The European Central Bank (ECB) has blasted proof-of-work (PoW) mining as a significant climate change risk in research bulletin published in July.
As expected, the report specifically mentions Bitcoin. However, he also raised issues with Ethereum, despite his transition to a Proof-of-Stake (PoS) consensus mechanism.
The researchers compiled estimated carbon footprint data on the above tokens and assessed whether they undermined the EU’s commitment to fighting climate change. He then discussed policy options, including a 2025 deadline for “potential measures”.
Bitcoin and Ethereum are identified as harmful to the environment
Using data from a variety of sources, including the Cambridge Bitcoin Electricity Consumption Index (CBECI), the researchers said that the combined mining activity of Bitcoin and Ethereum consumes more energy than “ individual medium-sized countries, such as Spain, the Netherlands and Austria.
The data also showed that estimated annual emissions, as of May 2022, exceeded greenhouse gas (GHG) emission reduction targets for many eurozone countries.
The report acknowledged industry initiatives, such as Ethereum’s PoS transition and the Bitcoin Mining Council’s efforts to “decarbonize” and educate about the sustainable mix of energy sources used in BTC mining.
But researchers have largely dismissed the latter point due to unclear methodology, a lack of detail and unreliable data. Moreover, although such initiatives are welcomed, the report indicates that they are voluntary while pointing to a conflict of interest between energy consumption and network security.
Proof-of-work ban coming soon?
The report mentions several scenarios resulting from a possible crackdown on PoW mining. For example, given institutional currency in Bitcoin and, to a lesser extent, Ethereum, the researchers said the financial sector is exposed to “transition risk.” This means that the EU’s “green transition” could affect prices, in turn affecting the institutions invested in these tokens.
He also referred to an outright ban on PoW mining, citing previous initiatives to that effect, such as the recent moves by the Swedish Financial Supervisory Authority and the Swedish Privacy Agency. environment. In a separate swipe, the researchers said some crypto-assets are “highly unlikely” compatible with environmental, social and governance (ESG) goals.
The report touched on the debate among lawmakers over the appropriate course of action, citing the recent approval of the Framework for Crypto-Asset Markets (MiCA) on June 30.
Mica did not enact a ban on PoW mining and was hailed as providing a much-needed framework for the cryptocurrency industry. However, it has set several onerous requirements, especially for stablecoin issuers, who must hold adequate redemption reserves and be limited to a maximum daily trading volume of €200 million.
Commenting on the setting, Seth HertleinLedger’s global head of policy, pointed out that lawmakers had snuck in a ban on PoW mining via a requirement to reevaluate sustainability standards in two years.