January 23, 2022

Europe teases eco-friendly crypto regulation

topic:	Blockchain
located:	Spain, France, Serbia, Kosovo
editor:	Abby Klinkenberg

Whether you think cryptocurrencies are the future of an ascending Web 3.0 or an overhyped digital farce bound to a grim fate, one thing is certain: cryptocurrencies are draining a lot of power from grids the world over - 134.75 TwH, each year, to be exact. The process of crypto mining is supremely power intensive, responsible for 0.6 percent of global electricity consumption. That might not seem like much, but crypto drains more electricity each year than countries like Ukraine, Norway and Argentina. From an environmental standpoint, syphoning off such a significant amount of energy resources without any real-world use or social benefit simply cannot be justified. This point becomes all the more salient in the context of today’s ongoing European energy crisis that is hitting ordinary people in the pockets. As power bills skyrocket and geopolitical tensions rise, crypto mining keeps right on chugging (and guzzling). 

Since the dawn of 2022, two significant events in European crypto regulation have brought these realities into stark relief: on 4 January, Kosovo banned crypto mining altogether and, on 19 January, an EU regulatory leader called for a ban on proof-of-work crypto mining in the bloc. Proof-of-work is the electricity-sapping traditional form of crypto mining that underpins the two largest currencies, Bitcoin and Ether. While Bitcoin is still firmly committed to its pollutive proof-of-work process, Ether has announced its intention to switch to a proof-of-stake process in June of this year, estimating that this “will cut the network’s carbon footprint by 99.95 percent.” 

Kosovo has joined China, Algeria, Bangladesh, Egypt, Iraq, Morocco, Qatar and Tunisia in totally banning all forms of crypto mining, not just the environmentally unfriendly kind. The country has been navigating an official “state of emergency” since December 2021, when one of its two large (coal-based) power plants shut down due to technical reasons in the midst of the wider European energy crisis. Facing an electricity shortage, the government has instituted a policy of rolling blackouts in order to manage the situation; as of December, the country was forced to import 40 percent of its consumed energy. Prices have therefore risen significantly in a relatively short period, rendering Kosovo’s status as the home of Europe’s cheapest electricity a mere memory.

Not that everyone pays for it in the first place: as part of ongoing political tensions between Serbia and Kosovo, some majority-ethnic-Serb municipalities under Kosovo’s jurisdiction refuse to pay for electricity - consequently, these spaces have emerged as hotspots for crypto miners. In the wake of its declaration, the Kosovar government has cracked down on crypto mining operations in the region, regularly communicating seizures of mining devices. 

As Kosovo becomes the first European country to ban crypto mining, the issue has made headlines again as Vice President of the European Securities and Markets Authority (ESMA) Erik Thedéen shared his conviction that proof-of-work crypto mining should be relegated to the past. In his interview with Financial Times, he spoke about the need for hard-won renewable energy to be used to transition “traditional services away from coal-powered energy sources” rather than sunk into the black hole of crypto mining. Frankly, it’s unconscionable that the energy-intensive proof-of-work system is allowed to continue and compromise the urgent transition to a greener future in an age of such critical global climate precarity. 

While Kosovo’s ban comes in response to the country’s efforts to wrangle its spasming energy sector, the proposed EU move towards the more climate friendly proof-of-stake crypto mining process emerges from fears that the EU will fail to meet its commitment to the Paris Agreement if proof-of-work remains the standard market process. From both a humanitarian and environmental standpoint, proof-of-work crypto mining is an inappropriate use of precious power and European regulations on the matter are overdue. 

As the energy crisis continues, Thedéen’s proposal might be fast-tracked into reality at the member-state level in a manner similar to that seen recently in Kosovo. Potentially, such moves could usher in a more radical era of crypto regulation in the EU, which is already pursuing regulation in the area of ‘Markets in Crypto Assets’ (MiCA) as part of its wider Digital Finance Strategy. It should be noted that Spain has recently empowered regulators to clamp down on cryptocurrency advertising by influencers, advancing the cause of crypto regulation at the national level.

While the initial draft of the MiCA legislation is poised to provide increased consumer protections by means of improving the transparency and governance of crypto exchanges, it does not delve into the particulars of mining practises - but perhaps it should. 

Photo by Kanchanara 

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