This is an opinion piece written by Guglielmo Cecero, legal manager of European bitcoin investment app Relai, and Raphael Schoen, head of content at Relai.
Bitcoin is under attack. It is increasingly seen as a “dirty currency”. Elon Musk’s Tesla, Wikipedia, Greenpeace and other organizations have stopped accepting BTC for their products or as a means of monetary donation.
Musk, who is not only the richest, but also one of the most controversial people on the planet, said: “Cryptocurrency is a good idea on many levels and we believe it has a promising future, but it cannot be a big one. spends on the environment”. oh
And it’s not just Musk. Politicians have also taken aim at Bitcoin.
The European Commission’s Regulation of Markets in Crypto-Assets (MiCA) caused a huge uproar in the Bitcoin community before its adoption, especially due to the left-wing factions of the EU Parliament who oppose proof-of-work (PoW). Bitcoin network energy consumption. Trilogue finally passed a version of MiCA that didn’t ban PoW or mining.
As it became known in April 2022, some members of the European Parliament (EP) tried to ban bitcoin production and BTC trading in the course of the bill. Fortunately, they failed.
However, the foundations have been laid for the next steps. For example, cryptocurrency issuers, which we know are mostly just tech startups, will be required to provide some kind of reporting on the energy consumption and associated carbon footprint of the respective asset. Brokers and exchanges, in turn, must inform their clients of these exact numbers when buying crypto assets.
The growing hatred of Bitcoin has also gained attention through the anti-Bitcoin Greenpeace USA campaign launched in March, funded by Ripple co-founder Chris Larsen, among others. Interestingly, Greenpeace accepted bitcoin donations between 2014 and 2021 until it stopped due to environmental concerns.
Roughly Half of EU Parliament Doesn’t Like Bitcoin
As mentioned, the mining or trading ban for Bitcoin did not make it into the MiCA legislation. However, it is highly unlikely that EU MEPs trying to implement this in the MCA will refuse – we can assume otherwise.
In March 2022, the Economic and Monetary Affairs (ECON) committee in the EU Parliament voted against the POW ban. 32 members voted against it and 24 voted for it. The issue seems to be increasingly ideologically driven, as the Social Democrats, Greens and the left mostly wanted a ban on prisoners of war, while the Conservatives, Liberals and right-wing factions voted against it.
The recent MiCA project, created by conservative MEP Stefan Berger, was a compromise: instead of banning PoW, they agreed to include a rating system for cryptocurrencies to assess their environmental impact (more on that later).
In an email conversation with Politico, Spanish Green EU MEP Ernest Urtasun explained:
“Establishing an EU labeling system for crypto will not solve the problem as long as crypto-mining can continue outside the Union with EU demand… The Commission should focus more on developing with a clear timeline to comply with minimum sustainability standards.”
And he added:
“Ethereum’s recent upgrade has shown that phasing out environmentally harmful protocols is actually possible without causing any disruption to the network.”
The ECB Doesn’t Like Bitcoin – Generally
Although we see different views on Bitcoin in the European Parliament, the signals we are getting from the European Central Bank (ECB) are very clear. The ECB regularly issues warnings about cryptocurrencies, calling their “excessive carbon footprint” a “reason for concern”.
Recently, on November 30, 2022, the ECB published a blog post titled “Bitcoin’s Last Stop”. Here, the ECB’s Director General for Market Infrastructure and Payments Ulrich Bindseil and consultant Jürgen Schaff argue that “Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment.”
According to Bindseil and Schaff, Bitcoin transactions are “difficult, slow and expensive,” which they say explains why the world’s largest cryptocurrency — created to eliminate the existing monetary and financial system — “has never been used in a significant way as a legal reality. world operations.” Bindseil and Schaff added that since Bitcoin is neither an effective payment system nor a form of investment, it “needs neither to be regulated nor legalized.”
While it may seem paradoxical to so vocally attack something that is “on the road to irrelevance,” this is not the first time the ECB has attacked Bitcoin.
In July 2022, the ECB singled out Bitcoin in a research paper comparing the proof of work to gas-powered cars and considering the proof of stake to be closer to electric vehicles. Let’s ignore the fact that this doesn’t make sense for a moment and take a closer look at what he wrote:
“Governments should not stifle innovation, as it is the driving force of economic growth. While the utility of Bitcoin itself to society is questionable, blockchain technology could in principle provide benefits and technological applications that are not yet known. Thus, authorities may choose not to intervene with the aim of supporting digital innovation. At the same time, it’s hard to see how authorities could choose to ban gasoline-powered cars during the transition period, but now turn a blind eye to bitcoin-style assets built on PoW technology with country-sized energy consumption footprints and annual carbon emissions. Denying the past of most Eurozone countries and targeting GHG savings. This is especially so given the availability of alternative, less energy-intensive blockchain technology.
