Europe Rejects Proposal Limiting PoW Cryptos Such As Bitcoin But Sets Draft Rules For Sustainability

The European Union rejected a proposed rule that could have banned Bitcoin cryptocurrency across the bloc, but set new draft rules to protect consumers and make mining more sustainable.

The European Parliament’s Economic and Monetary Affairs Committee voted Monday on the proposed Framework for Crypto Asset Markets (MiCAs), the EU legislation governing digital assets.

A last-minute addition to the bill was made over the weekend, which sought to limit the use of cryptos powered by the power-intensive process known as proof-of-work (PoW). But it was rejected by the parliamentary committee on Monday.

Crypto-assets are neither issued nor guaranteed by a central bank or public authority and are therefore currently outside the scope of EU law. The European Parliament says this can lead to “consumer protection and financial stability risks” and could lead to market manipulation and financial crime.

There is also widespread concern about the sustainability of cryptocurrencies, as Bitcoin’s energy consumption is equivalent to that of entire small countries, according to some studies.

What did the EU vote for?

MEPs voted for a uniform legal framework for crypto-assets in the European Union. This includes consumer protection measures and safeguards against market manipulation and financial crime.

In order to reduce the carbon footprint of cryptos, MEPs called on the European Commission to include crypto-asset mining in the EU taxonomy (a classification system) for sustainable activities by 2025.

The draft regulation received 31 votes for, 4 votes against and 23 abstentions. Formal negotiations on the draft framework will now continue between the European Commission, the Council and the Parliament.

“With the adoption of the MiCA report, the European Parliament has paved the way for innovation-friendly crypto regulation that can set standards around the world,” said Stefan Berger MEP of the European People’s Party.

What is PoW and how bad is it for the environment?

Both Bitcoin and Ethereum use PoW, the mechanism used to confirm transactions and add new blocks to the chain.

All participants in the PoW blockchain network compete simultaneously to solve a cryptographic algorithm. The algorithm is designed to become more difficult to solve as more computers try to solve it, which means that a huge amount of computing power and therefore energy is spent validating each block. of a blockchain.

Many countries like China have banned crypto mining due to its massive energy consumption, as the country struggled with power cuts last year.

Despite the crackdown in China, which was the main destination for crypto miners, a recent study showed that Bitcoin mining has become much dirtier and emits about the same amount of CO2 per year as a country the size of of Greece.

Several European parliamentarians have lobbied to ban PoW cryptos in favor of more sustainable energy. However, they also raised concerns that switching to renewable energy would mean that this energy is favored for crypto mining rather than public use.

Another option could be to switch to the Proof-of-Stake model, which is considered greener because it randomly assigns coins to users, who put coins as collateral.

The draft PoW limitation proposal has received backlash from the cryptocurrency community.

“Individuals and organizations should be free to choose the most appropriate technology for their needs,” reads a statement from crypto wallet provider Ledger.

“Policy makers should neither impose nor discriminate in favor of a particular technology. This is deeply worrying and would have serious consequences for Europe”.

Mary I. Bruner