European Commission on cryptocurrencies: blockchain “holds strong promise”

The European Commission hosted a roundtable discussion on the opportunities and risks of cryptocurrencies on Monday Feb. 26.

Valdis Dombrovskis, Vice-President of Financial Stability, Financial Services and the Capital Markets Union, said that the roundtable included “key authorities, industry representatives and experts who shared their insights and views on cryptocurrencies.”

The event focused on how cryptocurrencies affect financial markets, the risks and the opportunities associated with their use, as well as the recent development of Initial Coin Offerings (ICOs).

A cryptocurrency is a kind of digital currency, i.e., one that exists purely in electronic form. Cryptocurrencies do not have a central bank. The most common cryptocurrency today is Bitcoin, which went into circulation in 2009. Ethereum is the second most popular.

Bitcoin, Ethereum and Ripple are the three largest cryptocurrencies by market cap.

Dombrovskis said that blockchain technology “holds strong promise for financial markets” and that for Europe to remain competitive it “must embrace this innovation.”

However, because cryptocurrencies “are not currencies in the traditional sense” whose value is not guaranteed, the digital currencies have “become subject of considerable speculation”, exposing consumers and investors to “substantial risk including the risk to lose their investment.”

It is important for consumers and investors to be aware of these risks and that warnings must be “clear, frequent, and across all jurisdictions,” Mr Dombrovskis said.

Regarding ICOs, the Commission said while it has become an innovative way for firms to raise significant amounts of funding there is still the issue of transparency about the identity of those issuing the coins and their underlying business plans.

“This is an opportunity, but there are also problems that expose investors to substantial risk, such as the lack of transparency regarding the identity of the issuers and underlying business plans,” Dombrovskis said.

“We need to assess further under what circumstances crypto-currencies and related services are covered by existing regulation,” he added.

The aim of the roundtable was first and foremost to feed into the Commission’s upcoming Action Plan on FinTech, and the EU’s position for a possible discussion of the topic at G20 level.

After the roundtable discussion Mr Dombrovkis told the press: “We do not exclude the possibility to move ahead by regulating crypto-currencies at the EU level if we see, for example, risks emerging but no clear international response emerging.”

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