Today, the European Union Parliament overturned a de facto ban on Bitcoin and Ether. The contentious plan sought to mitigate pollution caused by the most inefficient coins. Even if the idea failed, officials are likely to continue to scrutinize cryptocurrencies as the EU attempts to address twin climate and energy challenges. Since China banned cryptocurrencies last year, eradicating their pollution has become a global game of whack-a-mole.
The European Parliament’s economic and monetary affairs committee decided on Monday to advance the development of a legislative framework for regulating digital assets. It also resolved to scrap a planned rule in the framework that would have barred EU citizens from utilizing an energy-intensive procedure to manufacture cryptocurrencies such as Bitcoin.
Bitcoin and Ether have sparked concern about the amount of electricity they consume — and the amount of planet-warming greenhouse gas emissions they emit as a result. The European Union is already mired in an energy crisis that has sent electricity prices skyward over the last year and has become even more complicated as the union attempts to wean itself off Russian gas supplies.
The Bitcoin network consumes more electricity per year than Norway and would rank 27th in the world if it were a country. The majority of that electricity is consumed by a purposefully inefficient technique called “proof of work” for confirming transactions. Bitcoin miners utilize specialized computers to solve complicated puzzles in order to earn fresh tokens and verify transactions. These more difficult-to-solve problems ultimately embed energy inefficiency into the blockchain.
Because it is the puzzle-solving that consumes the most energy, the EU parliament debated prohibiting it. According to CoinDesk, previous versions of the framework had language that would have phased out proof of work in favor of less energy-intensive verification methods. This generated fury in the cryptocurrency community, which saw it as a death blow to Bitcoin. Today, the framework’s rule requiring proof of work was repealed.
For a long period of time, the cryptocurrency industry has been attempting to resolve its environmental issues. For years, the Ethereum network has planned — and repeatedly postponed — a transition away from proof of work and toward a technique called proof of stake that eliminates the need for puzzle solving. Proof of stake consumes far less energy and is therefore regarded as more environmentally friendly. This would also address Bitcoin’s energy efficiency issue. However, no one expects Bitcoin to follow suit, as this would require all miners on the network to agree to take losses on the hardware they’ve already put into mine Bitcoin. Additionally, some proponents of proof of work say that it is the most secure approach for ensuring the blockchain’s integrity. Without miners’ buy-in, any prohibition on proof-of-work is effectively a prohibition on Bitcoin.
