A proposal to limit the use of energy-intensive crypto assets in the EU that are based on proof-of-work mechanisms, such as bitcoin, has been quashed.
Cryptocurrencies such as bitcoin had a narrow escape in the European Parliament yesterday (14 March) as MEPs voted to scrap a provision that would have banned, in effect, proof-of-work crypto assets on sustainability grounds.
The economic and monetary affairs committee voted 30 to 23 in favour of dropping a provision that would have made it nearly impossible for crypto assets such as bitcoin and Ethereum to be traded in the EU because of their reliance on a proof-of-work mechanism.
This is an energy-intensive consensus mechanism that is used by the two major cryptocurrencies to authorise transactions, add them to the blockchain and create new tokens. Many EU lawmakers have been calling to ban or limit the use of such assets as part of an attempt to regulate the nascent market.
The provision was part of the Markets in Crypto Assets (MiCA) framework, which aims to establish a package to regulate crypto assets in the EU – something the US is also working on.
After MEPs agreed on draft rules yesterday, MiCA will now go to the European Commission and member states for debate. Instead of a limit on proof-of-work crypto assets, the draft focuses on protecting consumers against market manipulation, preventing financial crime and money laundering, and making crypto mining more sustainable.
‘Innovation-friendly crypto regulation’
A ban or limit on proof-of-work processes has long been debated in the EU as the popularity of crypto continues to rise.
Crypto’s environmental impact is a cause for concern due to the amount of power cryptocurrency mining uses around the world. Bitcoin mining consumes around 91 terawatt-hours of electricity annually, which is more electricity than all of Finland, according to a New York Times analysis last year.
Some regulators in Europe have raised concerns that renewable energy will be channelled to sustain crypto mining instead of national use.
After a number of entries and exists from the draft in different wording, the proof-of-work provision was added in over the weekend just ahead of the European Parliament vote.
Some proponents of crypto, such as Circle co-founder and CEO Jeremy Allaire, raised an alarm that the provision would be impractical and detrimental to the crypto market in the EU.
Extremely high stakes vote in the EU. That such a proposal made it this far is extraordinarily concerning and unlikely to stand up to practical reality. https://t.co/t8xA0EnVfE
— Jeremy Allaire (@jerallaire) March 12, 2022
The provision, while not an outright ban on bitcoin and Ethereum, would have required them to transition to more sustainable consensus mechanisms such as a proof-of-stake process. While Ethereum has looked at making that transition, it may be much harder for the more popular bitcoin.
MEP Stefan Berger said that by adopting the MiCA framework, the European Parliament has “paved the way for an innovation-friendly crypto regulation that can set standards worldwide”.
“The regulation being created is pioneering in terms of innovation, consumer protection, legal certainty and the establishment of reliable supervisory structures in the field of crypto assets. Many countries around the world will now take a close look at MiCA,” he said.
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