The European Union has rejected a proposed rule that would ban Bitcoin from the entire block, but has set new rules to protect consumers and make mining more resilient.
On Monday, the European Parliament’s Committee on Economic and Monetary Affairs voted on the proposed structure of Markets in Crypto Assets (MiCA), the EU’s digital asset management legislation.
Over the weekend, a last-minute addition to the bill was introduced to limit the use of cryptography based on an energy-intensive process called proof-of-work (PoW). But on Monday it was rejected by a parliamentary committee.
Crypto assets are not issued or guaranteed by a central bank or government agency and therefore are not currently subject to EU law. The European Parliament argues that this could create “risks to consumer protection and financial stability” and could lead to market manipulation and financial crime.
According to some studies, there is also widespread concern about the sustainability of cryptocurrencies, since the energy consumption of bitcoin is equal to the energy consumption of entire small countries.
What did the EU vote for?
Members of the European Parliament voted for a single legal framework for crypto assets in the European Union. This includes consumer protection measures and measures against market manipulation and financial crime.
To reduce the carbon footprint of cryptocurrencies, MEPs have asked the European Commission to include cryptocurrency mining in the EU taxonomy (classification system) for sustainable activity by 2025.
The draft rules received 31 votes to 4, with 23 abstentions. Formal negotiations on the draft framework will now continue between the European Commission, Council and Parliament.
“With the adoption of the MiCA report, the European Parliament has paved the way for innovative cryptocurrency regulation that can set standards worldwide,” said MEP Stefan Berger of the European People’s Party.
What is PoW and how dangerous is it for the environment?
Bitcoin and Ethereum use PoW, a mechanism used to confirm transactions and add new blocks to the chain.
All participants in the PoW blockchain network simultaneously compete in solving the cryptographic algorithm. The algorithm is designed to be more difficult to solve the more computers try to solve it, which means huge computational power and therefore energy spent on verifying each block in the blockchain.
Many countries such as China have banned cryptocurrency mining due to its huge energy consumption as the country struggled with power outages last year.
Despite crackdowns in China, which has been a top destination for crypto miners, a recent study found that bitcoin mining has actually become much dirtier, emitting roughly the same amount of CO2 annually as a country the size of Greece.
Several EU MPs are pushing for a ban on PoW cryptocurrencies in favor of more sustainable energy. However, they also expressed concern that the switch to renewable energy would mean such energy is preferable for cryptocurrency mining rather than public use.
Another option could be to move to a Proof-of-Stake model, which is considered greener as it randomly allocates coins to users who deposit coins as collateral.
The draft proposal to limit PoW caused a backlash from the cryptocurrency community.
“People and organizations should be free to choose the technology that best suits their needs,” cryptocurrency wallet provider Ledger said in a statement.
“Politicians should neither impose nor discriminate in favor of this or that technology. This is of deep concern and will have serious implications for Europe.”