De Facto PoW Ban Fails in European Parliament
What Happened and What’s Next
Today’s vote in the European Parliament (EP) on a potential PoW ban DID NOT PASS to become part of the Markets in Crypto-Assets Regulation (MiCA) package. Here’s what happened, what it means, and what comes next:
Background: The European Parliament’s “Left alliance” of Social-Democrats, Greens and Lefts, concerned over the energy use of proof-of-work (PoW) networks, supported the amendment. These political groups don’t hold a majority in either the ECON Committee nor in the parliament itself. However, the “Center-Right Alliance” consisting of Christian-Democrats, Liberals, Conservatives and others held only a thin majority, so the vote was close!
What’s next: The biggest unknown at this stage is what the “Left Alliance” will do in response to the amendment’s failure. They have signaled their intent to veto the advancement of the whole MiCA package to the trilogues (the final legislative step to approve MiCA at European level, which also includes the EU member states and their positions, plus the European Commission staff as expert mediator in the process).
What this means: Delaying the package’s advancement to the trilogues would ultimately delay the implementation of MiCA. This delay would also open the door to amendments, both good and bad, at the plenary level, complicating the advancement of MiCA. Finally, it is important to keep in mind that the implementation of the Travel Rule in Europe is directly linked to the implementation of MiCA, so a delay would also push implementation of the Travel Rule at EU level too.
The Greens in the EP led an initiative to ban PoW-based crypto-assets such as Bitcoin (BTC) due to those network’s consumption of energy. Whether BTC is mined with renewable energy or not was not at issue for these policymakers, as instead they sought to lead the way in banning PoW networks globally (!). Notwithstanding the fact that a global ban is exceedingly unrealistic, today’s vote evidences the political will for action on this issue.
There is a major interest among a majority of EU member states to have clear rules for the crypto ecosystem, businesses, and stablecoin issuers. This is particularly visible in France, which also holds the EU Presidency until 30 June 2022. The French government has been eager to take a leading role on MiCA, and the “Left Alliance’s” reaction to today’s vote could frustrate France’s role. If the Greens veto the advancement of MiCA to the trilogues, the French may cede the EU Presidency (and significant influence over the direction of MiCA) before the package is settled.
Consequently, the duty of finalizing MiCA could end up in the hands of the Czech Republic, which will take over the EU Presidency on 1 July 2022, and even potentially be pushed to Sweden’s tenure beginning in 2023. Encouragingly, both countries are relatively “crypto-friendly” EU member states.
Now that the vote has failed, the Greens are left with the choice of vetoing the MiCA package:
The Greens may not end up vetoing MiCA’s fast-track process, as EU member states, eager to see MiCA implemented, may exert significant pressure on them not to. Furthermore, Ernest Urtasun, the Green MEP who has led the charge on a potential PoW ban, is also in charge of the Travel Rule’s implementation. The Travel Rule is linked to the implementation of MiCA, so by delaying MiCA via a veto, he would delay his own regulation.
If the Greens follow through on their veto of MiCA’s current fast-track process, the package will be redirected onto a new legislative path in which the EP’s plenary will be involved. This would mean that MiCA will not be approved before May, maybe even June, as the plenary process requires several exchanges of views among MEPs and the possibility for new amendments.