The Proof-of-work (PoW) mechanism for mining cryptocurrencies will not be banned in the EU – at least this year. This is the conclusion from the closely watched vote of the committee in the European Parliament (EP).
A surprise amendment was made at the last minute by a coalition of social democrats and the Greens to implement a ban on the PoW – a consensus mechanism used by cryptocurrencies such as Bitcoin (BTC) and Ether (ETH). However, this proposal was dropped. The cryptocurrency community may breathe a sigh of relief, but many worry that the industry's problem with consensus protocols that consume energy is still there.
"My first reaction to the economic and monetary commission vote was a sigh of relief," said Joshua Ellul, director at the Distributed Ledger Technology Centre and senior lecturer at the University of Malta.
But Ellul also said the community should not "fall asleep on last week's victory." Miners who support PoW blockchain projects should "study renewable energy sources," not only to anticipate future laws, but also to minimize their carbon footprint.
The commission's vote is part of the EU's Cryptocurrency Assets Market (MiCA) process to bring unity, transparency and regulation to cryptocurrency markets in Europe.
"The PoW ban cannot be included in mica's final agreement," said Patrick Hansen, head of strategy at cryptocurrency firm Unstoppable Finance. But this doesn't mean that energy expenditure and carbon footprint are issues that can be ignored." "The macro environment – Ukraine, inflation, … … – is changing rapidly, and cutting energy consumption may soon become a top priority in policy."
A wake-up call
Regarding the committee's vote, Yu Xiong, professor of business analysis and director at the Centre for Innovation and Commercialization at the University of Surrey, said that "this is good news for the cryptocurrency sector." This is another sign that cryptocurrencies and blockchain technology are gaining widespread public acceptance, but it also "gives a warning about mining actions using PoW. Be prepared for change because no one can predict whether there will be such a vote in the future."
Even so, the 32-24 vote to repeal this amendment has caused certain anxieties in the cryptocurrency community. "The MiCA situation for cryptocurrencies is worse than anything in the U.S.," said Jake Chervinsky, policy director for the Blockchain Association. He also said that the amendment serves as "an excuse to ban Bitcoin." Jean-Marie Mognetti, CEO of CoinShares, said the risk of a PoW ban was "not just bad news," but "a thoughtless and shallow proposal that does not reflect the reality and future of the industry."
Bitcoin mining will soon become part of Europe's sustainable classification system
Besides the controversy over the amendment, the ECON Commission also recommended that the European Commission include cryptocurrency mining activities in the EU plan – a system for classifying sustainable copper activities by January 1, 2025. The EU will then determine whether cryptocurrency mining is classified into "sustainable" activity. If it is not thought to be sustainable then European investors will have to abandon this cryptocurrency sector.
However, this may not yet happen in the near future and has limited scope. "I don't think the sustainable classification system from 2025 onwards will have a big impact on cryptocurrencies," Hansen said. "Depending on how it is defined, it may make it more difficult to invest in mining companies in the future, but this is a few years away and mining is not an important economic activity in the EU anyway."
And more importantly, it will only affect mining companies and "not the entire cryptocurrency industry," Hansen added.
Xiong said it was "reasonable" to include cryptocurrency mining in the EU classification system. This will put more pressure on miners and they have to switch to a more environmentally friendly mechanism. He also predicted that by 2025, fewer networks will use the PoW consensus mechanism. Xiong forecasts that "Sau all, only PoS will be accepted in Blockchain applications."
Forecasts of the climate crisis
Will the controversy over this rule teach you any lessons? According to Xiong, one lesson is that cryptocurrency and blockchain developers "should only practice environmentally friendly cryptocurrencies" because any carbon-emitting action in the field "will be quickly criticized by outsiders."
Indeed, Eero Heinaluoma, a Member of the European Parliament and advocate of amendments to pow, said that "The carbon footprint of a bitcoin transaction is also equal to a transatlantic flight from London to New York. This is 1.5 million times the amount of energy used for a VISA transaction. If we don't limit this huge carbon footprint by putting cryptocurrencies on a more sustainable path, efforts to combat the climate crisis and strengthen energy independence will become meaningless."
However, not all the cryptocurrency community is convinced by this comparison. Mognetti stated, "With annual emissions at 41 million tons of CO2, the global Bitcoin Mining industry has a relatively small environmental impact compared to the aviation industry, waterway transportation, air conditioning, fan machines, data centers and tumble dryers."
Overall, the European Parliament's vote "doesn't limit the technology this time around, but it raises questions about the future," Ellul said. Meanwhile, Hansen added that even if the commission's election results are lost, the ban on cryptocurrency mining will inevitably be lifted from the MiCA bill as the three main EU bodies – parliament, council and commission – adjust their legislative texts in the EU's "three-paragraph meeting".
Anyway, if you lose on the ECON Committee, that's a bad thing. "The EU Parliament's call for a ban on PoW alone has had a detrimental effect on the market."