Overall, the ECB believes that the European Union is highly unlikely to do so no take action in terms of carbon emissions in PoW-based assets like bitcoin. The paper’s authors claim that they believe the EU is likely to take similar steps to phase out PoW as it did for fossil fuel cars. Especially since there is an “alternative, less energy-intensive” technology like PoS, they say.
“To continue with the car analogy, public authorities have the choice to promote the crypto version of the electric car (PoS and its various blockchain consensus mechanisms) or limit or ban the cryptocurrency of the fossil fuel car (PoW blockchain consensus mechanisms). . Thus, while a hands-off approach by public authorities is possible, it is highly unlikely and policy measures by authorities (such as disclosure requirements, a carbon tax on cryptocurrency transactions or holdings, or outright bans on mining) are likely. The price impact on crypto-assets targeted by policy action may be proportional to the severity of the policy action and whether it is a global or regional measure.”
The vast majority of citizens are used to thinking of money as something other than what it really is, and the ECB is also guilty of this. Money is seen as something with value in its own right, instead of something whose value is created by the interactions between the people who use it.
The euro is subject to both permanent changes (regular inflation) and traumatic events (devaluations, forced exchange rates, etc.), but these are ignored or otherwise underestimated. People believe they have it, although they can only exchange it for other things.
How many and what items will 100 euros be exchanged for in one year, five years or ten years? It does not depend on us in any way.
Its exchange function is constantly changing due to factors beyond our control. The interaction between those who use it is a key factor, and in turn, this interaction depends on the economic and monetary policy rules that few people know about.
Bitcoin escapes these rules (and this is why the ECB wants to ban it), it is the code that the ECB and regulators are trying to render useless. Bitcoin also, and above all, expresses its value through properties that are completely independent of government power and therefore of ECBs.
What will happen next?
In 2025, we will see a rating system for cryptocurrencies within the European Union for their environmental impact – think energy labels for fridges or TVs. Bitcoin can now be expected to receive the worst classification. This move will actually be positive for Ethereum and bad for Bitcoin.
It is unlikely that such a label will scare investors away from buying bitcoin, especially since the Bitcoin community says that the Bitcoin network is not an obstacle, but rather a solution to green energy.
Therefore, the Bitcoin mining industry has an incentive to become greener: the fossil fuel analogy in the ECB paper makes no sense. The energy mix of a PoW network like Bitcoin can be derived entirely from renewable, green sources. Bitcoin can serve as a way to instantly turn energy into money, as it happens with gas that would otherwise be burned. However, it is questionable how fast and effective this effort will be for politicians, especially since fossil energy companies like Exxon are now mining Bitcoin using flare gas.
The authors of the ECB paper already assume that a higher bitcoin price equals more energy consumption, as more miners will participate. Thus, destroying the demand for bitcoin would be an effective solution to lower the hash rate. At least in theory.
The result
Academic and political consensus points to something like trying to retire the “old” military force and move toward a “new” PoS standard. Especially since the recent merger of Ethereum, many observers believe that this could be a viable path for the Bitcoin network. We doubt it and plan to elaborate on this in a future post. As we have seen in various scenarios, it is difficult, if not impossible, to ban Bitcoin. For example, the Nigerian government tried, failed and eventually gave up.
It will be a long time until 2025, and with the energy crisis, increasing focus on carbon emissions, and general global uncertainty, all we can do at this point is wait for the unexpected.
Even if the worst case scenario were to happen and we see some kind of Bitcoin ban happening in the EU, we doubt it will last forever. Bitcoin does not ask for permission. Bitcoin is ontologically something that struggles to stay on the fence. This is not an idea derived from anarchist positions, but an argument derived from the inherent characteristics of the technology introduced by Satoshi Nakamoto. Regulators operate with a permissive logic, and so it is clear that they are struggling to capture the phenomenon of Bitcoin, which operates independently of anyone else’s permission.
This is a guest post by Guglielmo Cecero and Raphael Schoen. The views expressed are entirely their own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.