The EU appears to be on track to finally pass its crypto regulatory framework, with a vote scheduled for Monday. However, there are concern that, as written, the proposal will essentially outlaw Bitcoin and Ethereum in the EU.
Christine Lagarde, President of the European Central Bank (ECB), looks to have achieved her wish, as she recently asked for the region’s cryptocurrency rules to be adopted as quick as possible. However, crypto supporters are likely to be dissatisfied with the conclusion because the EU’s legislative framework Markets in Crypto Assets (MiCA) still includes a clause that restricts the deployment of PoW crypto.
A prior draft of MiCA would have prohibited the use of digital assets through the use of what it called ecologically unsustainable consensus procedures. Following industry concerns, the clause carrying this requirement was eventually eliminated. However, the new draft favored by the majority of EU lawmakers, which is expected to be voted on Monday, contains a similar provision, albeit in softer language.
While the draft states that an asset with small-scale operations would be excluded from the energy requirement, it is unclear what the EU considers small-scale.
It says that crypto assets:
“shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered, or admitted to trading in the Union.”
Bitcoin, Ethereum, and even the renowned meme coin Dogecoin employ PoW as a consensus process. The technique forces several computers to work hard to solve complicated issues in order to justify network transactions, providing crypto rewards to the system that finds the answer the quickest.
It has been hailed as an excellent methodology for securing the blockchain and discouraging malicious actors from verifying fictitious transactions. It should be emphasized that Ethereum and DOGE are on track to transition to PoS.
However, for all of its advantages, the process has a major drawback in that it needs a significant amount of energy to power these computers or mining equipment. With the globe trying to minimise emissions, it has become a key worry for politicians worldwide, including in the EU. In November of last year, Swedish authorities advocated a ban on crypto mining in the EU in an open letter that garnered support in Norway, Spain, and Germany.
The inclusion of this clause in the EU’s MiCA has elicited conflicting opinions. Pierre Person, a French politician and member of the Law Commission, raised his worries about the draft’s impact in a nine-tweet thread.
The lawmaker said that if enacted, the plan will put the EU at a disadvantageous position. Person believes that Bitcoin miners may be convinced to depend entirely on surplus renewables to address energy problems.
Digiconomist, on the other hand, does not appear to agree. In response to Person, Digiconomist stated that putting such demands on the grid only increases reliance on fossil fuels in other sectors, noting that “Bitcoin has become less green in the last year.”
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