The largest financial regulators of the European Union have updated the call for a ban on key forms of bitcoin mining, warning of an increase in the share of renewable energy dedicated to cryptocurrency mining.
Erik Thedéen, vice president of the European Securities and Markets Authority, told the Financial Times that bitcoin mining has become a national problem in his native Sweden and that cryptocurrencies pose a risk to achieving the goals of the Paris Climate Change Agreement.
European regulators have said that there are two models: one is Proof of work, which is less energy-intensive, and the other is Proof of stake – a model for reducing the huge amount of electricity used in the sector.
Bitcoin and ether, the two largest cryptocurrencies by volume, rely on the Proof of Work model, requiring all participants in the blockchain digital book to confirm transactions.
Miners who use a huge data center full of fast computers to solve complex puzzles are rewarded by recording transactions with newly minted coins.
This requires much more energy than the Proof of Stake model, which has far fewer parties approving the transaction.
“The solution is to ban the Proof of work model. Proof of the energy profile of the role is much lower,” said Thedéen, secretary of Sweden’s Financial Services Authority and chairman of sustainable finance at Iosco.
According to Blockchain.com, mining has become a very profitable and competitive business with record computing power dedicated to processes.
China banned the process in May, but activities are widespread around the world, and there are now several companies on the stock market focused on the practice, such as Canada’s Hut 8.
“We need to talk about the industry moving to more efficient technology, and we need to keep in mind that the financial industry and many large institutions are currently active in the cryptocurrency market,” Thedéen said, adding that he did not insist on a total ban on cryptocurrencies.
His comments were made after the Swedish authorities first pointed out the idea of banning the practice, and in November last year, an increase in the amount of renewable energy dedicated to cryptocurrencies was noticed.
Cryptocurrency mining has quickly grown into a profitable global industry, along with several listed companies using huge data centers.
Cryptocurrency mining has received increasing criticism for its environmental impact.
This practice accounts for 0.6 percent of world energy consumption, and according to data from the Cambridge Bitcoin Electricity Consumption Index, consumes more electricity each year than Norway.
Faced with growing criticism, a ban in China, miners have increased their share of the renewable energy they use to power their computers, moving them to countries rich in wind and solar energy such as Sweden and Norway.
“Bitcoin is now a national issue in Sweden because of the amount of renewable energy consumed by the mining industry,” Thedeen said.
Swedish regulators, citing estimates from the University of Cambridge, say that mining one unit of bitcoin consumes the same amount of energy as driving an electric vehicle with a medium-size for 1.8 million kilometers.