Markets in Crypto-Assets (MiCA), a proposed regulation in the European Union, is once again seeking to limit the use of proof-of-work (PoW) cryptocurrencies such as Bitcoin and Ethereum. The EU parliament is set to vote on the MICA proposal on March 14, a potentially defining moment for cryptocurrencies in the region.
Proof-of-Work (PoW) is a decentralized consensus mechanism used in cryptocurrency mining to validate transactions and mining of new coins. A major alleged limitation of PoW is the huge amount of energy it consumes, which increases as more miners join the network.
Regarding an earlier draft of the MiCA on a possible curb or ban on environmentally unsustainable PoW systems, EU parliamentarian and cryptocurrency expert Stefan Berger said in a tweet early last week that the paragraph in question is no longer in the draft, and a final decision is yet to be made.
However, fresh reports confirm that the removed paragraph has now been grafted back, albeit with milder phrasing. A version of the proposal obtained by public media recommends 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.”
The proposed wording is being perceived as an attack on leading cryptocurrency, Bitcoin. While Ethereum is on a transition from PoW to a less energy consuming consensus mechanism called Proof-of-Stake (PoS), it seems unlikely that the decentralized Bitcoin network will follow suit.
The impact of MiCA on Bitcoin mining activities in the EU is unknown as the documentation does not specify the so-called “minimum environmental sustainability standards” or which existing cryptocurrency networks would be made subject to the new rules.
Speculators suggest a possible outright ban on Bitcoin mining in the EU or an organized effort to force Bitcoin miners to transition to renewable energy sources. There are also suggestions that the EU will outlaw trading in PoW-based assets like Bitcoin.
In summary, passage of the MiCA proposal with the PoW limitation could potentially limit the adoption of Bitcoin in the region.
Crypto Industry Reacts to EU’s Proposed PoW Limitation
An earlier industry backlash led to a milder rewording of the PoW limitation in the MiCA proposal. However, industry participants are not satisfied and continue to push for a complete dissolution of the move to limit PoW systems in the EU.
French-based hardware wallet maker Ledger published a lengthy statement earlier this month criticizing the move. Ledger wrote,
Individuals and organizations should be free to choose the technology most appropriate to their needs. Policymakers should neither impose nor discriminate in favor of a particular technology. This is deeply concerning and would have serious consequences for Europe.
David Marcus, formerly lead at Meta’s stablecoin project Novi, described the move as incredibly shortsighted as it will “single-handedly cut [EU’s] chances of becoming relevant in an industry that will create enormous opportunities and jobs in the next decades.”
MicroStrategy’s Michael Saylor, in similarly strong wording, tweeted Saturday that “banning digital property would be a trillion dollar mistake” for the EU.
