The next 24 hours may be critical for crypto enthusiasts in the European Union (EU) as lawmakers negotiate a mandate for the proposed landmark legislation for digital assets before it moves on to the next phase of discussions.
UPDATE (March 25th, 11:36 UTC): EU's MiCA Bill Moves Forward Without Bitcoin Limiting Provision
European parliamentarians that have been calling for measures aimed at restricting the use of cryptocurrencies that rely on the energy-intensive computing process called proof-of-work in the EU could still stall the proposed Markets in Crypto Assets (MiCA) framework, the EU’s sweeping regulatory package for cryptocurrencies. Meanwhile, EU legislators are also split on which agency should enforce MiCA.
EU parliamentarian Stefan Berger, who is tasked with overseeing MiCA through the EU’s legislative process, tweeted on Tuesday that the MiCA negotiating mandate for the upcoming trilogue (three-way discussions between the EU parliament, commission and council) “can be challenged if a tenth of the MEPs (71 votes) are in favor.”
The deadline to decide is Wednesday, Berger said, adding that, if these votes come together, the entire parliament would have to vote on it in April.
“I hope it does not go to plenary. I don’t know. To be honest, I don’t know. Let’s see. This is politics,” said Berger during an interview with CoinDesk on Wednesday.
Berger fears that if the legislation does go to a plenary session, some parliamentarians may make one last attempt to stop the MiCA draft in its current form, which does not include the provision to ban proof-of-work.
“I am more than relieved that the [committee] voted against the ban of proof-of-work-based assets for EU companies in the end,” said Patrick Hansen, head of strategy at Unstoppable Finance and an outspoken critic of the political movement targeted at limiting proof-of-work cryptocurrencies in the EU.
Crypto advocates, including Hansen, pointed out that although there are plans to move Ethereum to proof-of-stake, a consensus mechanism that is less energy-intensive, Bitcoin may not have the same option. Critics of the proposed provision also said that suggesting Bitcoin could be transitioned out of proof-of-work may have revealed how little lawmakers understand blockchain.
“While action against climate change is important, the solution to ban proof-of-work in the EU is misguided. It shows that the blockchain community must engage with lawmakers and educate them to make informed decisions, which are based on facts and not guided by political considerations,” said Benedikt Faupel, blockchain project manager at Bitkom, Germany’s digital industry association, in an email to CoinDesk.
Faupel added that it’s unlikely that the scrapped proof-of-work provision will find its way back into MiCA. But that doesn’t mean it’s completely out of the picture, he said.
Hansen said that there is a good chance that parliamentarians in favor of the provision would take it up with the parliament once again.
Meanwhile, although the controversial provision was essentially scrapped after last Monday’s vote, it was discarded in favor of an alternative measure that would require the European Commission, the government arm in charge of proposing new legislation in the EU, to come up with a proposal to be included in the EU taxonomy on “any crypto-asset mining activities that contribute substantially to climate change” by 2025.
“The EU taxonomy classifies economic activities according to their environmental sustainability. Thereby, states, companies and investors shall be enabled to be direct investments to sustainable economic activities in line with the European Green Deal,” Faupel said, adding that classifying proof-of-work as unsustainable under the taxonomy would make it harder for proof-of-work mining companies to attract capital.
“But it would only marginally affect other crypto businesses like exchanges,” Faupel said.
In the days following the vote, EU committee members on opposite sides of the aisle began sparring on Twitter over the result of the vote.
“We narrowly lost the vote, but the debate on this continues. Clear ecological criteria will come sooner or later & then cryptocurrencies that optimize their energy consumption will prevail. Others will disappear,” said EU parliamentarian Rasmus Andresen, who supported the provision that would require cryptocurrencies to meet climate standards in the EU on Twitter.
While Andresen said it was “absurd” that Green and Left parliamentarians pushing for this provision wanted to ban cryptocurrencies that use renewable energy, Berger, who proposed the alternative compromise that ended up winning the majority vote last week, fired back saying Andresen’s reasoning was “a clear attempt to conceal the potential for harm of one’s own proposal.”
Berger added that the ecological criteria crypto assets would have had to meet under the scrapped provision were indeed linked to a requirement to phase out of proof-of-work and amounted to “a de facto PoW ban.”
“There’s never a dull moment in this nascent industry. Although the proof-of-work amendment, which would have meant a de facto EU ban on Bitcoin and Ethereum, was voted down, the sigh of relief we are breathing is likely short-lived,” said Ian Taylor, executive director at CryptoUK, an independent industry association, in a statement.
In the same statement, Taylor said it was very concerning for the industry that 23 members of the EU’s economic and monetary committee voted in favor of a de facto bitcoin ban.
Hansen said that that amendment would have had dramatic consequences on the European crypto market, since it would have pushed EU consumers towards foreign, unregulated exchanges and taken European companies, capital and talent out of the EU.
“Even if, in all likelihood, that amendment would not have found its way into the final agreement, the mere symbol of the EU Parliament calling for a [proof-of-work] ban would already have had detrimental effects on the market,” Hansen said.
Berger said that the European council and commission have other areas to focus on during the upcoming trilogue, and that the commission has no intention of banning any crypto.
A key discussion point during the trilogue will be about which EU regulators will have the power to supervise the EU crypto space under MiCA.
According to Berger, the council and the parliament will have to reach a compromise on which regulator – the European Banking Authority (EBA) or the European Securities and Markets Authority (ESMA) – will have more supervision power.
Another problem is deciding how to authorize coins, Berger said. MiCA was drafted in the wake of the now-defunct Diem, Facebook’s infamous stablecoin project.
“The European Central Bank must have a binding opinion when a coin is authorized,” Berger said.
European Central Bank (ECB) President Christine Lagarde has, in the meantime, been calling for MiCA to be finalized and enforced with urgency in the wake of the Russian invasion of Ukraine and concerns that sanctioned entities in Russia might use crypto to evade restrictions.
Berger said it will take at least a year to implement MiCA.
“When we finish the trilogue and MICA comes into reality, we will need about one year so it is not the case that we bring MiCA to answer the Russia and Ukraine conflict, but the very important thing is that we raise a signal with MiCA that we want to create a supervision architecture,” Berger said.
The MiCA trilogue is expected to begin next week, Berger said.
Amitoj Singh contributed reporting.
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