The EU’s Markets in Crypto-Asset Rule (MiCA) regulation of the European Commission is one of the many attacks against bitcoin.
Bitcoin is being attacked. It is becoming more widely regarded as “dirty currency.” Greenpeace, Elon Musk’s Tesla, Wikipedia, and other organisations no longer accept Bitcoin as payment for products or as a method of charitable donations.
“Cryptocurrency is a good idea on many levels, and we believe it has a promising future, but this cannot come at great cost to the environment,” according to Musk, one of the most controversial and wealthy individuals on the globe. Ouch.
And Musk isn’t the only one. Bitcoin has also come under fire from politicians.
Before the Markets in Crypto-Asset Rule (MiCA) regulation of the European Commission was approved, it created quite a stir in the Bitcoin community, especially because left-wing EU Parliamentarians opposed proof of work (PoW) and the energy use of the Bitcoin network. In the trilogue, a variant of MiCA that did not outlaw mining or PoW was finally passed.
As was revealed in April 2022, during the drafting of the draught bill, certain members of the European Parliament (MEPs) attempted to pass restrictions on both bitcoin mining and trade. Good thing they failed.
However, the groundwork has already been done for more actions. For instance, cryptocurrency issuers, who are typically just IT startups, will be required to provide some sort of report on the energy usage and associated carbon footprint of the relevant asset. When customers buy crypto assets from brokers and exchanges, they must be told these precise numbers.
Greenpeace USA’s anti-Bitcoin campaign, which was started in March and funded, among others, by Ripple co-founder Chris Larsen, contributed to the growing hostility toward Bitcoin. It’s interesting to note that Greenpeace welcomed bitcoin contributions from 2014 until 2021, when they were suspended on environmental concerns.
NEARLY HALF OF THE EU PARLIAMENT DOESN’T LIKE BITCOIN
As previously mentioned, the MiCA legislation did not include a restriction on Bitcoin mining or trade. However, it is highly improbable that the EU parliamentarians who attempted to incorporate this in MiCA will give up; on the contrary, we can anticipate.
The EU Parliament’s Economic and Monetary Affairs (ECON) committee rejected a PoW ban in March 2022. 24 members voted in favour, while 32 members abstained. The debate over this issue appears to be becoming more and more ideologically motivated, as the Social Democrats, Greens, and other left-leaning groups tended to support a PoW ban while the Conservatives, Liberals, and right-wing groups tended to oppose it.
Conservative MEP Stefan Berger’s final MiCA draught had a compromise: rather than outright prohibiting PoW, they decided to include a rating system for cryptocurrencies to evaluate their environmental consequences (more on that later).
Ernest Urtasun, a Spanish Green who sits in the EU parliament, explained this to Politico in an email exchange:
“Creating an EU labeling system for crypto will not solve the problem as long as crypto-mining can continue outside the Union, also driven by EU demand… The Commission should rather focus on developing minimum sustainability standards with a clear timeline to comply.”
He also added:
“Ethereum’s recent upgrade just showed that phasing out from environmentally harmful protocols is actually feasible, without causing any disruption to the network.”
THE ECB DOESN’T LIKE BITCOIN — AT ALL
While there are varying views on Bitcoin in the European Parliament, the European Central Bank (ECB) is sending us very clear messages. The “exorbitant carbon footprint” of cryptocurrencies is cited by the ECB as “grounds for concern” in frequent warnings about them.
The ECB recently posted a blog entry titled “Bitcoin’s Last Stand” on November 30, 2022. Ulrich Bindseil, the director general of market infrastructure and payments at the ECB, and adviser Jürgen Schaff make the claim that bitcoin is “questionable as a means of payment due to its conceptual design and technological shortcomings.”
Although it may seem odd to publicly criticise something that is “on the way to irrelevance,” the ECB has already targeted Bitcoin.
