James Cirrone

The European Commission is looking to leapfrog Web3, favoring a so-called Web4 initiative released Tuesday — featuring little detail on how blockchain would come into play. 



The Web4 nomenclature, for the commission, hits as the public has been trying to wrap their minds around Web3. A June <a href="https://consensys.io/insight-report/web3-and-crypto-global-survey-2023#05-crypto-awareness">survey</a> conducted by YouGov and Consensys found 8% of people consider themselves to be familiar with Web3 as a concept. 



The European Commission (EC) defines Web4 as a blend between artificial intelligence, the internet of things, blockchain, virtual worlds, and extended reality capabilities.&nbsp;



In statements around the Web4 push, it mentioned no specifics as to what blockchain technology would be used. Or the extent to which it would be used at all.&nbsp;



Details were extraordinarily limited in terms of how blockchain or crypto will be included throughout. An EC representative did not immediately return a request for comment.&nbsp;



Though crypto’s role in Web4 remains murky, the EC was much more clear about how the initiative would use virtual technologies.&nbsp;



XR, also known as extended reality, brings together augmented reality (AR), virtual reality (VR), and mixed reality (MR), <a href="https://www.arm.com/blogs/blueprint/xr-ar-vr-mr-difference">according</a> to Arm, a semiconductor company.



Web4, according to the EC, appears to be a mashup of anything and everything people associate with virtual experiences and the internet.



The EC wants to be the first to capitalize on this nascent form of the internet — it hinted at such in its March <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1668">outlook</a> on the economy beyond 2030.



To move Web4 along in the business world, the EC proposed a program called Partnership on Virtual Worlds under Horizon Europe. It has a potential start date of 2025 and would try to foster research and develop an “industrial and technological roadmap for virtual worlds.”



The EC plans to support EU-based creators, media companies, developers and industrial users. It also mentioned the need to work with EU member states to preemptively draw up a regulatory framework, <a href="https://blockworks.co/news/eu-parliament-passes-mica-vote">a similar strategy employed with MiCA for crypto regulation</a>.&nbsp;



The EC also mentioned Web4’s potential to advance public policy initiatives. Also in the works: a project called CitiVerse, described as “an immersive urban environment that can be used for city planning and management.”



Another project, the European Virtual Human Twin, is designed to produce a replica of the human body to aid in medical endeavors and personal treatment for diseases. 



These Web4 guidelines were in part generated by a <a href="https://digital-strategy.ec.europa.eu/en/news/citizens-panel-proposes-23-recommendations-fair-and-human-centric-virtual-worlds-eu">panel</a> in April, where 150 randomly selected European citizens made recommendations about how to fairly and safely introduce the next phase of the internet.



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What is Web4? The EU wants to explain

<div id="highlights-block_62a9dc972ed91" class="highlights">
 <ul>
 <li>Policymakers are optimistic about a deal in late June, but some areas of the bill are still being debated</li>
 <li>Environmental impact and anti-money laundering rules have been a source of contention</li>
 </ul>
 
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European Union policymakers held another meeting yesterday in an attempt to reach an agreement on the Markets in Crypto-Assets (MiCA) bill that will shape crypto development in the European common market.



France, which currently holds the EU presidency, aims to close a deal by the end of this month, <a href="https://www.bloomberg.com/news/articles/2022-06-10/eu-aims-to-clinch-deal-on-landmark-crypto-law-this-month?utm_campaign=socialflow-organic&amp;utm_source=twitter&amp;utm_content=crypto&amp;utm_medium=social" target="_blank" rel="noreferrer noopener">Bloomberg</a> reported last Friday. MiCA has been an ongoing discussion since the European Commission first presented a proposal to the European Parliament in 2020.



The rise of crypto markets&#8217; relevance in 2021 accelerated this discussion, and France wants to achieve this milestone while they hold the presidency, which ends this month — the Czech Republic will take over the role in July.



After today’s meeting, another “trilogue” — EU’s last mile with members of the Parliament (MEPs), EU’s presidency and European Commission officials — will happen on June 30. 



The rush is real in Brussels, according to Mairead McGuinness, European commissioner for financial services and financial stability. 



“I really would like to see a political compromise on our MiCA…under the French presidency”, she told MEPs in a hearing this Tuesday, later adding that the legislation is “so urgent, given recent developments.”



The euro’s stability and investor protection were the main priorities for EU policymakers in the aftermath of problems such as the <a href="https://cms.blockworks.co/?s=terra" target="_blank" rel="noreferrer noopener">TerraUSD stablecoin collapse</a>, which, McGuinness said, “has certainly raised a lot of questions and concerns at many levels.” She also mentioned Celsius&#8217; <a href="https://cms.blockworks.co/celsius-withdrawal-halt-reveals-run-risks-on-other-crypto-banks/">pausing all transfers and withdrawals</a> earlier this week. 



MiCA will set common rules for cryptocurrency regulation in all 27 EU member states, putting European regulators at the helm of digital assets supervision across the union with the help of national authorities.



