EU’s Crypto Bill in Monday Vote Without Proof-of-work Ban
Lawmakers and environmental activists have been pushing for regulation on crypto mining since at least November of last year
Credit: Shutterstock
- Language that took aim at banning proof-of-work coins across the continent is notably absent
- The bill still states that cryptoassets “shall be subject to minimum environmental sustainability standards,” Unstoppable Finance’s head of growth tweeted
A finalized version of a major bill in the EU, which ignited controversy over its targeting of the crypto industry’s proof-of-work (PoW) consensus mechanism, is expected to head to a vote on Monday.
The Markets in Crypto Assets (MiCA) draft legislation, introduced in 2020, seeks to tighten regulation around digital assets by establishing a licensing regime on the continent and streamlining a uniform set of rules for member states.
Those rules include transparency and disclosure requirements for the issuance of digital assets, the authorization and supervision of cryptoasset service providers, consumer protection rules and measures to prevent market abuse.
The bill, under paragraph 61 (9c), also previously sought to establish a framework prohibiting crypto services from utilizing PoW-based cryptocurrencies like bitcoin and ether. That section of the legislation, which has since been updated, was expected to take effect sometime in 2025.
Lawmakers and environmental activists have been pushing for regulation on crypto mining since at least November of last year, citing what they viewed as energy-intensive crypto activity stemming from PoW.
Following considerable public outcry and condemnation of the bill for potentially blunting financial innovation across the region, the rule was postponed indefinitely on Feb. 28.
“In view of the important debate about sustainability, my suggestion is to include crypto assets, like all other financial products, in the Taxonomie area,” tweeted Stefan Berger, member of the European Parliament from Germany, on Tuesday.
“An independent discussion of the Proof-of-Work is no longer planned in MiCA.”
Berger is tasked with overseeing the bill and submitted the finalized piece of legislation last week.
To pass legislation within the EU, the Parliament, representing European citizens, and the Council, representing the governments of the 27 EU member states, must reach an agreement on an identical text of a given bill. The process is often time-consuming and fraught with setbacks, given each member possesses roughly an equal say on matters affecting the region as a whole.
Some observers remain wary, as the document still states that cryptoassets “shall be subject to minimum environmental sustainability standards,” Patrick Hansen, Unstoppable Finance’s head of growth, pointed out in a Tweet on Sunday.
Hansen argues that while the wording relating to PoW has changed, the “effect is essentially the same.”
Existing cryptocurrencies “shall set up and maintain a phased rollout plan to ensure compliance with such requirements,” Hansen tweeted, citing parts of the draft document.
“Since there is no way bitcoin can and will implement a rollout plan out of PoW, it would affect bitcoin as well.”
The Bitcoin network is highly decentralized, governed by a social consensus formed by a plurality of around 15,000 full-node operators and miners. Altering the proof-of-work consensus mechanism, while theoretically possible, is extremely unlikely; PoW, as described in the Bitcoin whitepaper, is regarded in the Bitcoin community as a quintessential feature responsible for the security of transactions on the network. An alternative without it would — like several contentious hard forks of the past — simply not be considered “Bitcoin.”
The moderately more crypto-friendly language in the current version of MiCA likely to pass out of the committee vote is a marked improvement over the original text, which Hansen previously described as “a suicidal proposition.”
“It would kill the entire European crypto industry, the one sector that fully aligns with the European values and where the EU could actually be competitive.”
In defense of PoW mining from an environmental sustainability perspective, CoinShares’ CEO Jean-Marie Mognetti points to internal research which concludes that the “potential for miners to reduce the carbon footprint of flared and vented natural gas…is enough to completely offset all emissions or even have a positive net emissions impact.”
Mognetti says implementing a mining ban in Europe would be detrimental to the bloc’s environmental goals.
MiCA now heads to a vote within the Committee on Economic and Monetary Affairs (ECON) before it can be considered in a trilogue meeting, Berger noted — referring to the tripartite meetings between representatives of the EU Parliament, Council and the European Commission, the EU’s executive branch.
“With MiCA, the EU can set global standards,” Berger said. “Strong support for MiCA is a strong signal from the EU Parliament for a technology-neutral and innovation-friendly financial sector.”
Update, March 14, 2022, at 11:14 a.m. ET:
The ECON committee voted to advance the MiCA without the explicit language on proof-of-work mining of cryptoassets, clearing the way for the draft to be negotiated in the trilogue meeting, according to Patrick Hansen and Blockchain for Europe, an industry interest group based in Brussels.
Macauley Peterson contributed reporting for this story.
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