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EU Parliament Prepares to Vote of Proof-of-Work Limiting Legislative Framework


On March 14th the European Union is set to vote on a legislative framework for governing digital currencies. The Markets in Crypto (MICA) regulation contains a provision that would prohibit crypto services that rely on environmentally unstainable consensus mechanisms starting in January 2025.


This provision was originally scrapped, but has made it's way back in the draft with different wording. It states crypto assets "shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union."


It also states that energy-intensive crypto assets that are already in use in the EU before the legislation comes into effect, will have to "set up and maintain a phased rollout plan to ensure compliance with such requirements" as specified in another part of the framework.


Of course, Bitcoin cannot be "forced" by any single entity to switch consensus mechanisms. While we have yet to do a full proof-of-work article, I believe POW to be a much stronger consensus mechanism than any alternative (notably Proof-of-Stake).


Without going into a full Proof-of-work vs Proof-of-stake rabbit hole, the EU banning POW has major implications, not only for bitcoin in the EU, but for the EU as a whole.


Banning Proof-of-work is effectively banning a form of algorithmic problem solving.


Definition: Proof-of-work is a consensus mechanism that requires members of a network to expend effort solving an arbitrary mathematical puzzle to prevent anybody from gaming the system.


Not only are they banning math and innovation, but they may be making a long term economic and environmental mistake. Like stated above, Bitcoin will continue on as POW, but the EU will effectively be banning itself from it. Bitcoin's POW could help stabilize their grid in a time where energy facilities are trying to come up with new baseload energy following Russia's invasion of Ukraine.


Bitcoin's proof-of-work incentives use of stranded energy that may otherwise be wasted. It also incentives the use of renewable energy. Since Bitcoin allows for energy to be monetized, it allows for the overbuilding of solar and wind - which are intermittent sources of power. When the sun doesn't shine, and wind doesn't blow, bitcoin miners can be turned off.


Furthermore, banning Bitcoin- a decentralized money/network with properties that make it a perfect reserve asset- may put the EU back while other jurisdictions adopt it and/or allow this innovation to prosper.


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