Limiting Proof-of-Work Crypto Back on the Table: EU Crypto bill

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Key Takeaways:

  • Legislators in the EU have expressed objection in the past regarding the massive energy requirements of the Proof-of-Work Algorithm.
  • Latest Crypto Bill has provision that could ban proof-of-work cryptocurrencies such as Bitcoin.

Markets in Crypto Assets (MiCA), the newest draft of the European Union’s (EU) proposed legal framework for controlling virtual currencies, still has a provision that might prohibit the usage of proof-of-work cryptocurrencies.

The energy-intensive consensus method that underpins popular cryptocurrencies like bitcoin and ether is known as proof-of-work. Legislators in the EU have been closely scrutinizing the computing process due to energy issues.

Starting in January 2025, a prior draft of the framework had a strongly worded section that advocated banning crypto services that rely on ecologically unsustainable consensus techniques. However, due to outcry from the business, the clause was later removed.

Dr Stefan Berger, the EU senator in charge of the MiCA legislative framework, claimed at the time that the problematic paragraph had been eliminated, but that no final decision had been taken.

A similar clause appears in one version of the current draft, albeit it is drastically toned down from the original. Before being issued, marketed, or admitted to trading in the Union, crypto-assets must be subject to minimal environmental sustainability criteria with respect to their consensus method used for validating transactions.”

According to the rule, if a proof-of-work consensus method is used on a small scale, it is free from needing to meet sustainability norms. It is still unclear what constitutes a small-scale operation.

It also states that energy-intensive crypto assets currently in use in the EU before the Act takes effect must “put up and manage a phased rollout strategy to ensure compliance with such standards,” as stipulated in another section of the framework.

Another version of the bill would further soften the language. The stronger version, on the other hand, is thought to have a lot of support among legislators.

Although plans exist to shift ethereum from proof-of-work to a less energy-intensive consensus mechanism known as proof-of-stake, it is unclear how bitcoin, the world’s largest cryptocurrency by volume traded, would do so. While there has been a recent drive to employ renewable energy in bitcoin mining, the business is still heavily reliant on traditional energy sources, putting the cryptocurrency at risk under the bolder plan.

On March 14, the EU parliament will vote on the current MiCA proposal.

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Shambhavi Soni
Shambhavi Soni

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