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- Sweden concerned about energy intensive Bitcoin mining method
- Swedish Blockchain Association says regulation on financial level more appropriate than ban
As the popularity of cryptocurrencies drives intensive mining of coins such as Bitcoin, regulators are weighing in the potential ecological risks associated with the booming product.
Latest in the line is Sweden, which has called out for an EU-wide mining ban on Bitcoin due to environmental concerns; however, it is questionable whether such a ban could have an effective impact on the global scale.
Moving toward regulation
Accelerated by the COVID-19 pandemic, the value of the crypto market has grown sharply over the past two years, reaching a scale that regulators can no longer ignore. They need to make sure that investors and consumers of these blockchain-based products are protected and that illicit actors cannot use anonymity to escape from anti-money laundering regulations.
But there is also another issue at stake, these currencies are extremely energy inefficient resulting in significant environmental damage.
According to research from Cambridge University, mining Bitcoin uses more energy consumption than either Netherlands or Pakistan, the latter a country with 220m people.
In a recently published statement, Erik Thedéen and Björn Risinger, director generals at the Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency, respectively, urged the EU to consider an EU-level ban on the energy-intensive proof-of-work mining method.
They are also calling for Sweden to introduce measures to immediately halt the continued establishment of crypto-mining production using energy-intensive methods in the country, and a ban on any company that trades or invests in crypto-assets using the proof-of-work method to describe themselves or their activities as sustainable.
Proof-of-work is used to mine the two largest cryptocurrencies Bitcoin and Ethereum. According to Statista, these two coins accounted for three-quarters of the value of all cryptocurrencies based on market capitalisation at the end of 2020, with Bitcoin alone representing two-thirds.
Ethereum, however, is reportedly in the process of switching to an alternative less energy-intensive method called proof-of-stake.
Earlier this year, China was the first country to ban crypto mining, before later prohibiting all crypto-related activities.
Last Tuesday (November 9), Austria announced a bill that would require crypto proceeds to be reported to the tax authority as part of an "eco-social" tax reform. The U.S. has passed a similar law that will require a wide range of crypto businesses to report cryptocurrency gains for tax collection purposes.
VIXIO's previous analysis of the EU's response to the impact of cryptocurrencies highlighted a lack of regulatory crossover, which could make any objectives from, for example, its European Green New Deal difficult to achieve.
So what is at stake?
According to Thedéen and Risinger, crypto-assets at their current market value lead to the release of up to 120m tonnes of CO2 in the atmosphere per year. Putting it into context, they say “the emissions from the two largest crypto assets today is equal to 100 million round-trip flights between Sweden and Thailand”.
They are concerned that, as a result of China’s crypto ban, miners have moved to Sweden where prices are low, taxes for mining-related activities are favourable and there is good access to renewable energy.
“Between April and August this year, electricity consumption for Bitcoin mining in Sweden increased by several hundred per cent and now amounts to 1 TWh annually. That is equal to the electricity of 200,000 Swedish households,” according to the officials.
According to the Cambridge Bitcoin Electricity Consumption Index (CBECI), in August this year, Sweden generated 1.16 percent of the average monthly hash rate in the world. Although data shows that the European Union generated around 11 percent, Germany and Ireland together accounted for 9.16 percent of the global share, which is believed to be a “significantly inflated” number due to redirected IP addresses via the use of VPN or proxy services.
Nonetheless, whether the EU accounts for 3 or 11 percent of Bitcoin mining, it is unclear how, or whether, a local ban on crypto mining could effectively reduce global electricity consumption.
At the start of the year, China generated half of the total new hash rates. After banning the crypto mining activity, by July, that share dropped to zero.
However, in October, Mineo Crypto reported that the global hash rate had already climbed back to its previous levels, showing no sign of any ban at all. At the same time, mining activity in the United States, Kazakhstan and Canada showed a sudden spike.
“It definitely doesn't make sense to have an EU-wide ban,” Ana Picasso, community manager at the Swedish Blockchain Association, told VIXIO.
Such a ban would not stop the Bitcoin network and the miners will just move to a different location she said, adding that there they might have even worse conditions to rely on fossil fuels. The move would thus result in more pollution.
The blockchain association agrees there is a need for regulation “but it has to be more on a financial level on how much you can invest as organizations and public institutions in Bitcoin and other proof-of-work blockchains”, it said. This would limit the competition to have more mining rather than limiting the innovation.
According to Picasso, there are already multiple blockchains in the ecosystem, such as Telos, EOS, WAX and Solana, which consume a lot less energy than Bitcoin or Ethereum. “Furthering innovation in those chains through investments would help the environment and also grow the crypto market,” she stressed.
It is hence unlikely that any isolated crypto mining ban could have a significant impact given the environmental issue is a global one. Any such ban would need to be achieved and sustained on a global level.
