All is now set for the European Union (EU) to pass its regulatory framework on cryptocurrency with a vote expected on Monday 14th March 2022.
Currently, the regulation is raising concern within the crypto community as it would restrict the use of both Bitcoin (BTC) and Ethereum (ETH) in the Union. These are the major cryptocurrencies that are powered by the energy-consuming proof-of-work (PoW) consensus algorithm.
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Markets in Crypto Assets (MiCA) Contains Provision Restricting PoW Crypto
With the vote coming in a few hours, Christine Lagarde, President of the European Central Bank (ECB), appears to have finally seen her desire becoming a reality, but the reverse is certainly the case for the majority of crypto enthusiasts due to the provision restricting the use of PoW crypto in EU’s regulatory framework Markets in Crypto Assets (MiCA).
The first draft of MiCA would have brought about the outright ban of digital assets powered by what it termed as environmentally unsustainable consensus mechanisms. This session was later repealed following tons of backlashes. However, the new draft that is seemingly backed by most lawmakers in the European Union (EU) and ready to be voted on Monday, still contains a related provision that could restrict the use of Bitcoin and Ethereum.
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.”
Although the draft says that assets with small-scale operations would not be affected by the provision, EU’s definition of small-scale in the draft is still unclear.
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What is Proof-of-Work (PoW) Consensus Algorithm?
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.
However, Ethereum (ETH), the second-largest cryptocurrency, is already in the process of migrating to proof of stake (PoS), where miners will not be needed to validate transactions.
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