The European Union has rejected a proposal that if it had passed would have adversely affected both Bitcoin (BTC-USD) and Ethereum (ETH-USD). These two cryptocurrencies would have been banned in all 27 member states of the EU. Briefly, the proposal had the potential to severely restrict the decentralized nature of cryptocurrencies. Consequently, its rejection is a victory for the crypto community in Europe.
The proposal that would have formally restricted the use of the Proof-of-Work consensus method has been rejected by the Economic and Monetary Affairs Committee of the European Parliament. As a result of the proposal winning the approval of Parliament, it would have rendered many cryptocurrencies operations such as bitcoin mining and Ethereum’s network inoperable because they would no longer have been able to use these consensus mechanisms.
Proof of work, commonly referred to as PoW, is a type of algorithm that must be solved before blocks can be added to a blockchain. The first time it was introduced was in 2009, and today it is used by various cryptocurrencies, including Bitcoin and Ethereum.
Market Changes Following the Rejection of the Proposal
Despite the good news, cryptocurrency prices fell. At the time of writing, virtual currencies that rely on POW were affected in these ways:
* Bitcoin (BTC-USD) fell -0.2%.
* Ethereum (ETH-USD) fell -0.7%
* Dogecoin (DOGE-USD) fell -1.7%
* Litecoin (LTC-USD) fell -0.9%
* Bitcoin Cash (BCH-USD) fell -0.6%.
* Ethereum classic (ETC-USD) fell -1.7%.
* Monero (XMR-USD) fell -0.1%.
* Only ZCash (ZEC-USD) rose +2.4%
Crypto Miner Stocks Also Slid
* Riot Blockchain (RIOT) fell -3.7%
* Marathon Digital (MARA) fell -4.0%
* HIVE Blockchain (HIVE) fell -2.9%
* Bit Digital (BTBT) fell -6.8%
* Hut 8 Mining (HUT) fell -3.7%
* Bitfarms (BITF) fell -1.8%
* Stronghold Digital Mining (SDIG) fell -2.4%
* CleanSpark (CLSK) fell -5.5%
* Core Scientific (CORZ) fell -3.5%
Putting It All Together: The Reasons for the Proposal
Blockchain network providers must compete in complicated cryptographic computations called proof of work, or PoW, to validate the next block of transactions in the distributed ledger. Unlike traditional data that can be easily manipulated by anyone, this data provides a level of security that cannot be found in traditional data. As a result of complex cryptographic computations on the blockchain network, a virtual “proof of work” is generated. Essentially, it confirms the validity of transactions and prevents any manipulation.
It’s important to clarify that the proposal was not intended to sabotage the miners’ attempts to earn Bitcoin as a reward for their labor, nor was it intended to derail the continuing popularity of the cryptocurrency. On the contrary, the issue was about energy consumption.
It is no secret that Bitcoin mining is an energy-intensive process. In fact, the rewards given to Bitcoin miners come at the cost of the energy consumption of entire nations, such as Austria and Portugal. There hasn’t been any comment from Bitcoin on what they intend to do about this problem.
Ethereum, the blockchain-based, decentralized platform that enables developers to build applications on top of it, has taken a different approach. For its entire existence, Ethereum has used the proof-of-work method to mine new coins, which has a great deal of electricity consumption and slows down the process of transactions. However, the company has announced plans to switch to a proof-of-stake consensus mechanism in the future. This is a wise move since the cryptocurrency, Tezos, has already proved this mechanism is a more energy-efficient means of transferring money.