Amid spiraling inflation, the European Central Bank (ECB) has found time to outline its concerns about the “large carbon footprint” of Bitcoin (BTC) and other cryptocurrencies, which require massive amounts of computational power.
The European Central Bank has published a report titled “Environmental Mining – Are Climate Risks Pricing In Crypto Assets?” On July 12 in the report, the European Central Bank’s research group reinforced the environmental narrative around the battle of protocols, where the concept of Proof of Work (PoW) poses a threat to the planet. In contrast, Proof of Stake (PoS) is the only sustainable encryption option, experts say.
The article compares the amount of energy consumed by Bitcoin with the annual energy consumption of individual countries, such as Spain, the Netherlands, and Austria. It claims that the combined carbon footprint of Bitcoin and Ether (ETH) cancels out greenhouse gas (GHG) emissions savings for most Eurozone countries as of May 2022.
As the main reason for the high energy consumption lies in the Proof of Work consensus mechanism, the authors consider both Bitcoin and tokens based on the Ethereum blockchain, including stablecoins like Tether (USDT), to be particularly unsustainable and jeopardize the entire green transformation project. . In July, Ethereum completed a significant trial of integrating into the Sepolia testnet, pushing the platform closer to switching to a PoS consensus mechanism.
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At some point, the article heightens the tension between the goals of greening and cryptocurrency dramatically to the point of a possible war. Political and social choices regarding energy sources and energy consumption levels can lead policy makers to franchise certain productive activities, which in turn will lead to valuation risks for crypto assets.
According to the report, the usefulness of Bitcoin to society is questionable, thus:
“It is hard to see how the authorities could choose to ban gasoline cars during a transition period but turn a blind eye to bitcoin-type assets built on Proof of Work.”
In another analogy to cars, the report claims that the POS is a crypto-version of the electric vehicle and a clear candidate for stimulating policy makers.
Last week, the European Central Bank released a report analyzing the growth of the cryptocurrency market over the past decade and the risks it poses to the current financial system. It concluded that the lack of regulatory oversight added to the recent collapse of stablecoin ecosystems such as Terra (LUNA) – now renamed Terra Classic (LUNC) – suggesting the contagion effects that such stablecoins can have on the financial system.