The U.S. Congress may consider legislating to ban PoW mining. If mining is banned, how will the subsequent market develop?

2022-09-16, 02:57

TL;DR

🔹 The Office of Science and Technology has submitted its report on the climate impact of crypto mining following the President's executive order.

🔹 The report mentions possible executive orders and congressional legislation to "limit" or, as a last resort, "eliminate" proof-of-work mining.

🔹 This proposal is coming amid a crypto market shake-up caused by Ethereum, beginning its long-await transition from proof-of-work to proof-of-stake— some think it could trigger a massive bitcoin price crash.

🔹 In the case of congressional legislation banning PoW, miners and skilled traders may consider exit strategies and strategically move their assets outside of U.S. jurisdiction.

Introduction

The Office of Science and Technology has enraged the crypto community after publishing a paper to help decision-makers weigh blockchain technology's environmental benefits and drawbacks. It would be recalled that President Biden ordered a series of interagency policy assessments in March. In the same vein, the White House published an executive order that month titled "Ensuring Responsible Development of Digital Assets." The executive order stated that recent advances in digital and distributed ledger technology have resulted in dramatic increases in energy demand. Based on this assertion, It emphasized the importance of taking strong measures to reduce digital assets' risks to climate change.

The White House Policy Report

According to the just-released White House 48-page report, the Environmental Protection Agency (EPA) and the Department of Energy (DOE) should offer technical assistance in suggesting a slew of measures to control high energy usage in crypto mining. The overall goal is to reduce cryptocurrency mining's adverse effects. The report explained that the emissions, noise, water impacts, and negative economic impacts of crypto-asset mining should be controlled.

According to the statement, the administration may ban or limit the activities if the above measures and standards fail to prevent negative consequences. In a possible reference to proof of work, the report mentioned high energy intensity consensus mechanisms in crypto mining. This part has been the primary concern for miners and other crypto enthusiasts.

Does the U.S. want to ban proof-of-work mining?

A Mining pool
Source: nominex.io

The White House report has pushed the majority of the crypto community to the most paranoid conclusion possible. Many have claimed that the Biden Administration is actively attempting to outlaw Proof-of-Work crypto mining.

The report is undeniably about climate change and the environmental impact of crypto assets and related products. However, the report does not categorically advocate for the prohibition of Proof-of-Work mining. Instead, it emphasizes that such a step would be taken only as a last resort. Rather than prohibiting Proof-of-Work consensus mechanisms, the report recommends advancing ASIC technology, creating blockchains specifically for tracking and reducing environmental impact, and switching to greener energy sources.

The Earth is changing rapidly and potentially permanently. Since the turn of the century, climate scientists have warned that the number of greenhouse gases humans emit into the atmosphere will inevitably destabilize the planet's ecosystems. It should be evident that we are running out of time to take any meaningful action to stop it now that it is happening at a more visible rate.

Proof-of-Work blockchains are well known for their high energy consumption. It's important to remember that the recent climate report was not a sloppy document and that nearly every federal department in the United States contributed to its creation. The climate report is the result of collaboration among more than a dozen government departments and agencies, following the President's executive order mandating that the various departments develop a "whole-of-government" approach to crypto regulation. Interestingly, the report refers to "crypto-assets" rather than "cryptocurrency." Very little of the language acknowledges cryptocurrencies as valuable forms of money for everyday consumer use. If the White House considered cryptocurrency to be money comparable to the dollar, there would be concerns about how it should be controlled.

Some cryptocurrency enthusiasts are portraying the White House report as an attack on the cryptocurrency industry, but this interpretation misses the report's true intent. The report is a cost-benefit analysis weighing the advantages of blockchain technology against its potential environmental costs.

More prominence for Proof-of-stake?

The energy impacts of mining have recently been widely discussed in light of Ethereum's upcoming shift from PoW mechanism to proof of stake. The proof of stake projects may gain prominence due to the White House's directive on reducing energy usage. In the meantime, the concern is whether the United States will take a tough stance and prohibit using the proof of work mechanism. The White House report on proof-of-work crypto mining comes when the industry is under increased regulatory scrutiny.

If mining is banned, how will the subsequent market develop?

Suppose mining is banned as a last resort going by the new proposal. In that case, it may warrant that Bitcoin using the energy-intensive proof-of-work consensus mechanism would be prohibited in the U.S.

The proposal is coming amid a crypto market shake-up caused by Ethereum, beginning its long-await transition from proof-of-work to proof-of-stake. Some think it could trigger a massive bitcoin price crash.

The climate impact of Bitcoin mining has become a hot topic in recent months, as the soaring bitcoin price has increased Bitcoin's energy demands, and climate change fears have reached a fever pitch.

The bitcoin price skyrocketed at the end of 2020 and into 2021, only to plummet this year—though it remains roughly twice its mid-2020 level.

In case of more tangible signs of any ban, traders will have to brace for the worst. Miners and skilled traders will consider exit strategies and strategically move their assets outside U.S. jurisdiction. Every other day, whales move their investments between wallets of top exchanges, and traders liquidate funds. Cryptocurrencies are a global phenomenon, and as a result, the value of a trader's portfolio will never fall below a certain threshold. There is always the option of selling cryptocurrencies anonymously on a P2P platform and exiting with USD.

The new proposal will also raise the issue of green cryptocurrencies to the threshold of the market's concern. The ban on proof-of-work mining will not only further catalyze the shift to proof-of-stake but also pave the way for blockchains to reevaluate their priorities. Users are becoming more and more interested in projects that have a positive effect on the environment. The benefits of green cryptocurrencies will include bettering our earth and people's lives as the globe adopt digital currency.

Conclusion

The recent report of the White House Office of Science and Technology has proposed the use of environmentally sustainable crypto-asset technologies. The information has also alluded that if proposed measures fail to reduce impacts, the government should consider executive actions, and Congress should consider legislation to limit or eliminate the use of high energy intensity consensus mechanisms for crypto-asset mining. It is expected that before an official ban, Congress may announce a 3-6 month grace period for traders and holders to dispose of and cash out their assets. It is still far from certain the ban will happen, though.

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