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The new draft said that crypto assets "shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions”, which refers to cryptos that use PoW. Additionally, cryptos that are energy intensive would have to "set up and maintain a phased rollout plan to ensure compliance with such requirements".
Marcus Sotiriou, analyst at the UK based digital asset broker GlobalBlock saidthat there are "bullish and bearish catalysts on the horizon" but the risks are "dominant" in the short term as ethereum plans to move from PoW to PoS, but bitcoin is unable to make this transition.
An earlier outline didn’t mention a PoW protocol concept, EU parliamentarian and crypto-expert Stefan Berger of Germany’s Christian Democratic Party said in a Tweet last week.
"First stage win at #MiCA in committee! By accepting my proposal, members have paved the way for future-oriented crypto regulation," Berger tweeted in German on Monday following the vote.
"It is now a matter of accepting the report as a whole in the final vote & sending out a strong signal for innovation."
Berger is tasked with overseeing the bill and submitted the finalised piece of law last week.
The controversial plan had previously sparked negative reactions from the crypto industry and community.
"We at Ledger will always defend freedom and self-custody, particularly in our backyard," said Pascal Gaulthier CEO of Ledger, one of the world’s largest crypto wallet providers. "We are calling on you all to contact your Member of European Parliament and let them know that you oppose a bitcoin ban in Europe."
Lawmakers and environmental activists have also been pushing for regulation on crypto mining since last year amid concerns about its environmental impact.
They had cited what they viewed as energy-intensive cryptocurrency activity stemming from proof-of-work.
All users in the PoW blockchain network compete simultaneously to solve a cryptographic algorithm. The algorithm is designed in a way that makes it harder to solve the issue when more computers are trying to solve it, which means a huge amount of computational power and therefore energy is expended validating each block in a blockchain.
Bitcoin mining is the process by which new bitcoins are entered into circulation, and is how the network confirms new transactions. It's a critical part of the blockchain ledger's maintenance and development.
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The bitcoin network is highly decentralised and governed by a social consensus formed by a majority of around 150,000 full-node operators and miners, meaning that any changes to the PoW method would affect bitcoin as it is considered a quintessential feature of the network.
Last week, the Joe Biden administration signed a long-awaited executive order on cryptocurrency regulation, instructing agencies to officially recognise and regulate digital assets in the US.
It also tasks the country's government to review the technological infrastructure needed to roll out a central bank digital currency, or "digital dollar", which could ultimately curtail bitcoin’s dominance as the world’s leading digital currency.
