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Proof-of-Work Limit is Back in Discussion at the EU Parliament

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Proof-of-Work Limit is Back in Discussion at the EU Parliament

Markets in Crypto Assets (MiCA), the newest draft of the European Union’s (EU) proposed legal framework for controlling virtual currencies, still includes a clause that might prohibit the usage of proof-of-work cryptocurrencies. Meanwhile, the EU parliament voted on the latest MiCA draft on March 14.

Issues Underlying Proof-of-Work

An earlier draft of the MiCA framework had a strongly worded section proposing a ban on crypto services that relied on ecologically unsustainable consensus techniques beginning in January 2025. However, due to industry outcry, the clause was eventually repealed.

Proof of work outlines an energy-intensive consensus mechanism used by cryptocurrencies such as Bitcoin. Over time, this mechanism has been subject to scrutiny and negative comments in both the EU and other regions globally.

In September, the New York Times reported that the bitcoin mining industry uses more electricity annually than Finland, a nation of around 5.5 million people. Months before that report, China, which had dominated the crypto mining sector, moved to outlaw mining in the country in May. 

In the months following China’s ban, miners scattered across the globe looking for cheap electricity and a friendlier regulatory environment. By August, the U.S. had lapped up the lion’s share of the global mining market, followed by Kazakhstan and Russia.

There are claims by Dr. Stefan Berger, the EU parliamentarian in charge of the MiCA legislative framework, that the paragraph has since been removed. However, he said that a final decision is yet to be made.

What the New Draft Holds

A similar clause is included in one version of the revised document that CoinDesk reviewed, although it is drastically toned down from the original. It says that crypto assets “shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union.”

According to the provision, if a proof-of-work consensus mechanism operates on a modest scale, it is free from needing to fulfill sustainability norms. It is yet to be decided what constitutes a small-scale operation.

Another version of the proposal has been suggested, which would allow for more lenient enforcement measures. However, the more robust performance is believed to have a lot of support among parliamentarians.

Ethereum is Transitioning to Proof-of-Stake

There have been moves about Ethereum transitioning from its current proof-of-work structure to a more energy-efficient alternative known as proof-of-Stake. However, it is unclear how Bitcoin, the largest crypto by market capitalization, could transition to proof-of-work.

Despite the hype around using renewable energy, the cryptocurrency industry is still heavily dependent on traditional energy sources. Hence, making the cryptocurrency potentially vulnerable under the more robust proposal.

Crypto community members have reacted rapidly, calling for EU citizens to contact their legislators and oppose the measure. Ledger, a manufacturer of crypto hardware wallets, published a statement saying that people and businesses should be allowed to pick the technology that best meets their needs. Additionally, governments should not mandate or discriminate in favor of a specific technology. It isn’t reassuring and would have significant consequences for Europe.

In a lengthy Twitter thread, Pierre Person, a Paris politician and member of the Law Commission, denounced the newly inserted phrase. He discussed the implications of such legislation on European competitiveness in the expanding crypto environment.

Wall Thoughts on the EU Ban

In response to the EU’s call for a ban on mining, Wall warned that it could end up being the worst thing for the environment. He noted that if the ban proceeds, other countries would exploit the excess supply of renewable energy.

Wall also mentioned Iran, where the oil to generate energy has devastating environmental impacts. Last year, a report found Iran was using proceeds from bitcoin mining to evade U.S. sanctions.