EU Propose Ban on Proof-of-Work Cryptos
Lawmakers in Europe are planning to target crypto’s using proof-of-work mining, which could result in a ban on proof-of-work cryptocurrency mining across the 27 countries that make up the European Union. This move comes amid concerns over the associated energy consumption.
These reports come as the concerns about the environmental impact of proof-of-work crypto mining grows within the EU, as the two largest cryptocurrencies, Bitcoin & Ethereum, both rely on this energy-intensive consensus mechanism.
Proof-of-work is a decentralized consensus mechanism that requires members of a network to expend significant energy/effort solving an arbitrary mathematical puzzle in order to prevent anybody from cheating the system.
Proof of work at scale requires huge amounts of energy, which only increases as more miners join the network.
The proposal is part of the EU’s Markets in Crypto Assets (MiCA) legislation, which will oversee cryptocurrency regulation in the EU. Currently being drafted is a MiCA package that would ban proof-of-work mining within the EU.
There has been significant backlash after the first drafts of the framework implying restrictions on proof-of-work cryptocurrencies were leaked and began circulating online. Since then the parliament member in charge, Stefan Bergerm has requested more time to clarify provisions leading to the indefinite postponement of the vote on this legislation, which was supposed to take place on February 28th.
This is not the first time that there have been calls from Europe for crypto to be banned. Last November Sweden’s financial supervisory authority stated,
“Sweden needs the renewable energy targeted by crypto asset producers for the climate transition of our essential services, and increased use by miners threatens our ability to meet the Paris Agreement,”
The Bitcoin network consumes roughly 120 terawatt-hours of electricity per year, according to Cambridge University. On an annual basis, that is greater electricity use than most countries in the world.
In September 2020, Cambridge University discovered that only 39% of the Bitcoin network was powered by renewable energy. It has also been calculated using the figures from Cambridge University that Bitcoin’s annual gas emissions were roughly the same as burning 60 billion pounds of coal.
Moving To Proof of Stake
The widespread concern, primarily from those outside of the cryptocurrency space, regarding proof-of-work mining has led to an increase in popularity in proof-of-stake mining. The second largest crypto by marketcap, Ethereum is set to transition over to proof-of-stake later this year.
Proof of Stake (POS) is one of several newer consensus mechanisms created as an alternative to proof of work, reducing the energy consumption on the network whilst maintaining similar levels of efficiency and security.
Both consensus mechanisms have been proven to be effective. Each of them however suffer from their own set of trade-offs.
Proof-of-work consumes a lot of energy and requires a lot of equipment to run, but this adds to the system’s security as in order for an attack, hackers would have to dedicate enough resources to gain control of the entire network. The disadvantage is that growing the network is expensive as energy and equipment requirements increase over time.
Proof-of-stake networks use coins or tokens to serve as validators in the network, which is easily scalable due to the lack of equipment and energy requirements. However, in most proof of stake networks, control can be purchased, which is a disadvantage. To attack the network, all you need is money.