In a study article published in July 2022, the ECB singled out Bitcoin and compared proof-of-work to internal combustion engines while viewing proof-of-stake as more analogous to electric automobiles. Let’s set aside for a moment the fact that this is illogical and examine what was written in more detail:
“Public authorities should not stifle innovation, as it is a driver of economic growth. Although the benefit for society of bitcoin itself is doubtful, blockchain technology in principle may provide yet unknown benefits and technological applications. Hence, authorities could choose not to intervene with a view to supporting digital innovation. At the same time, it is difficult to see how authorities could opt to ban petrol cars over a transition period but turn a blind eye to bitcoin-type assets built on PoW technology, with country-sized energy consumption footprints and yearly carbon emissions that currently negate most euro area countries’ past and target GHG saving. This holds especially given that an alternative, less energy-intensive blockchain technology exists.”
The European Central Bank (ECB) generally thinks it’s quite unlikely that the European Union won’t take measures to reduce carbon emissions on PoW-based assets like bitcoin. The authors of the paper contend that it is likely that the EU will phase down PoW in a similar manner to how they are dealing with fossil fuel vehicles. Particularly because they claim that PoS is a “alternative, less energy-intensive” method.
“To continue with the car analogy, public authorities have the choice of incentivising the crypto version of the electric vehicle (PoS and its various blockchain consensus mechanisms) or to restrict or ban the crypto version of the fossil fuel car (PoW blockchain consensus mechanisms). So, while a hands-off approach by public authorities is possible, it is highly unlikely, and policy action by authorities (e.g. disclosure requirements, carbon tax on crypto transactions or holdings, or outright bans on mining) is probable. The price impact on the crypto-assets targeted by policy action is likely to be commensurate with the severity of the policy action and whether it is a global or regional measure.”
Due to variables beyond our control, its exchange function is continually altering. The key factor is how individuals engage with it, and this relationship depends on economic and monetary policy regulations that few people are aware of.
The ECB and other regulators are attempting to make Bitcoin useless since it circumvents these regulations (and is the reason why they want to outlaw it). Additionally, and maybe more importantly, Bitcoin displays its value through characteristics that are wholly independent of a government’s authority, and hence, the ECBs.
WHAT WILL HAPPEN NEXT?
The European Union will implement a rating system for cryptocurrency in 2025 that will take the form of energy labels for appliances like TVs and refrigerators. The worst classification for bitcoin is already something you can anticipate. In general, this move will be good for Ethereum and terrible for Bitcoin.
Given that the Bitcoin community claims that the Bitcoin network is not an impediment but a solution for more green energy, it is highly unlikely that such a moniker will deter investors from purchasing bitcoin.
As a result, there is an incentive for the bitcoin mining business to go green: The ECB paper’s parallel with fossil fuels is absurd. A PoW network like Bitcoin can have a completely renewable, green energy mix. Bitcoin can be used to instantly monetize energy, similar to how flared gas is already being done even though it would be flared anyhow. How quickly and successfully this endeavour will reach politicians, though, is debatable, especially in light of the fact that fossil energy giants like Exxon are currently mining Bitcoin using flared gas.
As more miners join, the authors of the ECB paper already imply that a greater bitcoin price results in increased energy consumption. Therefore, a successful method to reduce the hash rate would be to destroy the demand for bitcoin.
CONCLUSION
According to the political and academic consensus, the “old” PoW standard should be phased out in favour of the “new” PoS standard. Many onlookers think this would be a good direction for the Bitcoin network, especially in light of Ethereum’s recent merger. We have our doubts about that and will go into more detail in a later post. As we’ve seen in a variety of situations, it’s difficult, if not impossible, to ban Bitcoin. For instance, the Nigerian government attempted, failed, and finally gave up.
Since 2025 is still quite a ways off, all we can do at this point is prepare for the unexpected given the energy crisis, greater attention on carbon emissions, and overall global uncertainty.
Even if the worst case scenario occurs and there is a ban on Bitcoin in some form in the EU, we doubt that this will last indefinitely. Bitcoin does not ask permission. Bitcoin is a concept that, from an ontological perspective, struggles to remain contained. It is an argument based on the inherent qualities of the technology Satoshi Nakamoto introduced, not an idea developed from anarchist ideas. The authorities’ authorising reasoning makes it evident that they have difficulty stopping the Bitcoin phenomenon, which operates without anyone else’s consent.