While we believe the Web3 industry to be mainly decentralized, over the past few years, there has been a steady increase in the number of rules and regulations for brands and companies entering this space. From the stringent approaches in Asia, particularly in China, to the progressive frameworks emerging in Europe, and the growing oversight in North America, the regulations for this industry are as diverse as the applications they seek to govern. These compliances are necessary, though, to maintain a proper framework for brands and to ensure fair and transparent activities.
Web3.0 Laws in Europe
Web 3.0 law includes various areas, such as intellectual property (IP) rights, privacy, data protection, and regulations on the use of artificial intelligence (AI) and other emerging technologies. Europe has been the world leader in all things crypto and also in many other aspects. It has the most comprehensive blockchain regulations globally, with the Markets in Crypto-Assets (MiCA) regulation at the forefront of it.
Markets in Crypto-Assets (MiCA)
On April 20, 2023, the European Parliament gave its final approval to MiCA thus marking a significant step forward in the regulation of digital assets. This Act was then ratified by the EU’s Economic and Financial Affairs Council on May 16, 2023 and is set to be implemented in 2024. MiCA is a draft legislation that aims to establish a uniform legal framework for crypto assets across the EU by taking inspiration from standardizing practices found in financial market regulations and applying them to the crypto asset industry. Unlike a Directive, MiCA is a regulation which means that it can be directly applied by all EU member states without needing each individual country to establish additional legislation.
Its key objectives include building a clearer set of rules for all involved parties and reducing the need for individual national laws by harmonizing the regulations for the whole European Union. The Act will apply to business covered by MiCA, and crypto-asset service providers (CASPs), including custodial wallets, crypto-trading platforms, crypto-asset advising firms and crypto-portfolio managers.
MiCA key regulations include:
- CASPs projects operating in the EU will need fewer licenses and will be allowed to provide their services to all EU nations.
- More obligations for CASPs to ensure fair and transparent practices
- Algorithmic stablecoins will be banned
EU Data Act
The European Data Act was adopted in November 2023 and is a pivotal piece of legislation that aims to boost EU’s data economy by enhancing data accessibility, and stimulating a competitive cloud market in Europe. It builds upon the European data strategy to try and establish a unified European data space, fostering efficient pooling, sharing, and utilization of data. It also facilitates data sharing from connected devices, protects against unfair contracts, and ensures access to private sector data for the public sector in case of emergencies. The legislation is a “milestone in reshaping the digital space” that will lead to a “thriving data economy that is innovative & open — on our conditions,” said Breton, Commissioner for the EU’s internal market.
Implications for Web3 and Blockchain:
- Data protection: The act increases transparency, consent-based data processing by companies, and individual control over data. Companies operating in these industries will need to implement enhanced data governance frameworks and will need to obtain consent for data usage.
- Innovation opportunities: Compliance with the Data Act can present opportunities for the companies to increase trust and thus develop new solutions that bridge the gap between data privacy and the benefits of emerging technologies.
- Data Usage: Companies will need to ensure proper compliance with the types of data they can use and also the data usage of personal information of users.
Web3 Regulations in North America
The growth of the digital assets market has led to the Congress and the White House becoming more involved in issuing regulations about this specific industry. In March 2022, an Executive Order was released by the Administration that detailed a comprehensive government approach to mitigate risks associated with the growth of digital assets and blockchain, while encouraging responsible innovation by associated companies.
In 2013, the Financial Crimes Enforcement Network (FinCEN) issued guidance on administering, exchanging or using virtual currencies. It equated virtual currencies to actual money and thus made these transactions subject to FinCEN registration requirements and compliance with MSB money laundering prevention regulations. These MSB regulations differ from state to state though due to regulation by state governments and thus led to multiple individual states studying their digital assets laws. For instance, California has a policy of permitting digital asset firms to operate without a license to foster the industry whereas Montana does not regulate payments at all.
The collapse of FTX also led to the U.S. Securities and Exchange Commission (SEC) accelerating their plans of subjecting these companies to full financial regulations to avoid similar possible disasters in the future. Various market segments could be subject to these regulations, including NFTs, utility tokens, DAOs, StableCoin, crypto asset management etc. Possible regulatory frameworks could include registration, anti fraud and price manipulation compliances and market surveillance.
Canada has approved bitcoin exchange-traded funds (ETFs) and the Canadian authorities require crypto trading platforms in Canada to register with the local provincial regulators. The Canada Revenue Authority (CRA) considers cryptocurrency a commodity for purposes of the Income Tax Act. In 2021, it also adopted a registration requirement for trading platforms that offer custodial services to Canadian clients and also has strict rules on advertising and marketing of cryptos.
Web3 Compliances in Asia
Asia’s business hubs are also at the epicenter of adoption of web3 with Hong Kong, Singapore and Japan taking the lead.
The Hong Kong government is aiming to foster the growth of Web3 by establishing detailed policy initiatives and legislation. These include supporting retail investors trading on licensed crypto exchanges, ongoing discussions about regulations for stablecoin, and the release of a Web3-focused task force. It also launched its virtual asset trading platform (VATP) licensing framework, which outlined regulations for exchange operations. Another instance of successful web3 initiatives is the Cyberport, which is managed by the Government and financially supports Web3 companies through the Financial Budget, and has attracted over 190 Web3 firms in a short period of time.
Since 2016, Japan has been recognizing various crypto currencies as real currency and also regards crypto assets as actual payment methods. The crypto industry is regulated by the Financial Services Agency. In Singapore, a regulatory framework was released which aimed to stabilize single-currency stablecoins by pegging their value to the value of the Singapore dollar or any of the G10 countries’ currencies.
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Read about how we launched Michelin’s NFT Club, which ended up in top 5 Trending on Opensea: Michelin enters Web3 with the “Michelin 3xplorer Club”