The future of Bitcoin in Europe will be decided this Monday, March 14 at 2:30 p.m. in Brussels. Then the EU Parliament will vote on the controversial MiCA (Markets in Crypto Assets) regulation. Establishes a ban on blockchains deemed unsustainable, reported BTC-ECHO. A similar paragraph was already in the ordinance last week, but was removed after public pressure. It targeted all blockchains using the proof-of-work consensus algorithm. This also includes Bitcoin.
The consequences of a possible BTC ban would be devastating: digital gold still accounts for about 40 percent of all cryptocurrency trading volume. Such a move would drive much of Europe’s blockchain industry out, weaken the continent’s competitiveness, and encourage financial crime through outlawing. To protect the environment, the SPD, the Greens and the Left still want to enforce it. Proof-of-work and Bitcoin, they argue, are too great a burden on the environment. The People’s Republic of China already implemented a ban in 2021 under similar pretexts. This led to a mass exodus of Bitcoin and blockchain entrepreneurs there.
Does Bitcoin’s Environmental Impact Really Justify a Ban? And how does digital gold compare to other industries?
Energy consumption and CO₂ emissions
The image of Bitcoin as a climate killer is old. Thousands of special computers around the world solve extremely complicated calculations every second to keep the decentralized system running. This process, known as mining, is based on a so-called proof-of-work algorithm. It is at the heart of the promise that is Bitcoin. Mining guarantees the highest possible decentralization and security, as well as the authenticity of all transactions on the mother of all blockchains. There are also other ways to reach consensus on a blockchain using algorithms, such as Proof of Stake. But some particularly powerful players consider them more vulnerable to enemy attacks and centralization.
Bitcoin is the king of cryptocurrencies when it comes to decentralization and security. And this essence comes at a price: because BTC mining now consumes as much electricity as small nations like Finland or Switzerland. There is nothing good to say about that.
However, if we look at actual CO₂ emissions, things look very different. They say much more about environmental impact than energy consumption. The deciding factor is: where does the electricity come from? From renewable energies or from coal and gas? The European Heritage Manager coin stocks compares Bitcoin to other long-established industries in a study from January 2022. The global banking system, gold industry, data centers, air travel, and shipping are far larger emitters of CO₂ than Bitcoin.
According to Coinshares, it has compiled comprehensive data sets from various sources into a single model, the most comprehensive report to date. Its result: 42 million tons of CO₂ emissions per year. There are also other numbers: a study of foreign exchange estimates CO₂ emissions at 57 and Digiconomist it even reaches 65 million tons. That would still be a fraction of the other industries.
The results of these models depend on the data sets available for mining. Where is Bitcoin mined, how much and from what energy sources? There are big gaps, also in the Coinshares report, which are closed with estimates. The same range can be seen in electricity consumption: Coinshares estimates it at 89 terawatt hours, a Cambridge study speaks of 299 terawatt hours. As an investment company, Coinshares makes its own money from the sale of ETP (Exchange Traded Products) in exchange for Bitcoin, so it is not independent in this matter.
The heart of the Bitcoin and climate debate remains: What energy mix is used in mining? Because BTC miners often settle in certain regions and build huge hardware farms there. They have a very different CO₂ balance.
Kazakhstan, the US states of Montana and Kentucky, and the Canadian province of Alberta, for example, provide 26 percent of all power for the grid but are responsible for 43 percent of carbon emissions, according to the report. These miners mainly focus on coal, gas and oil. Other regions, such as Sweden and the Canadian provinces of Quebec, Manitoba, and more recently Texas, generate only low emissions with comparatively high benefits to the grid.
According to Digiconomist, the trend was woefully negative last year: the share of renewable energy in BTC mining fell sharply, from a total of 43 to 25 percent. The reason for this is the mining ban in China, where there was a particularly large amount of environmentally friendly mining. In any case, this step by the People’s Republic had negative consequences for the environment. Why should it be any different with a ban from Europe?
Awareness of greater environmental protection is also growing in the industry: more than 200 companies and individuals joined for the Crypto Climate Accord last year. In this climate deal, they commit to net-zero emissions from crypto mining by 2030, primarily by switching to renewable energy sources.
Disclaimer: A modified version of this article was originally published on Sunday, March 13, 2022.
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