PATHUGO’S BLOG

The European Union and that illiberal inclination

May 22, 2023

A struggle between the desire for control and digital anarchy.

The European Union has recently expressed its support for two regulations aimed at regulating cryptocurrencies and tracking payments. The European Parliament voted overwhelmingly in favor of the Markets in Crypto-assets Regulation (MiCA) and the Transfer of Funds Regulation (TFR), also known as the Travel Rule. These measures establish a new regulatory framework for cryptocurrency service providers and payment
tracking.

The MiCA regulation, which will come into effect after formal approval by the EU Council, applies to all 27 EU member states. It regulates the issuance of stablecoins, which can be e-money tokens or asset-referenced tokens, and also applies to other types of tokens excluded from financial instruments.

MiCA has been justified, as expected, with the need to protect consumers, prevent market abuse, and ensure transparency and disclosure of information. However, the capital requirements imposed by the regulation may pose a challenge for many industry operators, excluding startups and favoring companies with greater financial resources and banking-like structures.

On the other hand, the TFR, or Travel Rule, requires custodial wallet providers to report inbound and outbound transactions worth more than 1000 euros to non-custodial wallets.
However, the technical implementation of this rule poses challenges as it is difficult to verify the ownership of a non-custodial wallet. This could push users towards peer-to-peer markets and services, avoiding centralized service providers.

The approval of these regulations has been hailed as a step forward in consumer protection and the creation of a clear regulatory framework for cryptocurrencies. However, some observers see these measures as an attempt, not too subtly, by the EU to exert control over a notoriously anarchic market like Bitcoin.

Speaking of Bitcoin, it’s quite amusing to think that something specifically created to escape central control and financial authorities can be “regulated” by the EU. It would be like trying to put a saddle on a wild unicorn or teach etiquette to a chimpanzee.

But the EU is not deterred by minor things like logic or reality. It seems to believe that with enough laws and regulations, it can make Bitcoin a good, obedient digital currency, just like the euro. Clearly, they have not yet grasped that the true beauty of Bitcoin lies in its ability to operate outside the clutches of government control and bureaucratic restrictions. Or perhaps they hope that by alternatively waving the specters of illegality, anarchy, environmental damage, or risky investment, they can induce citizens to abandon the idea of using Bitcoin as a currency, store of value, or investment.

And so, as the EU frantically races to regulate Bitcoin, it seems to forget that this illiberal attitude goes against the tide of history. Bitcoin is a phenomenon that represents the desire for freedom and a reaction to the restrictions imposed by traditional institutions. It’s like a digital middle finger raised to the authorities attempting to muzzle our lives. Perhaps the EU (but not only Europe, let it be clear) should take a break from its love for illiberalism and consider the fact that, instead of trying to regulate Bitcoin, it could learn something from it. It could learn that freedom and uncensorability are not just buzzwords but principles that resonate in the minds and hearts of those who yearn for a world where people have control over their money and their lives.

That’s why many Bitcoin supporters see its decentralized and free-from-government-control nature as one of its strengths. The idea of a central authority imposing rules and limits on the cryptocurrency sector is viewed with skepticism by those who believe in the philosophy of Bitcoin.

It is interesting to note that despite regulatory efforts, peer-to-peer transactions remain outside these rules. This could lead users to prefer value transfer methods that avoid the involvement of centralized entities and compliance with government regulations.

As the EU continues to move towards increased regulation of cryptocurrencies, it is clear that the challenge of finding a balance between the desire for control and the digital anarchy represented by Bitcoin will not be easy to overcome.

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