European Commission Developing New Cryptocurrency Regulation Without Imposing Ban on Digital Coins

European Commission Developing New Cryptocurrency Regulation Without Imposing Ban on Digital Coins

Europe’s financial watchdogs have moved ahead with the new digital currency regulations while denying the previous law that might have banned cryptocurrency services in the country.

The European Commission is weighing new ways to govern cryptocurrencies, with an aim of ruling out money laundering activities from the EU member states. However, in 2020 a framework was also drafted for Markets in Crypto Assets (MiCA) to curb financial crimes. In the development phase of this framework, depending on the risk associated with the cryptocurrencies, a new amendment was suggested to make digital crypto money transactions involving proof-of-work illegal.

The proof-of-work algorithms back virtual currencies, how they are mined, and how the transactions are verified by the blockchain network. However, such algorithms are highly criticized for consuming large reserves of energy, affecting the environment, and stimulating regulatory authorities to develop a rigid set of regulations. Moreover, under the European Green Deal, the EU member states are trying to reduce greenhouse gas emissions.

Particularly, this amendment would have prohibited the mining and trading of cryptocurrencies within the EU member states by 2025, if they used “environmentally unsustainable consensus mechanisms.”  The digital crypto coins could also be traded if they fulfill “minimum environmental sustainability standards”.

However, restricting the use of proof-of-work algorithms would have generated adverse effects for the cryptocurrencies like Bitcoin and Ethereum, especially prohibiting miners and digital currency service providers from mining cryptocurrencies. Therefore, new emerging coins are developed by using proof-of-stake algorithms that are less computational and don’t consume a lot of energy.

Thus, at the start of March, a member of the European People’s Party Group, Stefan Berger, confirmed the law to prohibit the use of proof-of-work algorithms that had been removed from the revisions of the proposed MiCA. However, earlier he stated that he didn’t want the citizens to misinterpret this initiative as a ban on proof-of-work, and a vote on the framework due to be held in late February was postponed to straighten out the issue.

“The regulation being created is pioneering in terms of innovation, consumer protection, legal certainty, and the establishment of reliable supervisory structures in the field of crypto-assets. Many countries around the world will now take a close look at MiCA,”  he said in a statement.