PremiumThe European Parliament provided major relief to the crypto industry by rejecting a clause in the Markets in Crypto Assets (MiCA) legislation that would have effectively banned all proof-of-work (PoW) protocol-based cryptocurrencies including bitcoin. Mint takes a look:
The European Parliament provided major relief to the crypto industry by rejecting a clause in the Markets in Crypto Assets (MiCA) legislation that would have effectively banned 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, every miner on the network competes to validate transactions, though only the first one to validate it is rewarded with new crypto. Usually, miners with the most computing power win. However, that also requires large amount of electricity. Bitcoin mining consumes more than 121.36 terawatt hours (Twh) per year, which is more than the annual electricity consumption of countries like Argentina, Malaysia, and Sweden, according to the University of Cambridge’s Bitcoin Electricity Consumption Index.
Is there an alternative to PoW?
Yes. Newer crypto platforms, such as Cardano and Solana, are built on the ‘proof-of-stake’ system, or PoS. In this, miners are required to “stake" their own cryptocurrencies to join the network. Miners with the highest stakes get to validate transactions, thus reducing overall energy consumption. PoS can cut energy needs by 99.5%, according to the Ethereum Foundation, which maintains Ether, the second largest crypto in the world. Ethereum, which is more flexible than Bitcoin in terms of its possible uses, is based on the PoW system right now. But it is moving to the PoS system sometime in 2022 with the launch of the Ethereum 2.0 platform.
Does India mine cryptocurrencies?
Yes. However, India has more traders than miners. Only 0.05% of the monthly computing power put into mining Bitcoins worldwide comes from India, according to the Bitcoin Electricity Consumption Index. But a ban on PoW cryptos in the European Union (EU) would have affected the overall market and tanked the price of bitcoin, which would have affected Indian traders.
What was the problematic clause?
The MiCA Bill, introduced in 2020, sought to curb the harmful impact of crypto mining on the environment. The clause that was rejected asked for a “minimum environmental sustainability" standard to be enforced, which would have required all PoW-based platforms to submit environmental compliance plans or face a ban on all mining or trading. Most cryptocurrencies run on a public network, with no central operators. Thus, such data is not always available.
Can India still ban cryptos?
A complete ban is unlikely as the government is officially working on taxing crypto trading. However, the upcoming crypto bill is expected to list out rules and penalties for crypto mining in India. India had also banned the import of specific machines needed for crypto mining in 2017. In the past, Union finance minister Nirmala Sitharaman has said cryptos and non-fungible tokens will never become legal tender in India. However, Indian law does allow barter. Thus, if cryptos are recognized as an asset class, they could be bartered.
