European Parl rejects move that would have effectively banned bitcoins

The European Parliament has voted against a proposal in a new crypto bill that would have led to a ban on all cryptocurrencies based on proof-of-work (PoW) protocol, reported Cointelegraph.  

The Markets in Crypto Assets (MiCA) bill was introduced by the European Commission in 2020 to regulate all cryptocurrencies and stable coins and to curb the harmful impact of crypto mining on the environment. 

However, one of the clauses in the bill demanded a “minimum environmental sustainability” standard that would have required blockchain platforms to provide a roadmap for compliance or face a ban on mining or trading of cryptocurrencies in the European Union. 

The passing of the bill would have resulted in a ban on all PoW based cryptocurrencies such as bitcoin, which does not have a central operator to provide a roadmap.  

Proof-of-work is a consensus protocol used by several blockchain platforms including bitcoin network and ethereum.  

It allows the nodes of the blockchain network to agree on all recorded information such as account balance or the order of transactions. This is carried out by adding new blocks to the chain through a process called mining.  

It requires miners to solve a mathematical problem that requires a lot of computing power, which means more consumption of electricity which is fuelled in most countries including the EU by coal and oil. Several countries including Iran and Kosovo have banned crypto mining temporarily as well as on a permanent basis to avoid a spiraling energy crisis.  

According to estimates by the University of Cambridge, Bitcoin mining consumes more than 121.36 Terawatt Hours (Twh) per year, which is more than the annual electricity consumption of some countries like Argentina, Malaysia, and Sweden.  

Aware of the environmental impact of mining, some of the blockchain networks including Ethereum are planning to phase out mining and replace proof-of-work consensus protocol with proof-of-stake (PoS).  

In PoS, miners will be replaced with validators, who won’t have to compete to create blocks. Instead, they will be chosen randomly using an algorithm.  

The vote against the MiCA bill would provide some relief to the crypto industry that has been on edge across the world with the growing talks of regulating or banning cryptos and replacing them with central bank digital currencies (CBDC).  

India is also expected to launch its CBDC soon. Last week, US president Joe Biden also passed an executive order asking federal agencies to come up with a plan for CBDC.   

According to the Cointelegraph report, a moderate version of MiCA, which doesn't propose a blanket ban on cryptos and PoW, will be presented to EU institutions.