Europe Teases Eco-Friendly Crypto Regulation

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January 23

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Whether you think cryptocurrencies are the future of an ascendant Web 3.0 or an overhyped digital prank tied to a dark fate, one thing is certain: cryptocurrencies are draining a lot of energy from networks around the world – 134 .75 TwH, every year, to be exact. The crypto-mining process is extremely energy-intensive, responsible for 0.6% of global electricity consumption. It may not seem like much, but crypto drains more electricity each year than countries like Ukraine, Norway, and Argentina. From an environmental perspective, siphoning off such a large amount of energy resources without any real use or social benefit simply cannot be justified. This point becomes all the more salient in the context of the current European energy crisis which is hitting ordinary people in the pockets. As electricity bills soar and geopolitical tensions rise, crypto mining continues to choke (and binge).

Since the dawn of 2022, two significant events in European crypto regulation have highlighted these realities: on January 4, Kosovo completely banned crypto mining, and on January 19, a regulator of the EU called for a ban on proof of work. crypto mining in the block. Proof of work is the traditional form of electricity-consuming crypto mining that underpins the two largest currencies, Bitcoin and Ether. While Bitcoin is still firmly committed to its polluting proof-of-work process, Ether announced its intention to move to a proof-of-stake process in June this year, believing that it will “reduce the network’s carbon footprint by 99, 95%”. .”

Kosovo has joined China, Algeria, Bangladesh, Egypt, Iraq, Morocco, Qatar and Tunisia in completely banning all forms of cryptocurrency mining, not only those that do not respect the environment. The country has been navigating in an official “state of emergency” since December 2021, when one of its two large (coal-fired) power stations shut down for technical reasons amid the wider European energy crisis. Faced with a shortage of electricity, the government implemented a policy of continuous blackouts in order to manage the situation; in December, the country was forced to import 40% of its energy consumption. Prices have therefore increased significantly over a relatively short period, making Kosovo the country with the cheapest electricity in Europe a mere memory.

It’s not that everyone pays first: amid ongoing political tensions between Serbia and Kosovo, some municipalities with an ethnic Serb majority under Kosovo’s jurisdiction are refusing to pay for electricity – as a result, these spaces have become hotspots for crypto miners. Following his statement, the Kosovar government has cracked down on crypto-mining operations in the region, regularly reporting seizures of mining rigs.

As Kosovo becomes the first European country to ban crypto mining, the issue has once again made headlines as European Securities and Markets Authority (ESMA) Vice Chairman Erik Thedéen shared his belief that proof-of-work crypto mining should be a thing of the past. . In his interview with the Financial Times, he spoke of the need to use hard-won renewables to move ‘traditional services away from coal-fired energy sources’ rather than sinking into the black hole of mining of crypto. Frankly, it is unconscionable that the energy-intensive proof-of-work system should be allowed to continue and jeopardize the urgent transition to a greener future at such a critical time of global climate insecurity.

While Kosovo’s ban comes in response to the country’s efforts to tackle its spastic energy sector, the EU’s proposed move towards a more climate-friendly cryptocurrency mining process stems from fears that the EU fails to meet its commitment to the Paris Agreement if proof of work remains the standard market process. From both a humanitarian and an environmental point of view, cryptocurrency mining with proof of work is an inappropriate use of precious power and European regulations in this area are lagging behind.

As the energy crisis continues, Thedéen’s proposal could be implemented quickly at member state level in a manner similar to that seen recently in Kosovo. Potentially, such moves could usher in a more radical era of crypto regulation in the EU, which is already pursuing regulation in the area of ​​“Crypto Asset Markets” (MiCAs) as part of its broader digital finance strategy. . It should be noted that Spain recently allowed regulators to crack down on cryptocurrency advertising by influencers, furthering the cause of crypto regulation at the national level.

While the initial draft of the MiCA legislation is set to provide greater consumer protection by improving transparency and governance of crypto exchanges, it does not delve into the specifics of mining practices – but perhaps it does. should.

Photo by Kanchanara

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