POW Mining Ban in Europe.

[TL;DR]

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In an interview with Financial Times, Eric Thedeen the Vice-Chair of European Securities and Market Authority (ESMA), called for a ban on Proof-of-Work mining in Europe. In a quote, he said, “We need to have a discussion about shifting the industry to a more efficient technology” he further added, “the solution is to ban proof-of-work” Bitcoin mining alone consumed 130TWh in 2020 alone equaling, the energy use of Ukraine or Argentina. Ethereum also utilizes Proof-of-Stake mining which, is very similar to PoW.

Proof of Work Mining is the method by which new bitcoins are brought into circulation. It is used for validating transactions in the blockchain.

Brief Summary of Proof-of-Work Mining.

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Proof-of-Work is a consensus protocol that allows a distributed network of users to store and update the ledger of transactions on their computing devices. In Proof-of-Work, every verified transaction contributes a new block to the blockchain. Proof-of-Work is the algorithm that allows the miners to complete cryptographic puzzles and add new blocks to the blockchain. After every successful block is added, the miner receives new bitcoins as rewards.

Proof-of-Work mining has become a controversial subject due to the large amount of electricity consumed by the machines. Ethereum’s proof-of-work consumes an average of 73.2 TWh, the energy equivalent of countries the size of Austria. The amount of energy consumed has been a qualm with proof-of-work. Considering that less than half of the energy used for proof-of-work comes from renewable sources. It is a setback in the quest to net-zero carbon emission in some countries.

Presently, Kazakhstan has the world's second-largest market share of Bitcoin mining, just behind the US. It can be linked to the abundant presence of coal mines that provide cheap energy in the country.

Pre-2021, China dominated the Bitcoin mining market until a ban was placed on crypto mining in the country. However, after the Chinese ban, the US picked up the baton and stepped up in mining cryptocurrency.

With recent happenings, the question remains will there be a ban on proof-of-work mining in Europe?

What is Proof-of-Work Mining?

With the regular financial system, there is an operator that takes record of when Alice pays to Beth and when Beth pays Carl. When you move money from one location to another, it is made possible by an authorizing entity. However, with decentralized networks, there are no controlling figures. Hence the need for a consensus mechanism to ensure that every transaction is legitimate. Proof-of-Work is the algorithm that ensures the security of blockchains such as Bitcoin and Ethereum. It is the decentralized system that ensures users are unable to double spend.

Proof-of-Work is the consensus mechanism used to add new blocks of verified transactions to the blockchain and in the process, create new coins. The process requires a high level of computation and is highly energy-intensive. The machines used for PoW minings are;
- Application-Specific Integrated Circuits (ASICs)
- Graphics Processing Unit

Due to objections about the environmentally unfriendly condition of Proof-of-Work mining, there is a potentially greener alternative called Proof-of-Stake.

Ethereum is making a transition into Ethereum 2.0 that will use Proof-of-Stake.

Will Proof-of-Work be Banned in Europe?

In the meantime, it is highly unlikely.

When there was a mining ban in China in 2021, it was due to a heavy crackdown on cryptocurrency activities in China. The rationale behind the decision was less concerned with the amount of cheap energy used in the process.

According to Eric Thedeen, the EU should push Bitcoin in the direction of Proof-of-Stake by banning Proof-of-Work. Citing Ethereum as an example as they prepare for Ethereum 2.0 to be built with Proof-of-Stake starting in 2022.
The facts in this matter do not help the cause. First of all, the EU does not have a significant share in the Bitcoin mining market. The US, Kazakhstan, and Russia account for about 65% of Bitcoin mining. Any action from the EU with regards to Bitcoin mining may not have a significant impact on the future direction of Bitcoin.

There is no large-scale use of the Proof-of-Stake method yet. It is highly unlikely that Bitcoin will transition into another blockchain because of a ban on its mining method in one part of the world.

Pros and Cons of Proof-of-Work

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The number one advantage Proof-of-Work has is security. Proof-of-Work ensures that cryptocurrencies are secure.
However, this advantage has its downside because the more computational power, the more secure Bitcoin is. The more computational power, the more energy is consumed which is not very environmentally friendly.

Tesla stopped accepting bitcoins as a form of payment in protest of the amount of energy expended in mining bitcoins. The amount of energy used is a disadvantage in proof-of-work mining.



Author: Gate.io Observer: M. Olatunji
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* This article represents only the views of the observers and does not constitute any investment suggestions.
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