The ECB says Bitcoin bans are “likely” due to climate concerns
Important takeaways
- The European Central Bank has hit hard on Proof-of-Work blockchains in a new research article.
- The research article compares Proof-of-Work algorithms with fossil fuel cars, while comparing Proof-of-Stake with electric vehicles.
- The article speculates that the EU would not proceed with planned restrictions on fossil cars without also taking action against Proof-of-Work cryptocurrencies.
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A new report from the European Central Bank has questioned whether climate risk is priced into cryptocurrencies such as Bitcoin.
ECB condemns Proof-of-Work blockchains
The European Central Bank is bearish on Bitcoin.
A new ECB research article assessing the climate risk associated with cryptocurrencies has hit hard on blockchains using Proof-of-Work consensus algorithms – primarily Bitcoin. Published July 12, the report compares energy-intensive Proof-of-Work algorithms with fossil fuel cars, while comparing Proof-of-Stake, which uses an estimated 99% less energy than Proof-of-Work, with electric vehicles.
“Public authorities have the choice between stimulating the crypto version of the electric vehicle (Proof-of-Stake and its various blockchain consensus mechanisms) or restricting or banning the crypto version of the fossil car (Proof-of-Work blockchain consensus mechanisms)”, it states in the article.
To highlight concerns about Proof-of-Work energy consumption, the report also refers to previous data claiming that the annual power consumption of Bitcoin and Ethereum is in line with individual countries, such as Spain, the Netherlands or Austria. In addition, the ECB argues that the current carbon footprint of Bitcoin and Ethereum from May 2022 will eliminate greenhouse gas emissions target savings for most euro area countries.
While Ethereum, the current second-largest cryptocurrency by market value, plans to switch from Proof-of-Work to the more energy-efficient Proof-of-Stake consensus algorithm by the end of 2022, Bitcoin is unlikely to follow suit at any time. soon.
The article argues that due to the EU’s existing carbon reduction targets, it is “highly unlikely” that the EU authorities will take a hands-off approach to regulating Proof-of-Work cryptocurrencies such as Bitcoin. According to the ECB, political actions, such as disclosure requirements, a carbon tax on cryptocurrencies or holdings, and a direct ban on mining are “likely.” Such actions are likely to undermine the use of Proof-of-Work algorithms and represent a concerted policy effort to pressure greener Proof-of-Stake cryptocurrencies over their energy-intensive counterparts.
The report concludes that the EU authorities are unlikely to proceed with plans to limit the use of fossil fuel vehicles by the planned date of 2035 without also taking action against Proof-of-Work cryptocurrencies. In line with the Markets in Crypto-assets (MiCA) regulation currently being considered by the European Parliament, 2025 is now the target date for sanctions against Proof-of-Work crypto-assets.
The recent report is not the first time the EU authorities have considered banning Proof-of-Work blockchains such as Bitcoin. In April, a report published by Netzpolitik revealed that officials considered a ban on trading in Bitcoin in order to curb its use and thus reduce energy consumption.
Although the ECB’s research article is speculative and does not include direct input from legislators, it indicates how EU authorities today think about the different types of blockchain technology. Reports such as these may also affect future decision-making in the European Parliament.
Disclosure: At the time of writing, the author owned ETH and several other cryptocurrencies.
