EU to vote on whether to restrict proof-of-work (POW) cryptocurrencies

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A provision aimed at forcing proof-of-work cryptocurrencies such as Bitcoin to switch to the more environmentally friendly proof-of-stake consensus mechanism was included in the draft MiCA that was voted on by parliament on Monday.

The latest draft of the European Union’s (EU) proposed legislative framework for regulating virtual currencies, known as Markets in Crypto-Assets (MiCA), contains a clause that could restrict the use of proof-of-work cryptocurrencies.

Popular Science: Proof of Work (POW) is an energy-intensive consensus mechanism that is the basis of popular cryptocurrencies such as Bitcoin and Ethereum.

The calculation process has come under heavy scrutiny from EU lawmakers due to energy issues, and a previous draft of the MiCA framework contained a strongly worded clause proposing a ban on POW consensus cryptocurrency services from January 2025.

Dr Stefan Berger, the EU lawmaker responsible for the MiCA legislative framework, said at the time that the paragraph in question had been removed but that no final decision had been made.

The new draft has a similar clause, saying that crypto assets "shall have their consensus mechanisms used to validate transactions meet minimum environmental sustainability standards before they are issued, offered, or allowed to be traded in the Union."

Under the regulation, a proof-of-work consensus mechanism can be exempted from meeting the sustainability standard if it operates on a small scale. What qualifies as a small scale operation remains to be determined.

Energy-intensive crypto assets already in use in the EU before the legislation comes into force will have to "establish and maintain a phased roll-out plan to ensure compliance with these requirements," according to another part of the framework.

While there are plans to move Ethereum from Proof of Work (POW) to a less energy-intensive consensus mechanism, Proof of Stake (POS), it is unclear how Bitcoin, the world's most traded cryptocurrency, can transition from Proof of Work. As a result, there has been a huge push recently to use renewable energy in Bitcoin mining.

The cryptocurrency community has been quick to react, with some calling on citizens in the EU to contact their lawmakers to oppose the measure. Hardware wallet provider Ledger released a statement saying:

“Individuals and organizations should be free to choose the technology that best suits their needs. Policymakers should neither impose nor discriminate against one technology over another. This is deeply worrying and will have serious implications for Europe.”

Paris lawmaker and law committee member Pierre Person lambasted the new additions in a tweet, in which he spoke of the impact such a regulation would have on Europe’s competitiveness in the growing cryptocurrency ecosystem.

The translation is as follows:

(1/9) The MiCa regulation will be voted on next Monday. As it stands, it clearly condemns the future of crypto assets in Europe. By banning Bitcoin and Ethereum and complicating the use of NFTs and DeFi, the European Parliament is mortgaging our monetary and financial sovereignty.

(2/9) MiCa is a major break with the principle of technological neutrality. MiCa prohibits the issuance or exchange of crypto assets that rely on proof-of-work protocols. This led to a fateful decision to exclude Bitcoin and Ethereum from Europe.

(3/9) If each of us must defend a more ecological and benign society, then banning PoW is a simplistic and ridiculous view. It is equivalent to banning an activity that does not exist on European territory - mining.

(4/9) The problem is not Bitcoin’s energy consumption, but where that energy comes from. If mining from fossil energy can be banned, it would make more sense to promote mining using renewable energy.

(5/9) MiCa also refers to NFTs. NFTs that are not listed on an exchange are considered outside the scope of crypto assets. Therefore, an NFT representation of a sword in a video game would be regulated in the same way as an asset by market authorities.

(6/9) The EU is condemning the development of our companies and imposing a regulation that is out of touch with their activities. NFT is a technical standard, and its underlying layer should be the object of regulation. Do we regulate TCP/IP?

(7/9) Whether it is DeFi or NFT, these technologies are still in the early stages of development. We should regulate future use cases, not technologies. Parliament is transplanting old-world financial regulation onto a new technology with a different structure.

8/9) The European Parliament takes a hard line on crypto assets, arguing they are protecting citizens. In reality, this version is insane for our competitiveness, while at the same time, President Biden has signed a bill calling on the U.S. to fully embrace this new ecosystem.

(9/9) Once again we are going against history. We are leaving opportunities to others and claiming to have a good regulation. If this text is adopted as it is, we will pay the price in terms of the competitiveness of the industry and the interests of European citizens.

Original source: headtopics Original author: Sandali Handagama