Members of the European Parliament have voted to not ban the mining of proof of work (PoW) cryptocurrencies such as Bitcoin and Ethereum despite a last-minute amendment which would have seen mining the currencies effectively made illegal on the continent. A watered-down version of the legislation will continue to move forward though, paving the way for possible controversy in future years.
Part of the European Union’s Digital Finance Strategy, the Markets in Crypto Assets (MiCA) legislation had previously been amended to remove the controversial passage, but a new amendment was added over the weekend which saw it brought back. However, lawmakers decided against backing this change, which had drawn predictable criticism from the cryptocurrency community.
What happened with the vote?
On Monday the European Parliament’s economic and monetary affairs committee voted 31-23 not to take forward an amended version of MiCA requiring all currency providers to submit detailed proposals about how they would comply with environmental sustainability standards. This would have been virtually impossible for PoW cryptocurrencies like Bitcoin which rely on highly energy-intensive mining processes to generate and verify transactions.
Instead, a milder version of the bill will continue its legislative journey. It states that by January 1 2025, the European Commission will present a new proposal “with a view to including in the EU sustainable finance taxonomy any crypto-asset mining activities that contribute substantially to climate change mitigation and adaption”. This could eventually lead to bans on PoW currencies, as it leaves much more room for further debate and interpretation. MEPs voted to negotiate with European governments on the final shape of the bill.
“By adopting the MiCA report, the European Parliament has paved the way for an innovation-friendly crypto-regulation that can set standards worldwide,” said German MEP Stefan Berger. “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.”
Why are there calls to ban Bitcoin mining?
Bitcoin, Ethereum and other PoW cryptocurrencies create significant carbon emissions with each transaction. A single Bitcoin transaction creates 1259 kilograms of carbon dioxide emissions, which is the same carbon footprint of a trans-Atlantic flight from London to New York and back again, according to Digiconomist, a research project focused on the social and environmental impact of cryptocurrencies.
To look at it another way, a single financial transaction using Visa consumes 1.5Wh of electricity on average. The average energy use per Bitcoin transaction is 2258 kWh, which is enough to power a single US household for two and a half months, Digiconomist asserts.
Alex de Vries, founder of Digiconomist, told Tech Monitor that the Bitcoin network alone generates 200-quintrillion “guesses” a day as part of a numbers game to create one block.
“You have all these machines in the network effectively playing a massive game of guessing numbers and the only one who guesses correctly gets to rate the next block,” he explains. “That’s a huge amount of energy you need to do that to create those new blocks.”
He explains that per year there are 100 million Bitcoin transactions, which is relatively low. However, the carbon footprint to generate new blocks is over 100 megatons of carbon dioxide. “That’s twice the size of Greece’s [carbon footprint],” he says.
The Bitcoin network also uses specialised hardware that creates 386 grams of electronic waste (on average) per transaction on the Bitcoin blockchain. “This is the equivalent to the equipment weight of two iPhones,” explains De Vries.
Banning Bitcoin mining is not necessarily a positive step for emissions though. A study by De Vries released last month found that after mining was banned in China, the amount of renewable energy used in Bitcoin production fell from 41.6% in 2020 to 25.1% last year.
Will Bitcoin mining be banned in Europe?
Unsurprisingly, the amended proposals to ban PoW mining were unpopular in the cryptocurrency community, who felt it would stifle innovation and choice in the space and lobbied heavily for it to be removed from the legislation. But though proponents of cryptocurrencies cheered today's news, further issues could lie ahead. According to Patrick Hansen, head of strategy and business development at DeFi currency Unstoppable, there is a last option for those who voted for the ban.
“They could veto a fast-track procedure of MiCA through the trilogues (meetings that take place between the European Union institutions around policy shaping) and bring the discussion to the plenary of the Parliament,” he wrote on Twitter. “They need 1/10 of the votes of the [European Parliament] to do so, which they have.”
He says that the fight is far from over, with the EU data centre regulations, which come with their own environmental requirements, potentially playing a role. It comes back to sustainability also, with people worried about climate change and Bitcoin’s contribution to it.
But Hansen says that today is a big “political success” for crypto in the EU. “The crypto community in the EU has clearly become a political force,” he argues.