EU rejects amendment that would ban Bitcoin, Ethereum, and other inefficient cryptocurrencies
The rejected amendment would have forced cryptocurrencies to use more environmentally friendly mechanisms
Published: 16th March 2022 | Source: The Register |
The EU's "Markets in Crypto Assets" regulations will not ban Proof of Work Cryptocurrencies
The European Parliament’s economic and monetary affairs committee have moved ahead with their proposed cryptocurrency regulations bill, deciding to drop a controversial amendment that would have outlawed inefficient cryptocurrencies by 2025.
The proposed amendment would ban the crafting and trading of cryptocurrencies that used "environmentally unsustainable consensus mechanisms" and would only allow cryptocurrencies to be traded normally if they met a set of "minimum environmental sustainability standards". Many analysts have assumed that this amendment would have effectively banned all Proof-of-Work (PoW) cryptocurrencies. However, the correct way to interpret this amendment is a debatable issue.
What's worth noting here is that the EU's proposed Crypto in Markets bill is not designed to force cryptocurrencies to become more efficient, it is designed to promote innovation, deliver consumer protections, and create a supervisory structure for the field of crypto assets. The Crypto in Markets bill is not a bill that is focused on the environment, its focused on the cryptocurrency market. As such, it should not be surprising that the regulations' environment-focused amendment was dropped.
Proof of Work is not environmentally sustainable
Cryptocurrencies like Bitcoin and Ethereum are incredibly energy inefficient. The Proof of Work algorithms that they are based on are computationally intensive, and the networks behind these cryptocurrencies consume an absurd amount of electricity. With global warming being a major concern for many of the world's nations, it makes sense for the EU to work towards tacking the energy inefficiency of the cryptocurrency market, but with their Crypto in Markets bill, the EU has failed to tackle this issue.
Several cryptocurrencies, most notably Ethereum, is moving itself towards a "Proof of Stake" (PoS) algorithm to decrease the computational complexity of running the Ethereum network. This move will dramatically decrease the power used to transfer and create Ethereum. That said, Ethereum's move to Proof of Stake is taking much longer than expected.
In time, the EU may work towards tacking the energy inefficiency of many cryptocurrencies. That said, this week's bill was not the place where such regulations should be imposed. The EU's Crypto in Markets bill is being made to regulate the cryptocurrency market, not to legislate the world's most popular cryptocurrencies out of existence.
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