tl;dr Summary: EU politicians veto a last-minute amendment to the ‘Markets in Crypto Assets’ legislation. The amendment would have banned proof of work cryptocurrencies such as Bitcoin and Ethereum due to reported environmental concerns. Just how bad is Bitcoin for the environment?
On Monday (March 14), the European Parliament’s Committee on Economic and Monetary Affairs (ECON) voted against a controversial proposition that would have essentially banned Bitcoin within the EU. The committee was meeting to vote on a draft of the proposed ‘Markets in Crypto Assets’ (MiCA) legislation.
MiCA was initially tabled in September 2020, with the aim of creating a regulatory framework for digital assets within the EU. Earlier in the month, EU parliamentarians removed a clause from the bill that proposed to ban proof of work mining, after a huge backlash from the crypto industry. At the end of last week however, a new amendment was added to the bill, reportedly stating that all digital assets ‘shall be subject to minimum environmental sustainability standards with respect to their consensus mechanism used for validating transactions, before being issued, offered or admitted to trading in the Union’. This was thought to be a more subtle attempt to legislate against proof of work cryptocurrencies such as bitcoin, and again sparked industry outrage.
The MiCA draft was adopted at the meeting, marking the first step towards unified crypto regulation within the EU, however the proposed amendment was rejected by a vote of 30 to 23. The commission agreed to present an alternate proposal to address environmental concerns by January 2025, giving bitcoin holders in Europe plenty of breathing room.
The environmental concerns surrounding bitcoin and blockchain technology are controversial. Cambridge University estimates the Bitcoin network to consume around 130 terawatt-hours of energy annually, an amount greater than that consumed by several European nation states. To understand this vast energy usage, it is important to understand the proof of work consensus mechanism by which Bitcoin operates. In a proof of work blockchain, multiple computers compete to validate transactions. Ultimately, only one of these computers will be successful, thus there is a lot of ‘wasted’ computing power. For a network as large as Bitcoin, this translates to a huge amount of energy lost.
There are a variety of other, less energy-intensive consensus mechanisms that can be used to operate a blockchain. The most common alternative is the proof of stake consensus, in which only one operator is selected to validate transactions on the blockchain. Ethereum is notably transitioning to a proof of stake model, however this has much more to do with adding scalability to the network rather than environmental concerns. Proponents of Bitcoin argue that the proof of work consensus adds a degree of security and decentralisation that can never be matched by alternate mechanisms, and indeed is fundamental to the intrinsic value of bitcoin.
Sweden has been leading the charge from within the EU to ban energy-intensive cryptocurrency mining, citing concerns that green energy may be channeled into Bitcoin mining rather than public use. Such issues have become increasingly important in the face of the current energy crisis within the EU, where many countries rely heavily on Russian gas supplies, and are thus under increasing pressure to seek alternate energy sources.
Experts have cast doubt on many of the claims surrounding Bitcoin’s environmental impacts. In his TED talk on the subject, climate researcher Lars Dittmer debunks many common myths, concluding “Bitcoin is undoubtedly electricity intensive, but apocalyptic scaremongering is inappropriate.” Research from CoinShares in January 2022 showed Bitcoin carbon emissions to amount to only around 0.08% of global emissions, an amount lower than that related to use of tumble driers worldwide! Unsurprisingly, emissions from the global banking and gold mining industries equate to many multiples of this. When combined with reports that Bitcoin mining is actually driving a global transition to green energy sources, it seems many of the headlines surrounding Bitcoin energy usage are misguided at best.
The CoinShares report concluded that “the Bitcoin network provides a global, freely available, censorship resistant, debasement protected, and human rights preserving monetary network for the entire world. Within that context, we believe the small addition to global emissions is absolutely worth the cost.” The rejection of this amendment by European lawmakers seems to suggest at least some bureaucrats can see the intrinsic value that Bitcoin holds, however I suspect the regulatory battle is far from over…
If you’re interested in more analysis on the energy costs of Bitcoin mining, you can check out our other article on the topic here.