EU Decides Not to Ban Itself from Bitcoin

  • The European Parliament scrapped a ban on proof-of-work consensus mechanisms.
  • This ban would have meant a legal “ban” on Bitcoin across the EU.
  • Outcry from the Bitcoin community put pressure on MEPs

The Bitcoin community secured another last-minute legislative victory, as the European Parliament scrapped a controversial measure that would have seen proof-of-work consensus mechanisms banned across the bloc. Proof of work is the backbone of the Bitcoin network. It is the consensus mechanism, based on solving complex mathematical problems, which allows Bitcoin to be safe and decentralised. As the name indicates, the mechanism requires work, or computational power, and this work requires a substantial use of energy. It is this use of energy that led a faction of EU parliamentarians to introduce a proposed ban within the Markets in Crypto Assets (MiCA) regulatory framework.

As we have argued elsewhere, “banning” bitcoin is a legal attempt at achieving what is technically impossible. Instead, what it achieves is hindering one’s role in a booming sector. It is the equivalent of banning the internet 30 years ago or the manufacture of computers. The mere mention of a “ban”, however, has a chilling effect on the price of Bitcoin, as it keeps institutional capital away until regulatory clarity is achieved. Having removed the problematic clause, the MiCA legislation must now undergo the rest of its legislative trajectory with the Commission, Council and the European Parliament before its projected implementation in 2025. The Commission will have to come up with an alternative solution that addresses environmental concerns without banning proof of work. Seeing the outcry that this last vote provoked, it is highly unlikely that the EU will attempt to ban Bitcoin again.

Banning Bitcoin is silly and impossible. Regulatory clarity on both sides of the Atlantic, following MiCA and Biden’s executive order, however, will allow institutional capital to enter the sector and grassroots adoption to flourish. This should lead to explosive growth for Bitcoin.

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