- The EU is set to vote on MiCA on Monday.
- However, provisions of the framework may effectively ban Bitcoin in the region.
- Mixed responses have greeted the news.
The EU seems ready to finally pass its regulatory framework on crypto with a vote expected on Monday. However, there are concerns that, as the draft stands, it would effectively ban Bitcoin and Ethereum in the Union.
MiCA Will Restrict Proof-of-Work (Pow) Crypto
Christine Lagarde, President of the European Central Bank (ECB), appears to be getting her wish, as the official has recently called for the region’s cryptocurrency regulation to be ratified as soon as possible. However, crypto enthusiasts will most likely be unhappy with the outcome as the EU’s regulatory framework Markets in Crypto Assets (MiCA) still contains a provision restricting the use of PoW crypto.
A previous draft of MiCA would have seen the ban of digital assets working with what it termed environmentally unsustainable consensus mechanisms. The section containing this provision was later repealed following industry protests. However, the new draft favored by most lawmakers in the EU, which is likely to be voted on Monday, still contains a similar provision, albeit in softer language.
It says that crypto assets “shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered, or admitted to trading in the Union.” While the draft notes that an asset with small-scale operations would be exempt from the energy provision, it remains unclear what the EU perceives to be small-scale.
PoW is a consensus mechanism used by Bitcoin, Ethereum, and even the popular meme coin Dogecoin. The mechanism requires many computers to work hard to solve complex problems in order to validate transactions on the network, yielding crypto rewards to the system that gets to the solution the fastest. It has been touted as an effective model to secure the blockchain and deter bad actors from validating fake transactions. It should be noted that Ethereum and DOGE are set to migrate to PoS.
However, for all its benefits, the mechanism has a big disadvantage, and that is that it requires a lot of energy to power these computers or mining equipment. With the world trying to cut down on emissions, it has become a major concern for lawmakers globally and in the EU. In November last year, Swedish officials, in an open letter that gained traction in Norway, Spain, and Germany, recommended a ban on crypto mining in the EU.
The news of this provision in the EU’s MiCA has been greeted with mixed reactions. In a thread comprising nine tweets, Pierre Person, a French legislator and member of the Law Commission, expressed his concerns over the effect of the draft.
The lawmaker tweeted that the draft if passed, would put the EU behind competitively. It is Person’s belief that Bitcoin miners can be persuaded to rely solely on excess renewables to solve energy concerns.
However, Digiconomist does not seem to share this view. In a response to Person, Digiconomist stated that placing such demands on the grid just increases the reliance on fossil fuels in other sectors, noting that “Bitcoin got less green over the last year.”