Political power of the crypto community: EU lawmakers vote against PoW ban

According to Bitpush, on Monday morning local time, the European Parliament's Economic and Monetary Affairs Committee (ECON) voted down a "de facto" ban on Proof of Work (PoW): 32 votes against and 24 votes in favor. EU Parliament member Stefan Berger confirmed the news on social media, which means that the crypto community has clearly become a political force, and more friendly crypto regulation in the EU in the future is expected.

The majority of MEPs representing the European People's Party (EPP), European Conservatives and Reformists (ERC), Renew Europe (Renew) and Identity and Democracy (ID) groups rejected the clause. The Greens, Socialists and Democrats (S&D) and the Left (GUE/NGL) of the European Parliament supported the ban.

background

A previous version of the draft proposed a ban on proof-of-work (PoW)-based cryptocurrencies in the EU starting in January 2025, a clause that was later removed following community criticism, but a revised version was re-written into the latest draft.

The new clause, which was added last week to the draft of the proposed Markets in Crypto-Assets (MiCA) framework – the EU’s comprehensive regulatory scheme for managing digital assets – aims to restrict the use of cryptocurrencies powered by an energy-intensive computing procedure called proof-of-work (PoW) in the 27 EU member states, requiring all cryptocurrencies to comply with the EU’s “minimum environmental sustainability standards for their consensus mechanisms.”

PoW is a consensus mechanism used by cryptocurrencies such as Bitcoin, Ethereum, Dogecoin, etc. The mechanism requires many computers to work hard to solve complex problems to verify transactions on the network, thereby providing cryptographic rewards to the system that gets the solution the fastest. PoW is seen as an effective model for protecting the blockchain and preventing bad actors from verifying false transactions.

For mainstream PoW cryptocurrencies such as Bitcoin and Ethereum that are already traded in the EU, the rules propose a phase-out plan to shift their consensus mechanisms from PoW to other methods that use less energy, such as Proof-of-Stake (PoS).

While Ethereum is expected to move to a proof-of-stake consensus mechanism this year, Bitcoin would be directly affected by the legislation if it passes, as it is currently unable to complete the switch.

The proposal was met with strong opposition from the crypto community.

Former Meta Blockchain head David Marcus predicted that such a move would have a “catastrophic” impact.

Jake Chervinsky, head of policy at the Blockchain Association, commented before the vote: “MiCA is very bad for cryptocurrencies, worse than anything in the US. Tomorrow (Monday) the European Parliament votes on ‘environmental sustainability standards’ that look like an excuse for a Bitcoin ban.”

After the voting results came out, Stefan Berger tweeted to celebrate: "The Commission won the first stage of MiCA! By accepting my proposal, the members paved the way for future-oriented cryptocurrency regulation. Now it's a matter of accepting the entire report in the final vote and sending a strong signal of innovation."

What's next?

Patrick Hansen, head of strategy and business development at Unstoppable Finance, explained that crypto mining will most likely no longer be addressed in the MiCA regulations, but added to the EU sustainable finance taxonomy. MiCA regulates financial instruments and financial service providers, and it makes more sense to address any questions about the sustainability of mining technology separately.

MEPs approved an alternative amendment proposed by Stefan Berger that does not restrict Bitcoin mining: "By 1 January 2025, the Commission shall submit to the European Parliament and the Council, as appropriate, pursuant to Article 10 of that Regulation, legislative proposals amending Regulation (EU) 2020/852 with a view to including any crypto-asset mining activity that makes a significant contribution to climate change mitigation and adaptation in the EU sustainable finance taxonomy".

Next, the MiCA draft will enter the "trilogy", which is the formal negotiation between the European Commission, the Council and the Parliament. After they finally reach an agreement (a few months), the law will come into force. However, companies will have a 6-month transition period to comply with the requirements.

Hansen pointed out that the anti-Bitcoin alliance of MEPs can still veto MiCA's fast-track procedure through the three-step process and submit the discussion to the plenary session of the Parliament, which requires at least one-tenth of the votes to bring the discussion around PoW into the high-level policy arena. Therefore, the crypto community still has a lot of work to do in the coming months and even years.

As Bitcoin has grown in popularity, controversy has grown over its energy consumption and environmental impact. The PoW mechanism has been heavily criticized by some regulators and politicians around the world. Some EU leaders are concerned that renewable energy could be used to sustain cryptocurrencies such as Bitcoin rather than being used by the state.

However, according to a report released by the Bitcoin Mining Council (BMC), BTC accounted for only 0.38% of the 50,000TW/h of energy wasted worldwide due to inefficiency in 2021, suggesting that regulators' concerns about Bitcoin's energy consumption are greatly exaggerated.