- EU legislators will take a vote on MiCA
- The MiCA bill could result in a ban on Proof-of-Work mining
- Why a PoW ban would take a toll on the entire crypto market
In September 2020, the European Commission published a proposal for the regulation of Markets in Crypto Assets (MiCA). The proposal draft remained on hold for a year and a half, but recently the European Union has found motivation to resume the work on this regulatory framework with renewed vigor. It is driven by the concerns over the fact that Russia might use crypto to evade sanctions.
European lawmakers intended to hold a vote on the MiCA proposal on March 14. The main objective is to introduce unified regulations and terminology, but the crypto community is mostly concerned about the requirement related to proof-of-work (PoW) cryptos.
In the initial MiCA draft, the authors intended to ban all digital assets which protocols are hazardous for the environment. These include PoW cryptocurrencies. However, some major crypto stakeholders (such as Ledger) opposed this requirement, and the demands were softened.
According to media, the latest proposal draft stipulates that, “Crypto-assets shall be subject to minimum environment sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered, or admitted to trading in the Union.”
This applies to Bitcoin, Ethereum, and other cryptocurrencies based on the Proof-of-Work mechanism.
In February, President of the European Central Bank Christine Lagarde spoke at an Informal Meeting of Ministers for the Economy and Finance. According to her statement, both the ECB and all national financial organizations will enforce the sanctions adopted by the European Union and the national governments.
To reduce the capability of crypto as a means to evade sanctions, a regulatory framework is necessary. This is why Christine Lagarde emphasized the importance of adopting MiCA as quickly as possible to establish this much needed framework.
The ECB President believes that they only way for crypto is to move to stablecoins and then to digital fiat currencies.
Earlier this year, Erik Thedeen, the vice-chair of the European Securities and Markets Authority (ESMA), advocated for a PoW mining ban. He justified this idea by the environmental risks of PoW. The idea was also supported by Gyorgy Matolscy, head of the Hungarian Central Bank. He proposed to ban cryptocurrency trading and mining across Europe.
In the meantime, Russia is planning to move its crypto assets to the UAE, which might help the country to evade sanctions.
Proof-of Work mining is very energy-consuming and environmentally unsustainable. This is why Ethereum is expected to move to the eco-friendlier and more energy-efficient Proof-of-Stake mechanism. For Bitcoin, however, such a move is impossible, at least for now. This is why the current version of the bill could lead to a Bitcoin ban all across the region.
If trading in the world’s most valuable crypto is stopped, it will move to the underground market. In fact, the new regulation might lead to the very same consequences which the EU is trying to avoid. However, they would go far beyond the Russian Federation and all over Europe. EU citizens would have to find ways to get around the law.