EU targets Bitcoin with energy efficiency labeling for crypto
The European Union will develop an energy efficiency label for electricity-intensive cryptocurrencies, such as Bitcoin, in a bid to bring the industry into line with the bloc’s efforts to decarbonize its economy, according to a report by Bloomberg.
According to a draft proposal seen by Bloomberg, the European Commission will create a grading measure to encourage the use of more environmentally friendly mining systems, such as proof of stake (PoS), the system that Ethereum now uses after merging.
“Just as their use has grown significantly, the energy consumption of cryptocurrencies has more,” the EU’s executive arm said in the draft action plan. “In leveraging the use of cryptocurrencies and other blockchain technologies in energy markets and commerce, care must be taken to use only the most energy efficient versions of the technology.”
Bitcoin is energy intensive because it relies on a consensus model called proof of work (PoW) where miners race to solve complex algorithms to verify transactions on the blockchain in exchange for a percentage of a Bitcoin.
The token system included in the proposed legislation is intended to encourage other cryptocurrencies to move towards the less energy-intensive PoS system. The draft law would also encourage member states to end tax breaks for crypto miners and require countries to halt mining operations in the event of power shortages.
Bitcoin fell along with most of the other top 10 cryptocurrencies by market capitalization in response to the news, falling 1.9% over the previous 24 hours to USD 19,219 as of 2:30pm in Hong Kong.
While the 27-member bloc only comprises about 10% of the global Bitcoin hash rate, any move to crack down on the practice in the region would have significant implications for the mining industry.
The bloc had previously considered banning the mining of cryptocurrencies that rely entirely on PoW as part of the Markets in Crypto Assets legislation earlier this year, but removed language related to the ban at the last minute.
A report issued in response to an executive order signed by US President Joe Biden found that the cryptocurrency industry’s carbon footprint is inconsistent with US goals to decarbonise. The report, issued by the White House Office of Science and Technology, said the industry should consult with relevant agencies to reduce emissions or face regulatory action to limit the industry’s output.
Bitcoin’s exact energy needs are a point of contention. A report by digital asset investment house CoinShares in January found that Bitcoin mining accounted for less than 0.08% of global emissions.
Looking at the relative impact of the industry tells a different story, as another report from data aggregation website Statista this year found that 1 Bitcoin transaction required 2,188.59 kilowatt-hours of energy in April 2022, while 100,000 Visa transactions required just 148, 63 kilowatt hours.
Proponents claim that much of the energy that powers Bitcoin mining is derived from renewable sources; However, the same CoinShares report found that 59% of the industry’s energy was created through coal and gas, 11% from nuclear power and most of the rest through renewable energy sources such as solar and wind.
