EU prepares to tackle climate impact of cryptocurrencies

Cryptocurrencies are big business. But many of them carry a heavy carbon footprint — putting them in the crosshairs of EU policymakers now determined to tackle climate change and reduce carbon emissions.

Bitcoin – the biggest in the cryptocurrency world and fast becoming the market’s generic name – costs over $40,000 to buy a single unit, putting its market value at close to $729.1bn .The second-most valuable is Ethereum, worth around $274bn. The high prices have triggered a gold rush, and lawmakers are wary of sending mixed signals.

Cryptocurrencies on their own do not release greenhouse gases into the atmosphere. It is the technology underpinning them, known as blockchain, that does. Blockchain is a decentralised ledger that records cryptocurrency transactions with “blocks” of information, which are almost impossible to tamper with — making them very secure against outside manipulation.

New regulation is going through the EU legislative machine. The European Commission is proposing Markets in Crypto-Assets (MiCA) regulation to introduce consumer safeguards for people who buy digital financial assets, after Facebook announced plans to introduce its own virtual currency, called Diem. The bill targets the trading of tokens and stablecoins, and initially had little to do with blockchain. However, it is the first legislation of its kind, and lawmakers are hoping the final rules in MiCA will set the global standard for digital assets — including their energy consumption.

According to University of Cambridge research, Bitcoin mining across the world now consumes around 73 terawatt-hours a year – more electricity than is used in a country the size of Austria or Portugal. That is the problem lawmakers will attempt to solve. But cryptocurrency representatives warn against rules that hamper the future potential of blockchain, which could revolutionise recordkeeping in the financial industry and is still evolving into potentially less carbon-intensive iterations. “The crypto-asset industry has been focused on its energy footprint for years,” said Francesca Salierno, executive director of the Digital Currencies Governance Group. “This is one of the main drivers behind the evolution of new blockchains, like Ethereum, whose carbon footprint was less than half that of the Bitcoin blockchain in mid-2021.”