According to the latest data published by the German website netzpolitik.org, the European Commission and Swedish Financial Regulators have decided to ban Bitcoin’s proof-of-work mechanism. This banning policy comes into play because of its environmental impacts.
The documents released under the EU’s freedom-of-information laws mention the meeting held between the Swedish financial and environmental regulators of Europe in November last year.
They had already discussed banning the trading activities of cryptocurrencies, especially Bitcoin, due to its hazardous environmental effects.
However, some parts of the document have mentioned that the crypto ban policy is still under development. Hence, we expect some minor changes in the final policy.
In a recent interview, Erik Thedeen, the vice-chairman of the European Securities and Markets Authority (ESMA), raised his concern regarding the excessive energy used for crypto mining. He added that it was becoming a ‘national issue’ in Sweden and suggested a bloc-wise ban.
“Bitcoin has become a matter of national issue for Sweden. A large amount of renewable energy is used for Bitcoin mining, which is not sustainable,” comments Erik.
“It would be ironic if we devote the wind power generated on Sweden’s coastline for Bitcoin production,” he further adds.
According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin utilizes nearly 0.5% of the world’s power for its production.
What is proof of work?
Proof of work of PoW is a decentralized consensus method that needs network members to solve an arbitrary mathematical puzzle to mine new crypto tokens and validate transactions. It allows the processing of cryptocurrency transactions, including Bitcoin, in a P2P and secure manner without any third party.
These complex math problems require intensive machines and thus power consumption.
However, another protocol is Proof of Authority to reach consensus within the network. Instead of coins as collateral, validators in PoA stake their reputation, making them less energy-intensive than PoW and more secure than the PoS model.
For this reason, Erik suggested banning proof of work technology for Bitcoin mining last year to curb the environmental damages caused by it.
Moreover, Sweden witnessed a massive increase in energy consumption due to Bitcoin mining last year. There was a nearly 700% increase in power consumption from April-August 2021.
The Swedish official emphasized that he is not planning to ban cryptocurrencies completely. Rather, they suggested using more energy-efficient technologies.