Behind closed doors, government officials from Sweden and Germany, along with envoys from the European Commission, discuss the restrictive use of energy-guzzling, climate-killing bitcoin. The demands go as far as a ban on cryptocurrency “mining” and trading in the EU. This is evidenced by documents that the Netzpolitik.org portal received on the basis of access to information requests from the authorities concerned.
No need to protect the Bitcoin community
The stumbling block is the energy-intensive consensus and protection procedure “Proof of Work” (PoW), in which very complex arithmetic tasks have to be solved. With Bitcoin (BTC), for example, it is important to ensure that all participants have a uniform data status in the blockchain. Environmentalists recently warned that BTC developers should switch to the alternative consensus process known as “Proof of Stake” (PoS). The Ethereum cryptocurrency platform wants to switch to this.
In one of the articles published by Netzpolitik.org about a virtual meeting on the subject at the EU level, it is written: If Ethereum is able to switch to the more climate-friendly PoS method, “we could legitimately demand the same from BTC. We need to ‘protect’ other durable crypto coins.” On the other hand, we see no need to ”protect’ the Bitcoin community”.
The participants also discuss the consequences of a possible ban for private investors. “How would the disappearance of Bitcoin affect consumers?” asks one of the people concerned. She immediately gives the answer: Anyone who owns Bitcoin is aware of the large price fluctuations and investment risks of the currency. Additional protective measures are therefore also unnecessary on this front.
Exciting parts blacked out
At the meeting, one of the attendees directly asked whether the EU should not generally ban trade in unsustainable cryptocurrencies that, like Bitcoin, rely on PoW. However, the response record is blacked out. The Commission justifies this by protecting the “ongoing decision-making process”.
The discussion of a possible joint approach took place during a meeting between Swedish regulators and Commission representatives in November 2021. It is still unclear who said what and how, as the names of the speakers have been masked. However, an exchange of emails before the meeting suggests, according to the report, that a senior Commission official responsible for “blockchain innovation” was present, among others.
Also last November, the Swedish financial regulator and environmental agency were the first European authorities to call for a ban on cryptocurrency mining using the PoW method in the EU. Bitcoin alone consumes almost 140 terawatt hours of electricity per year, researchers at the University of Cambridge estimate with their Bitcoin Electricity Consumption Index. That’s more than Poland, Norway or the Netherlands use. Experts estimate the annual CO₂ emissions caused by this at around 65 megatons.
Another Commission video conference with experts from the Swedish authorities will follow in February. According to the leaked emails, this time there is also a department head from the local federal environment ministry. The accompanying minutes show that government officials have found a key argument made by Bitcoin advocates to be implausible.
The crypto scene defends the PoW approach by claiming that “surplus” electricity is used primarily for mining. This happens, for example, when wind and solar systems produce more than current needs. In practice, however, this does not happen at all, retorts one of the interlocutors present during the conversation. Because electricity can be diverted to other markets. In addition, storage options have rapidly improved, for example with hydrogen. There can therefore be no question of “excess energy”. Moreover, Bitcoin miners wouldn’t settle for leftovers: “It’s not in their interest to be casual users, since the machines don’t lose anything when they’re turned off.”
The notes continue to indicate that the reform of the Energy Efficiency Directive is currently under discussion with Member States. Work on relevant specifications for data centers was ongoing. A linked database “could be the first step towards energy labeling” for these installations.
The discussions suggested that a possible ban on mining or even Bitcoin trading was on the table, economist and blogger Alex de Vries told Netzpolitik.org. The choice of words is “pretty clear”.
Officially, according to the report, neither the federal government nor the Commission wants to be nailed down to wanting to take concrete action against crypto mining. There is currently “a multilevel exchange on how Bitcoin can be made more sustainable,” according to the Ministry of Environment, for example. In order to effectively regulate bitcoin, as many states as possible should be on board.
In the European Parliament, an initial ban on crypto services based on “ecologically unsustainable consensus mechanisms” is not being considered at this time. Instead, the Committee on Economic and Monetary Affairs asked the Commission in March to propose legislation by early 2025 that would include cryptocurrencies in the EU taxonomy for green financial investments in order to reduce their environmental footprint.