A major EU financial regulator has renewed calls for a block-level “ban” on the main form of bitcoin mining and has sounded the alarm about the growing share of renewable energy dedicated to cryptocurrency mining.
Erik Thedéen, vice president of the European Securities and Markets Authority, told the Financial Times that bitcoin mining has become a “national issue” for his home country of Sweden, and warned that cryptocurrencies represent a risk for achieving the climate change goals in the Paris Agreement.
Thedéen said European regulators should consider banning an extraction method known as “proof of work” and instead push the industry towards the less energy – intensive “proof of participation” model to reduce the industry wide energy consumption.
Bitcoin and ether, the two largest cryptocurrencies by volume, are both based on a proof of work model, which requires all participants in the blockchain digital ledger to verify transactions. Miners, who use sprawling data centers filled with fast computers to solve complex puzzles, are rewarded for logging transactions with freshly minted coins.
This requires much more energy than the proof of stake model, where the number of parties signing the negotiations is much less.
“The solution is to ban proof of work,” said Thedéen, who is also director general of the Swedish Financial Services Authority and president of sustainable finance for the international body Iosco. “Proof of stake has a significantly lower energy profile.”
Mining has become a highly profitable and competitive business, with the amount of computing power dedicated to the process running at record levels, according to Blockchain.com. China banned the trial in May, but activity has spread around the world, and there are now several publicly traded companies focused on the practice, such as Canada’s Hut 8.
“We need to discuss the industry’s shift to more efficient technology,” Thedéen said, adding that he was not advocating a wholesale ban on cryptocurrencies.
“The financial industry and many large institutions are now active in the cryptocurrency markets and have done so [environmental, social and governance] responsibility, “he added.
His comments were made after Swedish authorities first launched the idea of banning the practice in November last year, noting the growing amount of renewable energy devoted to cryptocurrencies and stating that “the social advantage of crypto assets is questionable “.
“[We call for] the EU to consider an EU-wide ban on the energy-intensive extraction method as proof of work, “the Swedish financial regulator said in November.
Cryptocurrency mining has attracted increasing criticism for its impact on the environment. The practice accounts for 0.6% of the world’s total energy consumption and burns more electricity per year than Norway, according to data from the Cambridge Bitcoin Electricity Consumption Index.
In the face of growing criticism and the ban in China, miners have increased the share of renewable energy they use to power their computers and have gone to countries with an abundance of wind and solar energy, such as Sweden and Norway.
“Bitcoin is now a national issue for Sweden due to the amount of renewable energy devoted to mining,” said Thedéen.
Without intervention, he warned, a significant amount of renewable energy would go towards creating units of bitcoin instead of moving traditional services away from coal-fired power sources.
Swedish regulators, citing Cambridge University estimates, also noted that mining a single unit of bitcoin consumes the same amount of energy as driving a midsize electric car 1.8 million kilometers. .
“It would be ironic if the wind power generated on the long Swedish coast were dedicated to bitcoin mining,” said Thedéen.
Ethereum, the second largest digital asset, said it will migrate to the proof of stake model in June.
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