The popularity of cryptocurrencies leads to a great desire to regulate them. The legal regulation of cryptocurrencies is not uniform and can change rapidly, making it a daunting challenge to understand. Seeing as Trustee is a regulated crypto service provider, we had to get familiar with many laws to be able to comply with them. In turn we decided to share some of our findings with you. Written below is a list of phrases with their meanings that could be important, when trying to understand cryptocurrency regulations.
Asset-referenced token – a type of crypto-asset that purports to maintain a stable value by referring to the value of several fiat currencies that are legal tender, one or several commodities or one or several crypto-assets, or a combination of such assets. (As stated in Regulation of the European Parliament and of the council on Markets in Crypto-assets (MiCa))
Crypto-asset – a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology. (As stated in Regulation of the European Parliament and of the council on Markets in Crypto-assets (MiCa))
Crypto-asset service (as stated in Regulation of the European Parliament and of the council on Markets in Crypto-assets (MiCa)) – any of the services and activities listed below relating to any crypto-asset:
- The custody and administration of crypto-assets on behalf of third parties;
- The operation of a trading platform for crypto-assets;
- The exchange of crypto-assets for fiat currency that is legal tender;
- The exchange of crypto-assets for other crypto-assets;
- The execution of orders for crypto-assets on behalf of third parties;
- Placing of crypto-assets;
- The reception and transmission of orders for crypto-assets on behalf of third parties;
- Providing advice on crypto-assets.
Crypto-asset service provider – any person whose occupation or business is the provision of one or more crypto-asset services to third parties on a professional basis;
Commodities are basic goods interchangeable between producers, such as grains, gold, beef, oil, and natural gas. As an asset class, they are highly speculative and are especially sensitive to economic shifts.
Electronic money means electronically, including magnetically, stored monetary value as represented by a claim on the issuer which is issued on receipt of funds for the purpose of making payment transactions as defined in point 5 of Article 4 of Directive 2007/64/EC, and which is accepted by a natural or legal person other than the electronic money issuer (as defined by the European Parliament)
Electronic money token or e-money – a type of crypto-asset the main purpose of which is to be used as a means of exchange and that purports to maintain a stable value by referring to the value of a fiat currency that is legal tender. (As stated in Regulation of the European Parliament and of the council on Markets in Crypto-assets (MiCa))
Electronic money institution means a legal person that has been granted authorisation under Title II to issue electronic money (as defined by the European Parliament)
Electronic money institution license (as stated by the Law of the Republic of Lithuania on Electronic Money and Electronic Money Institutions) – is a license of the electronic money institution, that grants the right to issue electronic money and provide the payment services* specified in Article 5 of the Law on Payments, which are specified in the license issued to it by the supervisory authority. This license is also valid in other member states.
*Payment services include (Article 5 of the Law on Payment):
- Services which provide conditions for depositing cash into a payment account, and all operations related to the management of a payment account;
- Services that enable the withdrawal of cash from the payment account, and all transactions related to the management of the payment account;
- Payment transaction, including the transfer of funds in the payment account opened at the payment service provider of the payment service user or at the institution of another payment service provider: direct debit transactions, including one-time direct debit transactions, payment transactions using a payment card or similar means and/or credit transfers, including periodic transfers;
- Payment transactions, when funds are granted to the user of payment services under a credit line: direct debit transactions, including one-time direct debit transactions, payment transactions using a payment card or a similar instrument and/or credit transfers, including periodic transfers;
- Issuance of means of payment and/or processing of incoming payments;
- Money transfers;
- Payment initiation services;
- Account information services.
MiCa (Markets in Crypto-Assets) – is an EU regulatory framework for crypto assets traded on digital platforms. MiCA was approved on 20 April 2023 by the EU Parliament. It is expected to enter into force at some point between mid-2024 and early 2025.
This regulation states four objectives:
- legal certainty;
- innovation support;
- instilling appropriate levels of consumer and investor protection and market integrity;
- ensuring financial stability.
Operator of depository virtual currency wallets – a legal entity established in the Republic of Lithuania providing services on behalf of customers of depository virtual currency wallets or a branch of a legal entity of a member state of the European Union or a foreign state established in the Republic of Lithuania.
Security, in a financial context, is a certificate or other financial instrument that has monetary value and can be traded. Securities are also described as “documents in the form prescribed by the government, which give their holders certain property, sometimes non-property, rights in relation to the person who issued them (issuer) and express the value of these rights.”
These are generally classified as either equity securities, such as stocks, and debt securities, such as bonds and debentures. Equity securities are financial assets that represent ownership of a corporation. Ownership is the characteristic that most defines an equity security and differentiates it from other type of securities. On the other hand, debt securities are financial assets that entitle their owners to a stream of interest payments. A debt security is a debt instrument that can be bought or sold between two parties and has basic terms defined, such as the notional amount (the amount borrowed), interest rate, and maturity (the date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due) and renewal date.
Utility token – a type of crypto-asset which is intended to provide digital access to a good or service, available on DLT, and is only accepted by the issuer of that token. (As stated in Regulation of the European Parliament and of the council on Markets in Crypto-assets (MiCa))
Virtual asset or VA – digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.
Virtual asset service provider or VASP – any natural or legal person, that conducts one or more of the following activities or operations for or on behalf of another natural or legal person:
- Exchange between virtual assets and fiat currencies
- Exchange between one or more forms of virtual assets
- Transfer of virtual assets
- Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets
- Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset
Virtual currency – an instrument that has a digital value, but does not have the legal status of currency or money, which is not authorized or guaranteed by a central bank or other state institution and which is not necessarily linked to a currency, but which is recognized by natural or legal persons as a medium of exchange and which can be transferred, stored, sold, exchanged, invested and used for payments by electronic means (as defined by the Money Laundering and Terrorist Financing Prevention Law of the Republic of Lithuania).
Virtual currency exchange operator – a legal entity established in the Republic of Lithuania or a branch of a legal entity of a member state of the European Union or a foreign state established in the Republic of Lithuania providing exchange, purchase and/or sale services of virtual currency for a fee.