Europe speaks out today on cryptocurrencies: energy consumption in the crosshairs

The vote of the European Parliamentary Committee on the proposed regulation of cryptocurrencies known as Markets in Crypto Assets and abbreviated as MiCA will take place today, March 14, 2022.

There is a twist: the last draft of the text that will be put to the vote, contains a few passages that talk about “minimum environmental sustainability” of cryptocurrency mining which had previously been eliminated. The vote on the MiCA proposal had been postponed in recent weeks on this specific point: the text of the project did not seem clear enough on these aspects and had been withdrawn, to be reintroduced in these hours, just before the vote.

Building on these principles, European cryptocurrency regulations could – if approved in this form – require blockchain operators to submit an implementation plan detailing how they believe they will comply with sustainability metrics. environmental. If such a plan is not presented, ban on cryptocurrency mining and trading in the European Union could be triggered.

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The text does not specify this explicitly, but it is assumed that this approach could have an impact on blockchains whose consensus mechanism is based on the concept of proof of work, which is used by many crypto assets including the two best known, namely Bitcoin and Ethereum. Obviously the “presentation of a compliance plan” is something that is not really applicable to Bitcoin or Ethereum (as well as many other cryptocurrencies) as a decentralized blockchain for which no one can present anything in its name, with the consequence of threatening the existence of mining operations throughout the European Union.

Concerns about Bitcoin’s energy consumption and associated carbon emissions are a key point in the debate over cryptocurrency regulation. A reportfrom the Frankfurt School in August 2021 found that the Bitcoin network requires almost 91 terawatt hours per year, or 0.05% of global energy consumption and emissions amounting to 0.08% of the total annual emissions of the planet. However, these are data to be viewed with suspicion as they are difficult to calculate accurately.

For cryptocurrencies that are already currently traded and used in the European Union, the project includes a plan for a gradual transition from proof-of-work to other consensus mechanisms that use less energy, such as proof-of-stake. Ethereum already has a roadmap, albeit not granitic and restrictive, for the transition to Proof-of-Stake while this prospect is currently not possible with Bitcoin.