Electronic storage of digital representations

7 July 2023

The crypto-asset definition provides cumulative conditions of ‘transfer’ and ‘storage’ that apply to all relevant crypto-assets falling within MiCA’s scope (note the coordinating conjunction “and” in the definition between ‘transfer’ and ‘storage’).

Therefore, in order to qualify as a crypto-asset, the digital representation must also be able to be stored electronically. The “storage” condition is a prerequisite and a necessary condition for the electronic transfer. No electronic transfer may take place without the digital representation having first been stored electronically, and without being able to remain stored electronically after that transfer.

On the other hand, the term “electronically” implies that the crypto-asset must be stored, in the form of digital data, using distributed ledger technology (DLTs) or similar technology (by analogy Article 3-1(5) MiCA). Without the crypto-asset being first stored using a DLT or similar technology, it also cannot be further transferred with the same kind of technology.

The definition provides that the digital representation must be stored electronically using the DLT; it does not provide that it must be stored electronically in or within any DLT. The digital representation may be stored electronically, before or after any transfer, with different solutions, including with hot-storage or cold-storage solutions. "Hot storage" refers to an online wallet (because it is connected to the Internet, it is more vulnerable to hacking/theft), while "Cold storage" refers to an offline wallet - i.e., a wallet that is not connected to the Internet so as to help protect the stored crypto-asset against hacking and theft (FATF, Virtual Currencies Guidance, p. 29; cf. also: EP, Cryptocurrencies and Blockchain, p. 17). These terms and wallets are usually applicable to virtual currencies and, in particular, cryptocurrencies (e.g., Bitcoin wallets).

A DLT is a technology that enables the operation and use of an information repositories that keep records of transactions and that are shared across, and synchronised between, a set of DLT network nodes using a consensus mechanism (Article 3-1(1) to (4) MiCA, which incorporates the definitions of Article 2(1) to (4) of Regulation (EU) 2022/858 of 30 May 2022 on a pilot regime for market infrastructures). The terms 'distributed ledger technology’ aim exclusively the DLT technology itself, such as the blockchain technology (Bitcoin Blockchain, Ethereum Blockchain, etc.) (Recital (1) MiCA; PE, Cryptocurrencies and blockchain, p. 15) but also Hedera Hashgraph (HBAR) or Tangle (IOTA).

Interestingly, the definition of crypto-assets also allows the possibility for crypto-assets to be stored using “similar technologies” to DLTs. This term appears however to be an attempt to make MiCA future-proof (Recital (1) MiCA; Recital (16) MiCA), targeting potential new technologies that could emerge in the near future. It does not seem to refer to any existing technology or, at least, MiCA provides no example of such “similar technology”. Furthermore, some provisions of MiCA exclusively pertain to DLTs which appears to exclude the application of these provisions to “similar technologies” to DLT (Recital (93) MiCA; Article 4-3(b) MiCA; Article 25-1(f) MiCA; Article 34-5(f) MiCA).

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