Not that long ago, cryptocurrencies were deemed unworthy of attention and even laughable by most governments and institutions. Recently, the European Parliament’s Committee on Economic and Monetary Affairs concluded that cryptocurrencies will not pose any threat for the economic power of central banks, as reported by Coindesk.
Almost a month later, the European Parliament issued a new comprehensive report on how cryptocurrencies work and what impact will they have on the global economy. With this report, the European Parliament Committee on Economic and Monetary Affairs acknowledges the fact that cryptocurrency can be successfully used as an alternative payment method to money.
Crypto, a valid alternative to money
One of the most representative passages in the report states as follows: “Digital currencies, also known as ‘virtual currencies’ or ‘cryptocurrencies’ can be defined as a digital representation of value, not issued by a central bank, credit institution or e-money institution, which in some circumstances can be used as an alternative to money.”
To report further states that “Their value is determined by the law of supply and demand, relying on potential exchanges for other goods or sovereign currencies, and it is not backed by any monetary authority (decentralized character). The supply (creation of new units) is often managed by computer algorithms, which help to create scarcity to maintain value. The common feature of the various digital currencies is the use of DLTs to manage value exchanges. Digital currencies management encompasses services such as cryptocurrency payments, cryptocurrency wallets, exchange and trading solutions for cryptocurrencies (cryptocurrency brokerage) and mining.”
Crypto is very difficult to regulate in Europe
Within the report, the European Parliament also acknowledges that regulating cryptocurrencies is still a very challenging task, mainly because most big crypto players still operate outside the jurisdiction of the European authorities.
“The international nature of cryptocurrency markets is also a challenge to competition policy at the European level. Many of the players operate from global locations outside the jurisdiction of European competition authorities, which makes investigation or prosecution on anticompetitive behaviors more difficult.”
The report also covers the current situation of cryptocurrencies in Europe. Even though Europe has a big percentage of wallet and exchange services, it only captures 13% of the mining market.
“Europe leads, at international level, the supply of wallet and exchange services, with 42% and 37% in terms of number of players. It is also the principal actor in payments (33%). Nevertheless, the main weakness of Europe is the concentration of the mining activity on non-European countries (Europe only capture just 13% of the current mining market). Mining is the most strategic, sophisticated. Competition issues in the Area of Financial technology (FinTech) and technology dependent activity in the cryptocurrency market, and there currently appears to be a significant concentration of mining activities occurring in certain Chinese provinces.”
Other noteworthy aspects
Another aspect of the report covers the subject of central banks being able to issue their own digital currencies.
“The arrival of permissioned cryptocurrencies promoted by banks, even by central banks, will reshape the current competition level in the cryptocurrency market, broadening the number of competitors. However, the market power of banks in traditional banking services might be used to limit competition in the cryptocurrency market through pre-emptive acquisitions or predatory pricing schemes.”
The European Parliament also calls cryptocurrencies disruptive and innovative thanks to their usage of modern technologies: “All these disruptive and innovative applications utilise new and emerging technologies, among which those stand out are AI, cloud computing, biometrics, digital identity, blockchain, cybersecurity, RegTech, internet of things (IoT), augmented reality, etc.”