The European Parliament voted 30 to 23 against proposals to ban "proof-of-work" (PoW) cryptocurrencies, such as Bitcoin, as part of a broader debate on proposed regulation on crypto asset markets.
The ban on PoW models, which essentially require anyone who obtains crypto through mining to use ever-increasing amounts of computing power to crack crypto codes, was added as an amendment and (unsurprisingly) met with serious opposition from those in the crypto space.
The stakes are high in the EU vote. That such a proposal has gone this far is extremely worrying and is unlikely to withstand practical reality. https://t.co/t8xA0EnVfEMMarch 12, 2022
Read more
Aside from the fact that owning an asset (especially large amounts of an asset) naturally pits you against anyone who tries to ban it, general laws that ban a certain type of asset have some drawbacks.
However, the general idea of the EU was correct: PoW models use an enormous amount of energy to do something that can be achieved by both traditional financial services and proof-of-stake (PoS) models, which use Solana, Bezos and others. . new cryptocurrencies.
The technical differences between PoW and PoS (two rather unfortunate acronyms in their own right) are complex, but at the basic level, PoW requires a lot of computing power (read: power consumption), while PoS requires verification through "validators" that reduce energy consumption. parts.
The European Parliament wanted to ensure that all cryptocurrencies met its "minimum environmental sustainability standards with regard to its consensus mechanism." Or, in other words, PoS would become the standard in the EU, by mandate of the law.
Climate crisis
The total cryptocurrency market capitalization currently stands at €1,72 trillion, an unimaginable amount of wealth generated in less than a decade, and that is significantly lower than its all-time high in 2021.
However, with this enormous growth comes a host of challenges, and perhaps the most important is the incredible amount of energy required to obtain and use cryptocurrencies, especially when compared to traditional finance (or TradFi, as it is called).
According to one estimate, Bitcoin currently uses 2258 kWh for a transaction, compared to 1,5 kWh for a Visa transaction. In other words, a single Bitcoin transaction uses 1,5 million times more energy, enough to power a home for 2,5 months.
Other estimates, and it should be noted that they are disputed, show that Bitcoin uses as much energy as Finland, Chile, Denmark and the Netherlands.
Some miners have tried to improve on the huge power consumption, but ultimately the argument that a highly volatile cryptocurrency that uses an order of magnitude more power is more efficient or useful than TradFi sounds pretty hollow.
The background to all this is, of course, the worsening climate crisis; the world can hardly afford to host the most energy consuming cryptocurrencies, especially when alternative technologies exist.