Proof-of-work (PoW) crypto mining will not be banned in the European Union – at least not this year. That is the conclusion of last week’s closely monitored committee vote in the European Parliament (EP).
A last-minute amendment tabled by an ad hoc coalition of Social Democrats and Greens would have imposed a de facto ban on proof-of-work mining — the kind of consensus mechanisms used by native cryptocurrencies like Bitcoin (BTC) and Ether (ETH). ) – was firmly rejected. The crypto community can breathe easy, but some still worry that the industry’s problem with its energy-intensive consensus protocols persists.
“My initial reaction to the outcome of the Economic and Monetary Affairs Committee vote was a sigh of relief,” Joshua Ellul, director of the Center for Distributed Ledger Technologies and senior lecturer at the University of Malta, told Coin-Crypto, adding:
“It’s definitely a sign that crypto and distributed ledger technology is no longer a niche that brings together technologists, investors, hobbyists and idealists — it’s a technology that has become indispensable.”
But Ellul also believes the community should not be reassured by last week’s win. Miners supporting PoW blockchain projects are required to “research renewables” not only in anticipation of other possible regulatory action, but also to minimize their carbon footprint.
The committee’s vote was part of the European Union’s ongoing Markets in Cryptocurrency Assets (MiCA) process designed to bring harmonization, clarity and regulation to European cryptocurrency markets.
“In all likelihood, the de-facto PoW ban amendment would not have made its way into the final MiCA agreement,” Patrick Hansen, head of strategy at crypto firm Unstoppable Finance, told Coin-Crypto. But that doesn’t mean that energy waste and carbon footprint are dead spots. Hansen added:
“The macro environment – Ukraine, inflation, etc. – is changing rapidly and reducing energy consumption may soon become an absolute policy priority.”
A wake-up call?
“This is good news for the crypto sector,” Yu Xiong, a professor of business analysis and director of the Center for Innovation and Commercialization at the University of Surrey, told Coin-Crypto about the EP committee vote. It is another sign that cryptocurrencies and blockchain technology are widely accepted by the public, but it has certainly also given a warning to those mining operations that use PoW. Prepare for transformation, because no one can predict whether there will be another such mood in the future.”
Ethereum will “hopefully” transition successfully to a more environmentally friendly proof-of-stake (PoS) consensus mechanism later this year, he added. Otherwise, the mood provides time for other projects using PoW to undertake their own transformation to reduce energy consumption and their carbon footprint.
Like some others active in the crypto world, Xiong believes that enlightened regulation – of the kind MiCA supposedly provides – will be an overall plus for the crypto industry. Or, as European People’s Party spokesman Markus Ferber put it recently:
“The crypto asset markets have been like the Wild West for too long and need a European sheriff […] The new rules for cryptocurrencies will fill the existing regulatory vacuum by establishing a clear framework to protect investors and ensure market integrity.”
All in all, the 32-to-24 vote to reject the amendment was preceded by a degree of trepidation in the crypto community. “The MiCA Situation Is Worse For Crypto Than Anything In The US,” noted Blockchain Association policy chief Jake Chervinsky, who said the amendment looked like a pretext for a Bitcoin ban. Meanwhile, Jean-Marie Mognetti, CEO of CoinShares, described the bid to ban PoW protocols as “more than just bad news” but rather as “a misguided, uninspired proposal that does not reflect the reality and future of the industry.”
Soon to be part of Europe’s sustainable “taxonomy”
Apart from the amendment battle, the ECON committee has also asked the European Commission to: Involving cryptocurrency mining activities in its EU taxonomy – a classification system – for sustainable activities by January 1, 2025. The EU would then determine whether crypto mining can be classified as a “sustainable” activity. If viewed as unsustainable, European institutional investors and others may be inclined to give the crypto sector a wider berth.
“The taxonomy has a huge impact on where companies, investors and states [can] invest their money and subsidies,” explained Hans recently. And as more environmental laws are passed, that influence will increase. Meanwhile, he added that PoW crypto mining could very likely be listed as “unsustainable” in the taxonomy.
But this is still some time in the future and may be limited in scope. “I don’t think the addition to the sustainability taxonomy from 2025 will have a major impact on cryptocurrency adoption,” Hansen told Coin-Crypto. “Depending on how it is defined, it could make investment in mining companies more difficult in the future, but we are still years away from that and mining is not a major economic activity in the EU anyway.”
More importantly, Hansen added, it will only affect the mining companies and “not the entire crypto industry as to the alternative amendment voted against.”
Xiong described the inclusion of crypto mining in the EU taxonomy as “reasonable”. It will put more pressure on miners to move to more environmentally friendly alternatives, and he expects fewer networks to use PoW consensus mechanisms by 2025. “Eventually, only PoS will be adopted by blockchain applications,” Xiong predicted.
Ellul said the 2025 deadline offers some breathing room. “I hope it encourages more renewables.” One problem with the PoW energy debate, he added, is that it is highly polarized: “One extreme is that ‘whatever it takes, PoW must stay,’ while the other is that PoW is going to kill us all.”
A less heated middle position could be helpful, he suggested.
A climate crisis threatens
Have lessons been learned from this latest regulatory skirmish? According to Xiong, a lesson is that crypto and blockchain developers “should only embrace eco-friendly crypto” because all carbon emissions-related activities in this sector “will quickly be picked up by viewers.”
Indeed, Eero Heinäluoma, a Member of the European Parliament and a supporter of the anti-PoW amendment, said that “The carbon footprint of a single bitcoin transaction is equivalent to a transatlantic return flight from London to New York. This is 1.5 million times the energy consumed by a VISA transaction. If we don’t reduce our footprint by putting crypto on a more sustainable path, our efforts to fight the climate crisis and increase our energy independence are in vain.”
However, not everyone in the crypto community is guided by these types of comparisons. Mognetti noted†
“With annual emissions of 41 million tons of CO2, the global Bitcoin mining industry has a small carbon footprint compared to the aviation industry, the marine transportation industry, air conditioners, electric fans, data centers and clothes dryers.”
Source: Twitter
Ellul agreed that the energy issue cannot be seen in isolation. “Almost everything useful in the modern world requires energy, and many other activities are also energy-consuming.” An example: Ireland’s Electricity Company estimates that by 2028 30% of Ireland’s electricity will be consumed by the country’s data centers.
Overall, the vote of the European Parliament committee “has not led to stifling technology this time, but it does indeed raise questions about the future,” Ellul told Coin-Crypto. Meanwhile, Hansen added that even if the committee vote had been lost, the mining ban would certainly have been removed from the MiCA law later on as the three main EU entities – Parliament, Council and Commission – align their legal texts in the unique “Trilogue of the EU”. Processing. Still, a defeat in the ECON committee would have looked bad, Hansen said:
“The mere symbol of the EU Parliament calling for a PoW ban would have had a very adverse effect on the market.”