It became a huge concern within the crypto community after the proof-of-work (PoW) consensus algorithm, which currently powers the two largest cryptocurrencies Bitcoin and Ethereum, was at the point of being banned in the European Union, through a regulatory framework known as Markets in Crypto Assets (MiCA).
However, on Monday, 14th March 2022, the European Parliament Committee on Economic and Monetary affairs decided to vote against (32 against, 24 in favor) the provision that could have crippled crypto-economy across the EU.
If the provision managed to get the votes required in the parliament, it could have forced PoW cryptocurrencies, Such as Bitcoin (BTC), Ethereum (ETH), among others, to migrate to more environmentally friendly consensus algorithms.
It can be recalled that the first draft of MiCA, which would have brought about an outright ban of digital assets powered by what it termed as environmentally unstable consensus mechanisms, was scrapped due to tons of backlashes.
Howbeit, the new draft that caused panic within the crypto ecosystem contains a provision that could restrict the use of Bitcoin and Ethereum in the European Union.
The provision reads as follows:
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.”
So, since both Bitcoin and Ethereum have been unable to complete the transition, they would have been directly affected by this legislation if passed by the EU parliament.
What is Proof-of-Work (PoW) Mechanism?
Proof-of-Work (PoW) is a consensus algorithm that currently powers Bitcoin (BTC) and Ethereum (ETH). It’s a form of adding new blocks of transactions to a cryptocurrency’s blockchain.
The work, in this case, is generating a hash (a long string of characters) that matches the target hash for the current block. The crypto miner who does this wins the right to add that block to the blockchain and receive rewards. But the fact that it uses a huge amount of energy makes its use a thing of concern across the world.
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