Written by: Ghazi Ben Amor, VP – Corporate Development at Zama
The speed and extent of growth in Crypto uptake is dependent on building greater trust within the system.
Creating and working within regulatory environments that provide appropriate safeguards at the same time as enabling the creation of innovative and valuable services for end users is pivotal. From individuals looking to diversify their wealth or corporations embracing Web3 applications and accepting payments from their clients and customers in cryptocurrencies, trust will be pivotal to the successful engagement of all potential customers.
Thankfully, safe and innovative frameworks are already emerging.
In markets such as the UAE and Singapore, there are strong examples of progressive regulatory environments that look likely to adopt a trust-building approach moving forwards. Meanwhile, Switzerland and Luxembourg are good examples of smaller European markets that are seeking to seize the initiative and gain a leg up on powerhouses such as the United States.
In what is arguably the biggest and most significant move to date, the European Union is also about to adopt MiCA. Short for the Markets in Crypto Assets regulation, MiCA is a framework of harmonised rules for crypto assets and provides legal certainty for those not covered by current EU financial services legislation.
MiCA’s overarching objective is simple – to bolster protection of consumers and investors, facilitate financial stability, and provide a foundation from which crypto innovation and the use of crypto assets can grow sustainably.
This development is ground-breaking. When it comes into force, the EU will become the first major jurisdiction in the world with a series of comprehensive laws and regulations governing the cryptocurrency sector.
How will MiCA shape 2024?
I have been asked many times what impact I think MiCA will have on the crypto sphere.
Of course, it is difficult to offer exact predictions and time will ultimately tell. However, my overriding feeling is that it will be transformative.
There has been a lot of hype, and it is true that the framework has been greeted with enthusiasm across much of the crypto and financial landscape. This excitement, I believe, is fully warranted, not least because MiCA provides a framework for individuals and institutions to engage in crypto transactions with clear guidelines on taxation and accounting.
Clarity and certainty are precious commodities, not just in financial circles but virtually every sector of the economy – you only need to consider the past three years to appreciate just how impactful uncertainty can be to so many facets of doing business.
MiCA promises clarity and certainty for all stakeholders, and this is why I expect to see increased adoption of crypto assets. It could well fuel something of a virtuous cycle. As more individuals own crypto money, companies and banks will make it easier for them to use it to acquire products and services. On top of this, the rise of audited exchanges is also likely to have a positive impact on crypto usage by further building trust in the system.
The privacy conundrum still remains
However, it would be shortsighted and misguided to view MiCA as a silver bullet solution.
There are caveats that need to be evaluated, the most obvious of these being the issue of privacy. Questions remain about how to ensure privacy will be safeguarded, and as we adjust and adapt to the MiCA regime throughout 2024, ongoing attention will need to be devoted to addressing such potential pitfalls.
So, what is the privacy issue?
To summarise, it boils down to the use of private and public blockchains – the beating hearts of the crypto machine.
Currently, many banks create proprietary private blockchains, largely because it is the most cyber-secure way of operating. However, as they increase their use of crypto, they are likely to transition to public blockchains for operational efficiency and scalability reasons. While these public blockchains do have their own embedded privacy features, there are concerns about whether these are as robust as the private blockchains being left behind.
The move to public blockchains is understandable and necessary. The proprietary, siloed approach has proven to be expensive and lacks interoperability – this poses challenges in potential mergers and with expanded uptake of crypto-based activities.
There is now a growing desire for interoperability. To begin with, I foresee the greater use of interoperable functions using a bridge. The next phase, as adoption of crypto assets grows, could see heightened demand for a universal approach between banks in the form of an all-public blockchain that balances the key elements of transparency and privacy.
This is some way off, however. Through 2024, I expect to see the start of some transactional pilot programs which aim to heighten the adoption of crypto before exploring the possibilities of a truly interoperable blockchain system.