The European Parliament provided major relief to the crypto industry by rejecting a clause in the Markets in Crypto Assets (MiCA) law that would effectively ban all proof-of-work (PoW) protocol-based cryptocurrencies, including bitcoin. Mint takes a look:
What is PoW and why is it a concern?
PoW is a consensus protocol used by blockchain platforms including Bitcoin and Ethereum. In PoW, each miner on the network competes to validate a transaction, although the first person to verify it is rewarded with new crypto. Typically, the miner with the most computing power wins. However, this also requires a large amount of electricity. According to the University of Cambridge’s Bitcoin Electricity Consumption Index, bitcoin mining consumes more than 121.36 terawatt hours (Twh) per year, which exceeds the annual electricity consumption of countries such as Argentina, Malaysia and Sweden.
Is there an alternative to PoW?
Yes. New crypto platforms such as Cardano and Solana are built on ‘proof-of-stake’ systems or POS. In this, miners are required to “stake” their own cryptocurrency in order to join the network. The miners with the highest stakes validate transactions, thus reducing overall energy consumption. According to the Ethereum Foundation, PoS can reduce energy needs by up to 99.5%, which maintains Ether, the second largest crypto in the world. Ethereum, which is more flexible than bitcoin in terms of its potential uses, is based on a PoW system right now. But it is moving to a POS system sometime in 2022 with the launch of the Ethereum 2.0 platform.
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Is there a cryptocurrency mine in India?
Yes. However, there are more traders than miners in India. According to the Bitcoin Electricity Consumption Index, only 0.05% of the monthly computing power put into bitcoin mining worldwide comes from India. But the ban on PoW crypto in the European Union (EU) would have affected the overall market and brought down the price of bitcoin, impacting Indian traders.
What was the problematic section?
The MiCA Bill, introduced in 2020, seeks to curb the harmful effects of crypto mining on the environment. The clause that was rejected called for a “minimum environmental sustainability” standard to be implemented, which required all PoW-based platforms to submit an environmental compliance plan or face a ban on all mining or trading. will be required. Most cryptocurrencies operate on a public network, with no central operator. Thus, such data is not always available.
Can India Still Ban Crypto?
A complete ban is unlikely as the government is working on officially taxing crypto trading. However, the upcoming crypto bill is expected to list the rules and penalties for crypto mining in India. India also banned the import of specific machines required for crypto mining in 2017. In the past, Union Finance Minister Nirmala Sitharaman has said that crypto and non-fungible tokens will never become legal tender in India. However, Indian law allows barter. Thus, if crypto is recognized as an asset class, they can be barter.
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