The EU wants to shame the cryptocurrency world into greener practices – and Bitcoin is first in line.
The world’s most popular cryptocurrency is likely to fall under the European Union’s scheme to rate digital currencies for energy efficiency, which it plans to unveil next week and introduce by 2025, according to a draft document obtained by POLITICO.
The scheme aims to encourage cryptocurrency companies to abandon energy-intensive mining practices that can see operations in a year consume as much energy as some countries over the same period. Authorities cheered earlier this month when Ethereum, the world’s second-most valuable cryptocurrency, moved to greener processing software as part of a so-called “merger.” Bitcoin is not going to follow the path of Ethereum.
The labeling is just one aspect of the EU’s broader efforts to rein in cryptocurrencies as the bloc grapples with a combined energy and inflation crisis, while also trying to meet ambitious climate targets.
Another EU bill, known as MiCA, which will come into effect in 2024, will force cryptocurrencies to disclose their carbon footprints and how their operations will affect the environment.
While the White House has warned that cryptocurrency production could undermine US efforts to reduce greenhouse gas emissions, Europe is the first major trade bloc to regulate digital currencies and aims to encourage other countries to follow its lead by creating international cryptocurrency standards.
The draft states: “The Commission will cooperate internationally with standardization bodies and draw on their technical expertise to develop an energy efficiency label as well as minimum energy efficiency requirements for blockchains by 2025.”
In the meantime, EU capitals should develop measures to “reduce the electricity consumption of crypto-asset miners” and reduce high energy prices, the 22-page document says.
As the price of Bitcoin reached $67,000 at the end of 2021, leaders focused more on getting out of the pandemic than curbing the cryptocurrency’s carbon footprint. But the world has changed.
Russia’s aggression in Ukraine has worsened the existing energy crisis, shaking the EU and US economies and starting a scramble for new energy sources that focus on energy-intensive practices.
The massive energy requirements of cryptocurrencies such as Bitcoin, which see some “miners” filling warehouses with dedicated computers to solve complex equations and complete transactions on the blockchain, are at odds with the prevailing sentiment and are increasingly the focus of both regulators. sides of the Atlantic Ocean.
“As a regulator, we will take on sustainability and ESG [environmental, social and governance] Factors are increasingly taken into account in everything we do,” Verena Ross, president of the European Securities and Markets Authority, told POLITICO when asked how far the regulator would go to green the crypto industry.
To achieve this, ESMA will focus on promoting industry transparency, understanding the signs of greenwashing and identifying emerging trends and risks in the market. “All three points of focus speak to a way they can go under the cryptocurrency space,” Ross said.
That is, not everyone agrees with the mandatory approach.
Industry lobbyists aside, officials within the Commission and even among the Greens in the European Parliament are not convinced that energy rates will lead to such a change. They note that only about 10 percent of the world’s crypto-mining activity is located in the EU.
Spanish Green MEP Ernest Urtasun, who led the unsuccessful battle to phase out most of the energy inside parliament, said, “Creating an EU labeling system for crypto will not solve the problem as long as crypto-mining can continue outside the Union.” -Intensive blockchains outside of Europe, he wrote in an email. “The commission should focus more on developing minimum sustainability standards with a clear timeline for compliance.”
There are also precedents for change. By switching to different processors, Ethereum reduced its electricity usage by 99.95 percent.
“Ethereum’s recent upgrade has shown that phasing out environmentally harmful protocols is actually possible without disrupting the network,” Urtasun added.
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