• Sat. May 21st, 2022

European Parliament backs off from plans to phase out power-hungry cryptocurrencies

A de facto ban on Bitcoin and Ether died today in the European Union Parliament. The controversial proposal attempted to clean up the pollution of the most energy-inefficient cryptocurrencies. But even if the proposal fell through, cryptocurrencies are still likely to come under scrutiny from policymakers as the EU tries to tackle the twin climate and energy crises. Getting rid of their pollution has become a global mole game since China banned cryptocurrencies last year.

The Committee on Economic and Monetary Affairs of the European Parliament vote Monday move forward with legislation framework to regulate digital assets. In the process, he decided to drop a proposed rule in the framework that would have banned EU citizens from using a power-hungry process to generate cryptocurrencies, including Bitcoin.

Cryptocurrencies like Bitcoin and Ether have raised concern about how much electricity they need – and how much the planet-warming greenhouse gas emissions they generate as a result. The European Union is already grappling with an energy crisis that has driven up electricity prices over the past year, and has become even more complex as the bloc tries to wean itself off gas supplies of Russia.

The Bitcoin network uses more electricity in a year than Norway, and would rank 27 in the world for its annual electricity consumption if it were a country itself. Most of this electricity is used in a deliberately energy-inefficient process to verify transactions called “proof of work.” To earn new tokens and verify transactions, Bitcoin miners use special computers to solve complex puzzles. These puzzles, which are increasingly difficult to solve, essentially embed energy inefficiency into the blockchain.

Since it is puzzle solving that consumes so much energy, that is what the European Parliament has considered banning. According to CoinDesk. It triggered contempt of the crypto industry, which saw it as a fatal blow to Bitcoin. The rule targeting proof of work was finally removed from the framework today, a Parliament press officer confirmed with The edge in an email. Instead, he asked the European Commission to separately weigh in on the environmental impact of cryptocurrency mining as it works for define what can be qualified as “sustainable” investment.

The crypto industry has been trying to solve its environmental problem for a long time. For years, the Ethereum network has been planning — and delaying — moving from proof-of-work to a different process called proof-of-stake that negates puzzle solving. Proof of stake uses much less energy and is considered more environmentally friendly. Such a move would also solve Bitcoin’s energy efficiency problem. But no one really expects Bitcoin to follow suit, as all miners on the network would have to agree to eat losses from dumping the hardware they’ve already invested in to mine Bitcoin. Some proponents of proof of work also claim that it is the most secure mechanism for maintaining blockchain integrity. Without miner membership, any proof-of-work ban is essentially a Bitcoin ban as well.

However, banning cryptocurrencies has not proven to be an effective way to reduce their greenhouse gas emissions. China was home to the vast majority of cryptocurrency miners, until it kicked them all out last year. Since then, bitcoin pollution of the planet has likely increased, according to a study published last month. Miners who had access to the abundant hydroelectricity in China have replaced it with more gas and coal in the United States and Kazakhstan, the world’s newest hubs for Bitcoin mining.

To date, there is not much energy-intensive cryptocurrency mining in the EU. Ireland and Germany have the most, with only less than five percent each of the global bitcoin mining share, according to the Cambridge Center for Alternative Finance. Those numbers are “likely significantly inflated,” Cambridge says, because of VPNs.

EU rushes to transform power grid to meet climate and security goals, and power-hungry blockchains could potentially make this more difficult to accomplish. The EU has set a target last year to more than halve its greenhouse gas emissions by the end of the decade. Russia’s invasion of Ukraine has made the transition to clean energy all the more urgent as Russia supplies the EU with nearly half of its gas imports. New measures set out by the European Union last week would significantly reduce dependence on Russian gas in the coming years – a plan that hinges heavily on improving energy efficiency.

The legislative framework voted today by the European Parliament is not yet set in stone. It will then go to negotiations in “trilogue”, where the parliament, the commission and the council of the EU will have to reach an agreement before the proposal becomes law. There is a luck a de facto ban on proof of work could be raised again during these negotiations, according to Patrick Hansen, head of strategy and business development at blockchain startup Unstoppable Finance.

Members of the European Parliament today also called on the European Commission to consider where proof-of-work cryptocurrencies are suitable as he develops his guidelines for sustainable investments. There have already been heated discussions in this process about whether to classify certain nuclear and gas power plants as sustainable. Now it looks like the Bitcoin climate controversy could heat things up again.

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