Ethereum could benefit
In mid-March, all services based on “environmentally unsustainable consensus mechanisms” were to be banned within the EU. Only narrowly did the EU Parliament’s Economic Affairs Committee decide against this de facto ban on Bitcoin. As it appears, this issue is not yet off the table: when a majority of MEPs in the Committee on Economic and Monetary Affairs voted against a corresponding amendment of rules for crypto services (MiCA), the Green MEP Rasmus Andresen told “Netzpolitik.org” that “the last word [has] not yet been spoken.”
The insatiable hunger for energy that Bitcoin mining entails came to public attention in particular in mid-May 2021: Tesla CEO Elon Musk had accepted Bitcoin as a means of payment for his vehicles shortly before; a few weeks after the start of the operation, however, he announced that he was stopping Bitcoin payments again in view of the high power consumption during mining.
Bitcoin mining by PoW expensive
The elaborate generation of Bitcoins relies on the Proof-of-Work (PoW) algorithm, whereby BTC are generated by solving cryptographic tasks. The deal is: provide computing power in exchange for a share of the newly generated Bitcoin. This was a lucrative business in the beginning – the tasks were relatively easy to solve, hardware was cheap and so was electricity. In the meantime, however, the computing tasks involved in mining have become so complex that they can only be mastered with high-performance computers. As a result, huge mining farms have emerged, which of course have a strikingly higher electricity demand for operation and cooling. As a result, the share of CO2 emissions also increases when fossil fuels such as coal were used to generate electricity.
In view of this, Ethereum is already working on a switch to the much more economical proof-of-stake method, which no longer rewards the participants with the largest computing resources. Instead, every network participant can participate on a pro-rata basis – the more ETH one has, the higher the chance of placing a new entry in the blockchain and being rewarded for it. Unfortunately, the changeover has been delayed, as it is quite complex and involves a number of risks. This change is even trickier with bitcoin, because its decentralised structure makes updates very difficult. Here, the solution could lie in a trend reversal towards green energy. There are some interesting and promising approaches to this.
Time is pressing
Time is pressing for Bitcoin: environmental awareness has been steadily increasing in recent years, along with the ban in China and the explosion in energy prices triggered by the Ukraine war. “Netzpolitik.org” recently reported, citing previously unpublished documents, that government representatives from several European countries are discussing possible restrictions on bitcoin together with envoys from the EU Commission in camera. What is only brainstorming at the moment could quickly become serious depending on how geopolitical factors develop. If one wants to do without cheap energy from Russia, a deficit will arise in the short term that one certainly does not want to increase additionally through mining.
The demands range from a ban on mining (which would have little effect given the low level of European participation) to a ban on intra-European trade, which in turn would have a major effect. More concrete in this respect is the EU Commission’s proposal for a new energy efficiency directive, according to which the member states would have to collect and publish data on the energy consumption of data centres. Based on this data, concrete measures are conceivable if the consumption of individual facilities were significantly higher.