Europe with great potential of future growth. If we look at Asia and the US, we can clearly see that the growth they have is even more dynamic. Therefore, if we want to remain competitive globally, we have to unblock our potential and thrive in the crypto world.