Europe advances crypto-coin regulation – without potential ban on Bitcoin
Vote held after red-tape targeting proof-of-work assets removed
Europe's lawmakers this week moved ahead with their proposed cryptocurrency regulations, having ditched a rule that might have banned financial services from dealing in Bitcoin and Ethereum.
The European Union is considering ways to regulate digital coins, particularly to stamp out money laundering, and as such in 2020 drew up a draft framework dubbed the Markets in Crypto Assets (MiCA) to achieve this. During the development of this red tape, an amendment was proposed that, depending on its interpretation, could have made it illegal for app and web services to handle transactions involving proof-of-work coins, such as Bitcoin and Ethereum.
Proof-of-work algorithms underpin these cryptocurrencies, how they are mined, and how transactions are confirmed by the network. These algorithms have been criticized for being computationally intensive and consuming large amounts of energy, prompting some lawmakers to propose restrictions. Under the European Green Deal, member states are trying to slash greenhouse gas emissions, and are heavily scrutinizing activities like running proof-of-work algorithms.
Specifically, the amendment would have outlawed, by 2025, the crafting and trading of cryptocurrencies within the European Union if they used "environmentally unsustainable consensus mechanisms." The coins could be exchanged as normal if they met some "minimum environmental sustainability standards," which crypto-fans took to mean: proof-of-work mining is out.
The consequences would have touched every corner of the crypto ecosystem – from miners to exchanges, and custodians to traders
Restricting use of this code would have been disastrous for the likes of Bitcoin and Ethereum, all but preventing cryptocurrency businesses and netizens from mining and exchanging the digital assets. Newer cryptocurrencies use proof-of-stake algorithms that are less computationally demanding. Bitcoin and Ethereum, however, still run on proof-of-work.
At the start of March, MEP Stefan Berger, a member of the center-right European People's Party Group, confirmed the rule restricting the use of proof-of-work algorithms had been deleted from a revision of the proposed MiCA. Days earlier he said he didn't want people to misinterpret the amendment as a ban on proof-of-work, and a vote on the framework due to be held late February was postponed to straighten out the issue.
On Monday this week, the European Parliament's Economic and Monetary Affairs Committee voted 31 to four, with 23 abstentions, to adopt the MiCA text without the controversial amendment as its position, and voted 33 to 25 to move the framework into negotiations with member state governments to form the final version of the law bill.
Ian Taylor, executive director at CryptoUK, an independent cryptocurrency trade association, told The Register the proposed rule "would have meant a de facto EU ban on Bitcoin and Ethereum."
"If the amendment to MiCA, which proposes an overarching view on crypto regulation across 27 member states, had been voted through, the consequences would have touched every corner of the crypto ecosystem – from miners to exchanges, and custodians to traders," he said. "It is like trying to ban the internet because it takes up 70 percent of phone line bandwidth."
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Berger, who is championing the MiCA, said the draft framework will pave the way for an "innovation-friendly" set of crypto-coin standards worldwide.
"The regulation being created is pioneering in terms of innovation, consumer protection, legal certainty and the establishment of reliable supervisory structures in the field of crypto-assets. Many countries around the world will now take a close look at MiCA," he said in a statement. ®
- Czech Republic
- San Marino
- United Kingdom