Per a Bloomberg report, the European Union has drafted a proposal indicating that the European Commission plans to work with international partners to develop a grading system to promote environmentally-friendly crypto networks.
EU To Encourage Proof-of-Stake (PoS) Networks
Cryptocurrencies’ energy consumption remains a serious area of concern. The leading digital currency, Bitcoin, has the highest energy consumption rate. Its annual energy usage is reportedly higher than in some countries.’ Many consider its consensus mechanism (proof-of-work (PoW) as the reason for its vast energy consumption.
The EU will release this draft proposal on Tuesday to address energy inefficiency issues in the crypto sector and offer solutions. With the increasing expansion of the industry, there has been an increase in energy usage in the sector. Hence, it is only fitting that there are measures to ensure energy usage is efficient, the draft read.
Recently, the second largest cryptocurrency, Ethereum (ETH), underwent an upgrade and transitioned to a PoS network. Its energy consumption had dropped by about 99% in contrast to when it was still using the PoW consensus mechanism.
EU’s Past Attempt To Ban PoW Networks
In the past, the EU considered banning proof-of-work practices but held off on that consideration for a reason. It decided that crypto asset providers should always reveal the environmental effect and energy consumption of any digital asset they mine.
Similarly, the European Securities and Markets Authority (ESMA) also called on the EU to ban cryptocurrency mining networks that utilize the Proof-of-Work (PoW) consensus mechanism. The ESMA argued that failure to act now could make it hard to handle the effects of climate change later.
Also, the European Commission will share a new report evaluating the crypto industry’s climate impact by 2025. The European regulatory body has urged members to put tax breaks on hold for crypto-miners.
Other jurisdictions like the United States join the EU to eradicate or substantially reduce crypto mining energy consumption. The White House has consistently warned of the negative impact of Bitcoin mining on the environment.