The European Union should ban a form of bitcoin mining that uses up 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, the vice chairman of the European Securities and Markets Authority, said that the main form of bitcoin mining was doing harm to the environment and was setting back efforts to combat climate change.
He told the Financial Times that the EU should weigh a ban on so-called “proof of work” mining in favor of the more energy-efficient “proof of stake.”
The mining of cryptocurrencies including bitcoin serves two functions — introducing new digital coins into circulation and safeguarding 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 are awarded the next block of bitcoins.
But the mining process known as “proof of work” — whereby miners compete against each other to crack the code of an algorithm using high-powered computers — is more energy-intensive than its alternative, “proof of stake.”
“Proof of stake” mining entails miners pledging to put up 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 the chair 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 shifting the industry to a more efficient technology.”
The amount of energy being 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 sustain the stress caused by the process.
Bitcoin miners in Kosovo were forced to sell their equipment after the government banned mining in the wake of blackouts and soaring energy prices, according to Bloomberg.
The government in Kazakhstan enacted strict limits on crypto mining after the country suffered an electricity shortage.
The central Asian nation had attracted miners who were kicked out of China, which had been previously known as the world’s epicenter of mining before authorities cracked down on the practice.
The US recently overtook China as the world’s hub of digital currency mining.
Despite drawing the ire of regulators, crypto mining is a lucrative business. Some of the top firms such as Hut 8 and Marathon Digital Holdings boast 10-digit valuations.
The energy demands of mining has become a major point of criticism for the crypto, with even some of its biggest supporters like Tesla CEO Elon Musk calling out its environmental impact.
Proponents, though, argue that bitcoin miners are tapping new forms of renewable energy, including geothermal power, to drive growth.