EU Parliament Committee Rejects Proposal to Limit Proof-of-Work Crypto

The European Parliament’s Economic and Monetary Affairs Committee voted Monday, a move that quashed the ban on the popular cryptocurrency Bitcoin across the European Union (EU).  The committee voted against the ban on Proof-of-Work mechanisms underlying major cryptocurrencies like Bitcoin and Ethereum. - 2022-03-15T102851.030.jpg

The committee decided to keep out the rule of the proposed Markets in Crypto Assets (MiCA) framework, the EU’s comprehensive regulatory package for governing digital assets.

The rule, which was introduced to the draft last week, aimed to limit the use of cryptocurrencies powered by an energy-intensive computing process known as proof-of-work across the EU’s 27 member states. The proposal was eventually repealed as a result of widespread opposition from the sector.

Dr Stefan Berger, EU parliamentarian in charge of the MiCA legislative framework, talked about the announcement on Twitter social media platform: “First stage win at #MiCA in committee! By accepting my proposal, members have paved the way for future-oriented crypto regulation. It is now a matter of accepting the report as a whole in the final vote & sending out a strong signal for innovation.”

However, Dr. Berger stated that the controversial paragraph has been withdrawn, but that a final decision had not yet been reached.

Switching to Proof of Stake

The use of Proof-of-Work (PoW) cryptocurrencies was uncertain following the draft of the European Union’s (EU) proposed legal framework for managing virtual currencies, known as the Markets in Crypto Assets (MiCA) framework.

The clause, which could have forced PoW cryptocurrencies to shift to more environmentally friendly mechanisms, failed to get the votes required in the parliament.

Major crypto assets like Bitcoin and Ethereum rely on PoW, a consensus mechanism underlying the digital assets that require a lot of energy to operate.

In recent months, the computing process has come under intense examination from legislators because of worries about the usage of energy. While the popularity of Bitcoin has grown, the controversy over its energy consumption and environmental impact has intensified.

As a result, some of the major cryptocurrencies like Ethereum and Dogecoin have shown intentions to migrate from the current Proof-of-Work (PoW) to Proof of Stake (PoS) crypto consensus mechanism. PoS refers to processing transactions and creating new blocks in a blockchain in an environment and efficient friendly manner.

However, there is still no consensus in the crypto community about the PoS model being better than PoW. Some users and well-known names in the market, like Jack Dorsey, have highlighted that the new method does not provide as much security to the network as proof of work offers. Meanwhile, there is no sign that Bitcoin, the world’s largest cryptocurrency, will migrate to the PoS system.

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MIT Sees Ethereum’s PoS as Game Changing Tech

Ranked sixth among the top 10 technological breakthroughs of 2022, the Massachusetts Institute of Technology (MIT) views Ethereum’s proof of stake (PoS) consensus mechanism as a game-changer that will prompt the adoption of energy-saving technology. 

Per the announcement:

“Proof of stake offers a way to set up such a network without requiring so much energy. And if all goes as planned, Ethereum, which runs all sorts of applications in addition to the world’s second-largest cryptocurrency, will transition to it in the first half of 2022. The shift has been projected to cut energy use by 99.95%.”

The MIT acknowledged that Ethereum’s PoS framework would be instrumental in changing the narrative about cryptocurrencies using vast amounts of electricity. For instance, Bitcoin (BTC) used more energy than Finland last year.

Ethereum 2.0, recently renamed to the consensus layer, was launched in December 2020 to transition a PoS framework from the current proof of work (PoW) consensus algorithm.

Since then, it has gained steam as more investments continue trickling in, given that the number of validators recently hit 300,000 and staked Ether crossed the 9.5 million mark. 

With “The Merge” slated for the second quarter of this year, MIT noted that Ethereum’s transition would become the centre stage of triggering energy-efficient technology even though other networks like Solana, Cardano, and Algorand are already using PoS blockchains. 

The report noted:

“With proof of stake, validators don’t have to vie against one another, spending big on energy and computing hardware. Instead, their cache, or stake, of cryptocurrency allows them to enter a lottery. Those who are chosen to gain the authority to verify a set of transactions (and so earn more cryptocurrency).”

The other top ten breakthrough technologies included Covid variant tracking, a long-lasting grid battery, artificial intelligence (AI) for protein folding, and malaria vaccine, per the MIT Review. 

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Eth2 is no more after Ethereum Foundation ditches name in rebrand

The Ethereum Foundation has removed all references to Eth1 and Eth2 in favor of calling the original blockchain the “execution layer” and the upgraded Proof of Stake chain the “consensus layer.”

Ethereum’s long-awaited transition from a Proof-of-work mining model to a Proof-of-Stake (PoS) consensus mechanism is expected to go live around in the second or third quarter of this year.

Announcing the change the foundation cited a number of rationales including a “broken mental model for new users,” scam prevention, inclusivity and staking clarity.

In a Jan.24 blog post, the Ethereum Foundation noted that the branding of Eth2 failed to concisely capture what was happening to the network via its series of upgrades:

“One major problem with the Eth2 branding is that it creates a broken mental model for new users of Ethereum. They intuitively think that Eth1 comes first and Eth2 comes after. Or that Eth1 ceases to exist once Eth2 exists.”

“Neither of these is true. By removing Eth2 terminology, we save all future users from navigating this confusing mental model,” the blog post added.

Under the new terminology, the combination of the execution layer (Eth1) and the consensus layer (Eth2) will be labeled as Ethereum, while individual features such as the beacon chain, merge and shared chains are now referred to as “upgrades.”

Eth2 rebrand: The Ethereum Foundation

The foundation also stated that its re-branding of Eth2 would help “bring clarity to eliminate” scams in which malicious actors dupe victims — unaware that their Ether (ETH) will automatically switch to Eth2 following the merge — into swapping Ether (ETH) for fake ETH2 tokens.

“Unfortunately, malicious actors have attempted to use the Eth2 misnomer to scam users by telling them to swap their ETH for ‘ETH2’ tokens or that they must somehow migrate their ETH before the Eth2 upgrade,” the post read.

The news saw a relatively apathetic response in the r/Ethereum subreddit, with most users joking about the change, or complaining about the length of time the merge was taking.

“Don’t care what you call it, just fucking ship it soon plsss” said Redditor ghfsgiwaa.

User Kristkind stated that the attempted rebrand has come “too late”, noting that the term Eth2 has already been widely adopted by the media and users:

“Everybody in the media, even the crypto-related one, runs with the term 2.0 or simply Eth2. And honestly, I think it is better that way, because [it’s] way easier to get for the (semi-)layperson, than ‘consensus layer’, which needs you to understand the architecture of the network.”

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Following the merge and transition to PoS scheduled for later this year — for real this time — the remaining milestone of Ethereum’s current roadmap is the shard chains upgrade that is set to into effect in late 2022/early 2023.

The introduction of shard chains will see Ethereum’s network load spread across 64 new chains in order to enhance its scalability and capacity.

Despite 2022 gearing up to be a bullish year for Ethereum fundamentally, the price of Ether has taken a hefty hit amid the current downturn across stock and crypto markets, dropping 40% over the past 30 days to sit at around $2,437 at the time of writing.