The discussion of the high power consumption of cryptocurrencies that use the proof-of-work method is almost as old as cryptocurrencies themselves. Put simply, the concept of proof-of-work turns electricity into money . The most well-known cryptocurrency generated via PoW: Bitcoin.
Bitcoin consumes around 140 terawatt hours of electricity per year, the University of Cambridge estimates in its Bitcoin Electricity Consumption Index. And the European Parliament claims that bitcoin’s energy consumption is comparable to that of small states.
Ethereum moves to proof-of-stake processes
The proof-of-stake concept, in which the right to generate a new block is tied to the amount of equity ownership across the entire blockchain, is considered significantly more energy efficient. The more coins someone has, the higher the likelihood that they will be allowed to validate a new block. Cryptocurrency Ethereum wants to move to the proof-of-stake process later this year.
Since the electricity for Bitcoin is mostly generated from fossil fuels (especially in China), the carbon footprint is also large, which is of particular concern in the EU.
European Parliament votes against Bitcoin ban
So far, there are no legal regulations on cryptocurrencies in the EU. But since September 2020, a regulation called “Markets-in-Crypto-Assets” (MiCA) has been negotiated, which aims to “encourage the potential of crypto-assets” on the one hand and “contain threats” on the other. . The Social Democrats, Greens and Leftists wanted to introduce a ban on the proof-of-work procedure into the European Parliament’s negotiating position, but failed to push it through in March.
Cryptocurrencies must be included in the EU taxonomy
Instead, Parliament is asking the Commission to propose legislation by early 2025 to include cryptocurrencies in the EU taxonomy for green financial investments. This means that cryptocurrencies must also be valued according to this set of rules, which determines which investments and which economic activities are ecologically sustainable. Recently, the taxonomy has received significant attention as it classifies nuclear power and natural gas as “green” energy sources.
The Commission, the Council of Ministers and the Parliament will now negotiate the final form of the MiCA regulation, this is called the trialogue procedure.
Trade Blog: There’s Sympathy for the EU Bitcoin Ban
But apparently a ban on the proof-of-work process isn’t on the table yet. The specialized blog Netzpolitik.org cites several internal EU documents referring to such a ban: “If Ethereum is able to change, we could legitimately do the same from [Bitcoin] Craving. We need to “protect” other durable crypto coins. [Wir] do not see the need to “protect” the Bitcoin community”. This sentence would have fallen in November 2021 during a virtual meeting between Swedish and European officials.
The suggestion that the EU should generally ban the trading of cryptocurrencies that use the proof-of-work method like Bitcoin was reportedly made at the same time. This report from Netzpolitik.org has once again caused some excitement in the Bitcoin scene.
Mining hardly takes place in the EU
But what would banning the proof-of-work process in the EU actually do? Probably not much from an environmental point of view, as bitcoin mining mainly takes place outside the EU in countries like the US or China, which would not be affected by EU regulations .
If even cryptocurrency trading using the proof-of-work method were to be banned, it would likely lead to the migration of PoW-based crypto technology to non-EU countries. Thus, energy-intensive bitcoin mining would not go away.
On the other hand, some believe that a ban on proof-of-work would accelerate the move to a more resource-efficient proof-of-stake process.
CDU MP: Bitcoin ban is not an option
The next few weeks will show the truth to the rumors that a European bitcoin ban may yet be coming. German CDU MEP Stefan Berger, European Parliament rapporteur on the MiCA regulation, does not expect this: “It can be assumed that the prohibition of proof of work is not an option and that we could be d Okay with the taxonomy solution, it won’t be too complicated,” he said in an interview with cryptocurrency news site cointelegraph.