Amid rising inflation, the European Central Bank (ECB) has found time to sum up its concerns about the “significant carbon footprint” of Bitcoin (BTC) and other cryptocurrencies that require large amounts of computing power.
The ECB published on July 12 the report entitled “Mining the environment – is climate risk priced into crypto-assets?” In the report, the ECB research group reinforces the environmental narrative on the battle of the protocols, where the proof-of-work (PoW) concept poses a threat to the planet. Rather, proof-of-stake (PoS) is the only sustainable crypto option, experts argue.
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. He states that the combined carbon footprint of Bitcoin and Ether (ETH) negates the greenhouse gas (GHG) emissions savings of most eurozone countries by May 2022.
Since the main reason for the significant energy consumption lies in the PoW consensus mechanism, the authors consider that both Bitcoin and tokens based on the Ethereum blockchain, including stablecoins like Tether (USDT), are particularly unsustainable and put the entire ecological transition project at risk. In July, Ethereum completed a major Merge test on the Sepolia testnet, bringing the platform closer to switching to the PoS consensus mechanism.
At some point, the article sharpens the tension between the goals of the ecological transition and cryptocurrencies in general to the point of a possible war. Political and social decisions about energy sources and energy consumption levels could lead policymakers to privilege certain productive activities, which, in turn, would entail risks for the valuation of crypto assets.
According to the report, the benefit of Bitcoin for society is doubtful, and therefore:
“It’s hard to see how authorities can choose to ban gasoline cars during a transition period but turn a blind eye to bitcoin-type assets built on PoW technology.”
In another automobile analogy, the report claims that PoS is the crypto version of the electric vehicle and an obvious candidate for incentivizing policymakers.
Last week, the ECB 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 drop in algorithmic stablecoin ecosystems like Terra (LUNA), indicating the contagion effects that these stablecoins could have in the financial system.
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