The European Central Bank proposes a PoW-based cryptocurrency ban by 2025
The European Central Bank (ECB) expressed Proof-of-Work (PoW) mining as a significant risk of climate change in the research bulletin published in July.
As expected, the report specifically mentioned Bitcoin. However, problems also arose with Ethereum, despite the transition to a Proof-of-Stake (PoS) consensus mechanism.
Researchers collected estimated carbon footprint data on the above tokens and evaluated whether they undermine the EU’s commitment to combating climate change. It then discussed policy options, including a 2025 deadline for “potential action.”
Bitcoin and Ethereum have been identified as harmful to the environment
Using data from various sources, including the Cambridge Bitcoin Electricity Consumption Index (CBECI), researchers said that Bitcoin and Ethereum mining activity combined use 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 the target for greenhouse gas emissions (GHG) for many countries in the eurozone.
The report recognized 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.
However, researchers largely rejected the latter point due to unclear methodology, lack of details and unreliable data. Moreover, although such initiatives were welcomed, the report stated that they are voluntary, while pointing out a conflict of interest between energy consumption and network security.
Will there be a work permit ban?
The report mentioned several scenarios as a result of a potential breakdown of PoW mining. For example, given the institutional money in Bitcoin and, to a lesser extent, Ethereum, researchers said the financial sector is at risk of “transition risk.” This means that the EU’s ‘green transition’ can affect prices, and in turn affect institutions invested in these tokens.
It also referred to a direct ban on PoW mining, with reference to previous measures to do so, such as recent initiatives pressured by the Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency. In a further battle, researchers said that certain cryptocurrencies are “highly unlikely” to be compatible with environmental, social and governance goals (ESG).
The report talked about the debate among legislators about appropriate course of action, referring to the recent approval of the Markets in Crypto-assets (MiCA) framework on 30 June.
MiCA did not pass a ban on PoW mining and was praised for providing a much-needed framework for the cryptocurrency industry. However, it set several heavy requirements, especially for stablecoin issuers, which must have sufficient redemption reserves and be limited to a daily maximum transaction volume of € 200 million.
A comment on the framework, Seth HertleinLedgers Global Head of Policy, pointed out that lawmakers snooped on a backdoor PoW mining ban via a two-year reassessment of sustainability standards.
