The European Union has overruled a plan to ban Bitcoin across the union, but it has urged extra safeguards for consumers and more sustainable mining.
The proposed MiCA framework, which would supervise digital assets in the EU, was approved by the European Parliament’s monetary and economic affairs board.
A last-minute change to the legislation was made over the weekend, prohibiting the use of cryptos powered by the energy-intensive proof-of-work mechanism (PoW). The legislative committee, however, voted it down on Monday.
According to several assessments, Bitcoin’s energy usage rivals entire small countries, causing significant anxiety about the cryptocurrency’s long-term viability.
What is PoW, and how harmful is it to the environment?
Bitcoin and Ethereum employ the Proof-of-Work (PoW) algorithm to confirm transactions and add new blocks to the chain.
Participants in the PoW blockchain network compete to solve a cryptographic algorithm concurrently. The system is designed to become more difficult as more computers try to solve it, indicating that validating each block on a blockchain takes a lot of computing power and energy.
Crypto mining has been banned in several countries, including China, because of its excessive energy usage, which was aggravated by its power disruptions last year.
Despite the crackdown in China, formerly the most popular location for cryptocurrency miners, new research found that Bitcoin mining has become considerably dirtier, emitting nearly the same amount of CO2 every year as a country the size of Greece.
Several EU MPs have advocated for the prohibition of PoW cryptos favoring more ecologically acceptable energy sources. However, they have raised concerns that switching to renewable energy will mean that crypto mining will take precedence over normal usage.
Switching to the Proof-of-Stake model, which is more environmentally friendly since it distributes currencies to users randomly after they put up coins as deposit, is another choice. The bitcoin community reacted negatively to the proposed plan to limit PoW.
What did the European Union vote for?
MEPs voted in favor of a European Union-wide legal framework for crypto-assets. This includes precautions against market manipulation, financial fraud, and consumer protection measures. MEPs have requested the European Commission to put crypto-assets mining in EU taxonomy for sustainable happenings by 2025 to lessen the cryptos’ carbon impact.
The proposed regulations received 31 yes votes, 4 no votes, and 23 abstentions. The European Commission, Council, and Parliament will now begin formal talks on the draught framework.
Because crypto-assets are neither hand out nor guaranteed by government or a central bank, they are currently beyond the purview of EU law. The European Parliament claims that this offers “risks to consumer protection and financial stability” and the prospect of market manipulation and financial crime.
Sir Patrick Bijou, a finance expert and chairman of WEOWNS (weowns.global), has written a lot on blockchain and cryptocurrency. You can find more information here.