However, some issues in the legislative package have yet to be settled. According to Bloomberg, EU countries and the EU Parliament still disagree on whether to include non-fungible tokens (NFTs) in MiCA, how to regulate big stablecoins, the division of supervisory responsibilities, and the introduction of a ceiling to limit stablecoins usage as a payment method to prevent currency substitution.



Crypto’s environmental impact is yet another issue to be agreed upon. Blockchain for Europe, which represents international industry players at the EU level, claimed today that the Greens and the Socialists, two of the biggest Parliament groups, are trying to introduce amendments that will oblige all cryptoasset service providers (CASPs) to publicly disclose “info on adverse environmental impact of consensus mechanism used to issue each cryptoasset.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Update on <a href="https://twitter.com/hashtag/MiCA?src=hash&amp;ref_src=twsrc%5Etfw">#MiCA</a> ❗️ Hours before the 3rd trilogue, the Greens and Socialists are trying to introduce amendments that resemble the &quot;<a href="https://twitter.com/hashtag/PoW?src=hash&amp;ref_src=twsrc%5Etfw">#PoW</a> ban&quot; that was already voted down by the <a href="https://twitter.com/Europarl_EN?ref_src=twsrc%5Etfw">@Europarl_EN</a> Details in the 🧵below:&mdash; Blockchain for Europe (@BlockchainforEU) <a href="https://twitter.com/BlockchainforEU/status/1536693911112011783?ref_src=twsrc%5Etfw">June 14, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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“These proposed amendments do not answer the question of what happens if either a CASP or a token issuer cannot deliver on the ask. Further, it seems likely that a non-compliant actor would be banned at EU level,” the organization said.&nbsp;



Another remaining question is whether anti-money laundering rules will be included in the MiCA package or if this will be addressed in other legislation.



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EU Negotiators Want To Hammer Out Crypto Bill This Month

<div id="highlights-block_627accf0ab28c" class="highlights">
 <ul>
 <li>The European Commission sees “minimal” DeFi contributions to the real economy but acknowledges its usefulness in the virtual economy</li>
 <li>A pilot project on rules regarding the DeFi ecosystem will be launched this year</li>
 </ul>
 
</div>



The European Union is eyeing first-time DeFi rules.



A pioneer in the development of data protection legislation through GDPR (General Data Protection Regulation), the European Commission also intends to be at the forefront of the rules that could shape a decentralized financial world.



<a href="https://ec.europa.eu/info/sites/default/files/european-financial-stability-and-integration-review-2022_en.pdf" target="_blank" rel="noreferrer noopener">In a recent report</a>, the EU’s executive arm revealed it will test an embedded form of DeFi’s (decentralized finance’s) supervision, which is now mainly unregulated, through a pilot.



“Adapting the EU financial services regulatory framework to a [decentralized] environment will require a rethink,” the report states. A pilot project on “embedded supervision” will be launched this year in order “to benefit from the inherent data transparency on public blockchains.”&nbsp;



The upshot is a tech-heavy solution in which supervisors “automatically monitor compliance with the regulatory framework by reading blockchain transaction data.” That way there is no need for market participants to “actively collect, verify and deliver data to supervisory authorities” — as is the case in the financial system now.&nbsp;



Although European regulators see innovation as an opportunity, executives also recognize “many risks” in DeFi, including “conduct and operational” perils.&nbsp;



“Conduct risks arise in the absence of any regulation and are amplified by the quasi-anonymous nature of DeFi, whereas operational risks occur in view of the vital part played by software,” the report says.



There’s also the issue of future financial stability implications arising from the rapid growth of the DeFi ecosystem “in light of the prominent role played by stablecoins.”



US Treasury Secretary Janet Yellen, meanwhile,<a href="https://cms.blockworks.co/secretary-yellen-stablecoins-pose-significant-risk-to-financial-stability/" target="_blank" rel="noreferrer noopener"> just dispatched another warning</a> about stablecoins in a Senate hearing Tuesday. 



However, the European Commission’s staff also highlights that DeFi “could potentially increase the security, efficiency, transparency, accessibility, openness and interoperability of financial services,” compared to TradFi — especially when it comes to cross-border payment settlements.&nbsp;



There’s a risk of “curtailing innovation” by deploying too heavy a regulatory hand on DeFi, regulators said.&nbsp;



Bureaucrats are leaning toward “activity-based regulation,” rather than “entity-based,” and they argue that the focus should be on smart contracts’ rules and features.



“Long-term, the capability of regulatory bodies to automatically monitor compliance by reading public blockchain data could drastically reduce the need for market participants to actively collect, verify and deliver data to supervisory authorities,” tweeted Patrick Hansen, Presight Capital’s crypto venture adviser.



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">9/ Long-term, the capability of regulatory bodies to automatically monitor compliance by reading public blockchain data could drastically reduce the need for market participants to actively collect, verify and deliver data to supervisory authorities.&mdash; Patrick Hansen (@paddi_hansen) <a href="https://twitter.com/paddi_hansen/status/1521131820632494082?ref_src=twsrc%5Etfw">May 2, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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DeFi is a form of autonomous financial intermediation through a decentralized digital platform using blockchain technology, powered by open-source software. Its total value locked still represents a small slice of traditional finance.



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