The European Union should ban a form of bitcoin mining that consumes an excessive amount of energy because it poses a threat to the continent’s climate goals, according to one of the bloc’s top financial regulators.
Erik Thedéen, vice president of the European Securities and Markets Authority, said the primary form of bitcoin mining harms the environment and sets back efforts to tackle climate change.
He told the Financial Times that the EU should weigh a so-called “proof-of-work” mining ban in favor of the more energy-efficient “proof-of-stake”.
Mining cryptocurrencies, including bitcoin, serves two functions: introducing new digital coins into circulation and protecting transactions that ensure their validity.
Crypto miners use sophisticated computers to solve complex mathematical problems. The miners who are the first to solve the problems receive the next block of bitcoins.
But the mining process known as “proof-of-work” – whereby miners compete to crack the code of an algorithm using high-powered computers – is more energy-intensive than its alternative, “proof-of-work”. stakes”.
“Proof of Stake” mining involves miners committing to a “stake” of digital coins before they can validate transactions.
Thedéen, who heads the Financial Services Authority in his native Sweden and who is also president of sustainable finance for Iosco, told FT: “The solution is to ban proof of work.”
“Proof of Stake has a significantly lower energy profile.”
He added: “We need to have a discussion about moving the industry to more efficient technology.”
The amount of energy used to mine new coins is at an all-time high, according to Blockchain.com.
Some governments have cracked down on mining after their energy grids were unable to withstand the stress caused by the process.
Bitcoin miners in Kosovo were forced to sell their equipment after the government banned mining following power outages and soaring energy prices, according to Bloomberg.
The government of Kazakhstan has decreed strict limits on crypto mining after the country suffered a power shortage.
The Central Asian nation had attracted miners who were expelled from China, which was previously known as the global mining epicenter before authorities cracked down on the practice.
The United States has recently overtaken China as a global digital currency mining hub.
Despite the wrath of regulators, crypto mining is a lucrative business. Some of the biggest companies such as Hut 8 and Marathon Digital Holdings boast 10-digit valuations.
The energy needs of mining have become a major point of criticism for the crypto, with even some of its biggest proponents like Tesla CEO Elon Musk decrying its environmental impact.
Proponents, however, say bitcoin miners are harnessing new forms of renewable energy, including geothermal power, to drive growth.