The European Union parliamentarians will vote on whether to ban bitcoin mining on Monday amid growing concerns regarding its impact on the environment. If approved, the amendment to the EU’s electricity market law would prohibit cryptocurrency mining operations from receiving subsidies or preferential electricity rates. The move could have a significant impact on bitcoin mining, as Europe accounts for a large share of global bitcoin mining activity. China currently dominates the industry, but several European countries are home to major mining facilities.
The draft framework proposed could outlaw cryptocurrencies that rely on a power-intensive process known as proof-of-work. Proof-of-work is the most common method used to validate transactions and add new blocks to a blockchain. Bitcoin, Ethereum, Litecoin, and Monero are all examples of proof-of-work cryptocurrencies.
Bitcoin is among several leading cryptocurrencies that use proof-of-work technology, though Ethereum (ETH) plans to switch to a system known as proof-of-stake that requires far less energy.
The amendment was proposed by Polish member of the European Parliament Jakob von Weizsäcker. The decision of whether to ban proof-of-work will be made by members of the EU’s economic and monetary affairs committee, who will vote on the proposed Markets in Crypto Assets (MiCA) framework.
If passed, the amendment would need to be approved by the full European Parliament and member states before becoming law.
Critics say proof-of-work is a major contributor to climate change, as the energy required to power the computers solving complex mathematical problems comes largely from renewable sources. If adopted, new rules would require bitcoin and other cryptocurrencies to phase out proof-of-work and switch to methods like proof-of-stake. Bitcoin mining is an energy intensive process that uses specialised computer hardware to solve complex mathematical problems. The reward for successfully completing a block is newly minted bitcoin.
Critics of the proposed bill warned that the ban could potentially lead to major price volatility for the cryptocurrency. Widely regarded market commentator Crypto Whale claims that it will “completely destabilize the bitcoin network”.
“This is huge news,” the analyst said in a tweet. “If EU bans PoW consensus algorithm it would mean that majority of hash power would have to shut down. Bitcoin price would drop massively as demand for BTC declines. This could completely destabilize the Bitcoin network.”
Last week, US President Joe Biden in similar developments signed an executive order to ensure “responsible development” of cryptocurrencies like bitcoin, prompting a market-wide rally. The order also called for research and development into the design and deployment of a US Central Bank Digital Currency (CBDC), which could ultimately signal the end of bitcoin’s dominance as the world’s leading digital currency coin.
Head of policy for the Blockchain Association, Jake Chervinsky, warned that any potential ban on bitcoin mining in Europe would prove to be far more damaging to the crypto industry than President Biden’s executive order, “Tomorrow, the European Parliament votes on ‘environmental sustainability standards’ that look like a pretext for a bitcoin ban. If it passes, it can be undone in the next phase of the EU process, but it’s very bad.”.
To reduce the cryptos’ carbon footprint, MEPs have asked the European Commission to vote to include crypto-assets mining into the EU taxonomy for sustainable activities by 2025. This is because crypto-assets are neither issued nor guaranteed by a central bank or a public authority and are therefore currently out of the scope of EU legislation.
The proposed regulation would establish a clear legal definition of crypto-assets, including utility tokens and security tokens. It would also set out requirements for issuers, service providers and market participants, such as exchanges and wallets.
MEPs believe that this would foster innovation, while protecting consumers and investors.
A complete ban on bitcoin mining in the EU would be a huge blow to the cryptocurrency industry. It could also have a knock-on effect on other countries considering similar measures would be passed.