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EU ban on Bitcoin proof-of-work not off the table yet

EU ban on Bitcoin proof-of-work not off the table yet
In mid-March, the EU Parliament’s Economic Committee decided against a de facto ban on Bitcoin. But apparently the topic is not off the table yet.
Bitcoin is a power guzzler , something critics have been complaining about for a long time. For example, the University of Cambridge has determined that Bitcoin miners now use more energy than the Netherlands, a country with more than 17 million inhabitants. This problem became public awareness in May 2021 at the latest, when Tesla CEO Elon Musk announced just a few weeks after the start that the electric car manufacturer would stop payments with bitcoins again due to the high power consumption during mining.

In the EU, therefore, members of the Greens, Social Democrats and Left had called for a ban on crypto services based on "ecologically unsustainable consensus mechanisms". This would have meant a de facto ban on the "Proof of Work" consensus and protection process used by Bitcoin. Ultimately, however, a majority of MEPs in the Committee on Economic and Monetary Affairs voted against a corresponding amendment to the Rules for Crypto Services (MiCA). Nevertheless, the critics do not appear to be defeated: "So the last word has not yet been spoken," assured the Green MEP Rasmus Andresen to "Netzpolitik.org".

Elaborate bitcoin mining

The criticism is directed in particular at the complex generation of Bitcoin, which relies on the Proof-of-Work (PoW) algorithm: The coins are generated by solving cryptographic tasks that protect the world's most popular cryptocurrency against manipulation. In return for providing their computing power, the so-called "miners" receive a certain amount of newly generated bitcoins for each block generated. In the meantime, however, the arithmetic tasks involved in mining have become so complex that they can hardly be mastered with a home PC. Therefore, huge, power-hungry server farms are used. However, the resulting increase in power consumption also increases environmentally harmful CO2 emissions, especially when

Ethereum , the world's second largest cryptocurrency, is already working on a switch to the much more economical proof-of-stake method, in which the participants with the largest computer resources are no longer rewarded, but in principle each network participant proportionally. The more coins you own, the higher the chance should be of placing a new entry in the blockchain and being rewarded for it. But with Bitcoin, such a change is extremely unlikely, because its decentralized structure makes updates very difficult.

EU continues to work on Bitcoin ban

However, the enormous energy hunger could be fatal for Bitcoin. While environmental awareness has already increased in recent years, the problem has become even more pressing given the explosion in energy prices triggered by the war in Ukraine. "Netzpolitik.org" has now reported, citing previously unpublished documents, that government representatives from Sweden and Germany, together with representatives of the EU Commission, were intensively discussing possible restrictions regarding Bitcoin behind closed doors. The demands range up to a ban on mining and trading in the cryptocurrency in the EU. While the former would have little effect as there is little mining activity within the EU, a Bitcoin trading ban would have a major impact on the crypto community.

For example, "Netzpolitik.org" quotes from one of the available documents: "If Ethereum is able to switch, we could legitimately demand the same from [Bitcoin]. We have to 'protect' other crypto coins that are sustainable. [ We] see no need to protect the bitcoin community," said one attendee of a virtual meeting between Swedish and EU officials in November 2021.

Another video conference by the EU Commission followed in February 2022 with German and Swedish participation. It turned out that the officials consider a key argument from Bitcoin fans to be implausible, namely that "excess" electricity is mainly used for mining, as is the case when wind or solar systems produce more than the power grid can absorb. However, this is hardly the case in reality, explained one of the participants. Because "there is no excess energy."

Although the de facto ban on bitcoin was defeated in March 2022 by the economic committee, the documents available to "Netzpolitik.org" suggest that a possible ban on mining or even trading of bitcoin is on the table, believes Alex de Vries . "The language is pretty clear," says the economist from the University of Amsterdam.

Politics still reserved

Although such talks have so far only taken place at official level, such plans could also find support at political level according to "Netzpolitik.org". However, there has been hesitation there so far: According to the Internet portal, the German federal government, for example, has not officially committed itself to taking concrete steps against crypto mining. And when asked by "Netzpolitik.org" the EU Commission did not elicit anything more concrete either. The Commission knows that Swedish and German authorities are talking about a possible ban and will continue their regular discussions on the subject with the member states, a spokesman said.

But at least a first, small step is emerging: In 2021, the EU Commission proposed a new energy efficiency guideline, according to which the member states would have to collect and publish data on the energy consumption of data centers. This could be the first step towards energy labeling for such installations.

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