Just last week, the European Union (EU) voted to advance one of the broadest regulatory measures seen thus far in the crypto world: the EU’s Markets in Crypto Assets regulation, or MiCA. The regulation establishes rules and standards to protect crypto consumers from financial crime or market manipulation.
In what’s excellent news for crypto traders, the last-minute article in the bill that caused the most controversy failed to pass the European Parliaments’ ECON committee with a vote of 32 to 24.
This article, 2a, concerned banning Proof of Work (PoW) mining. It would have made trades of major cryptos like Bitcoin (BTC) and Ethereum (ETH) impossible.
Introduced in 2018, MiCA passed on March 14 with a final vote of 34 in favor, 4 against, and 23 abstained. Votes fell mainly along party lines, with Renew Europe and the European People’s Party for the regulation while the Left and Green parties were the most strongly opposed.
What the Bill Does
The MiCA bill aims to provide regulatory infrastructure for the crypto industry. Given that the EU governs a vast majority of Western Europe, it’s a big deal for the continent and the rest of the world.
So, what will the bill do? It sets requirements for crypto entities, including issuers, exchanges, and platforms. For example, exchanges will need to get their government licenses before beginning EU operations. Crypto projects will be required to publish their white paper upon launch.
The voted-down article would have effectively banned the use of cryptos that rely on Proof of Work mining, where miners use computing power to verify transactions and mint new currency on the blockchain.
The provision would have prohibited the use of PoW mechanisms effective in 2025. As a result, digital assets like Bitcoin or Ethereum that rely on a PoW mining mechanism would find it impossible to meet the standards to trade. Thus, this article would have essentially been a de facto ban on mining like Bitcoin.
Supporters of the ban argue that Bitcoin is environmentally-harmful and should be regulated as it consumes large amounts of energy. Opponents argued that the ban would have unfair, catastrophic impacts on the crypto market.
Ledger, a leading crypto wallet provider, commented on the proposal’s infringement on users’ freedoms. “Individuals and organisations should be free to choose the technology most appropriate to their needs,” their statement read.
Crypto Mining and the Environment
So, why were lawmakers considering this serious step to mitigate environmental harm? Even the staunchest fans of crypto can admit that Proof of Work mining is tough on the environment.
In the last two years, cryptos that use this mining mechanism instead of a more energy-efficient solution have come under fire. As a result, countries like China have banned crypto mining entirely.
The magnitude of the energy used by cryptos like bitcoin is no small potatoes. Bank of America reported in 2021 that the computing power behind each transaction emits about 60 tons of CO2. In other words, this is roughly equivalent to the levels of the country of Greece. Put another way, investing $1 billion in bitcoin has the same environmental impact as putting 1.2 million new cars on the road.
Some fans of crypto agreed with the environmentally-conscious intentions of the EU’s article but felt that a total ban missed the mark. They argue that other solutions can be more effective, like shifting cryptos to other mining mechanisms more gradually.
It’s worth noting that not all cryptocurrencies have the same environmental impact. Namely, cryptos that use a Proof of Stake or Proof of Storage mechanism require much less energy than their Proof of Work counterparts. Cryptos that don’t require mining at all, like those that use a technology called block-lattice, are also more energy-efficient.
And even among PoW cryptos, there’s a difference in energy efficiency. This diversity comes from the specific hardware and computing power used by the cryptocurrency. Thus, not all cryptos would be pushed out through this ban. It’s just the cryptos that use a PoW kind of mining and validation system. However, for those wanting to invest in sustainability-driven crypto, the market has many options.
For example, at the time of writing, Cardano is the #9 crypto in the world by market cap, and it uses a Proof of Stake mechanism, where users buy tokens to join the network, rather than a Proof of Work one. Another example is the green-focused SolarCoin, a global digital coin generated from solar technology.
For crypto traders, MiCA’s passage without a ban around PoW mining resulted in a huge sigh of relief.
“It is a great relief and political success for the bitcoin community and for the European Union,” said Patrick Hansen, head of strategy at Unstoppable Finance.
Others are also glad to see this step being taken, including Dr. Stefan Berger, the ECON Committee’s leader who called Monday “a good day for the crypto sector.”
Dr. Berger stated that the proposal represented a “first stage win at MiCA committee,” and that the committee has now “paved the way for future-oriented crypto regulation. It is now a matter of accepting the report as a whole in the final vote and sending out a strong signal for innovation.”
This signal can potentially have far-reaching effects.
“Today’s MiCA vote is more than a win for crypto,” said Diogo Monica, president of digital asset platform Anchorage Digital. “It’s a win for the European economy and for innovation.”
What Happens Next with MiCA?
Next, separate votes of the regulation will move to something called trilogue debates, where the versions will be consolidated by the European Commission, European Parliament, and European Council.
If the bill passes the trilogue stage and other final stages of approval, it will officially be passed and binding throughout all 27 member states of the EU.
All in all, while yesterday’s vote was a major step for the regulation and a win for crypto traders who feared a mining ban, it will likely still be months before the bill is finalized into law.
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