This is an opinion article by Guglielmo Cecero, legal manager of the European bitcoin investment app Relai, and Raphael Schoen, content lead at Relai.
Bitcoin is under attack. It is increasingly seen as “dirty currency.” Elon Musk Tesla, Wikipedia, Greenpeace and other organizations have stopped accepting BTC for their products or as a means of donating money.
Musk, who is not only one of the richest but also one of the most controversial people on the planet, said: “Cryptocurrency is a good idea on many levels, and we believe that it has a promising future, but this cannot well done. cost to the environment.” Ouch.
And not just Musk. Politicians have also targeted Bitcoin.
Before the European Commission’s Market Regulation on Crypto-Asset Regulation (MiCA) was passed, it caused an uproar in the Bitcoin community, mainly due to the left-wing faction of the EU Parliament opposing proof of work (PoW) and the power consumption of the Bitcoin network. In the trilogy, a version of MiCA was finally implemented that did not prohibit PoW or mining.
As it is known in April 2022, some members of the European Parliament (MEPs) tried to push a ban on bitcoin mining and one on BTC trading during the draft law. Fortunately, he failed.
However, the groundwork for other steps has been laid. For example, the issuers of cryptocurrencies, which we know are mostly just tech startups, will be required to submit several reports on the energy consumption and carbon footprint associated with these assets. Brokers and exchanges, must inform their customers about the exact figures when buying crypto assets.
The growing hatred for Bitcoin also gained traction through the anti-Bitcoin campaign Greenpeace USA launched in March, funded by Ripple founder Chris Larsen, among others. Interestingly, Greenpeace received bitcoin donations between 2014 and 2021 until it was put on hold due to environmental concerns.
Nearly Half of EU Parliament Doesn’t Like Bitcoin
As already mentioned, the ban on mining or trading for Bitcoin does not fall under the MiCA legislation. However, it is unlikely that EU MPs trying to implement this in MiCA will give up – we can assume the opposite.
In March 2022, the economic and monetary affairs committee (ECON) of the EU parliament voted to ban PoW. Thirty-two members voted against, 24 in favor. The topic seems to be more ideologically driven, as Social Democrats, Greens, and the left usually want a PoW ban, while Conservative, Liberal and right-wing factions tend to favor it.
The final MiCA concept created by conservative MEP Stefan Berger included a compromise: Instead of banning PoW, he agreed to include a rating system for cryptocurrencies to assess their environmental impact (more on that later).
In an email conversation with Politico, Spain’s Green EU MP Ernest Urtasun explained:
“Creating an EU labeling system for crypto will not solve the problem as long as crypto-mining can continue outside the Union, also driven by EU demands… The Commission should focus more on developing minimum sustainability standards with a clear timeline for compliance.”
And he added:
“Ethereum’s recent upgrade just shows that removing environmentally harmful protocols is actually possible, without causing disruption to the network.”
ECB Doesn’t Like Bitcoin – Everything
While we see different opinions about Bitcoin in the European Parliament, the signal received from the European Central Bank (ECB) is very clear. The ECB regularly issues warnings about cryptocurrencies, citing its “excessive carbon footprint” as a “reason for concern”.
Just recently, on November 30, 2022, the ECB published a blog post titled “Bitcoin’s Last Stand.” In it, ECB Director General of Market and Payment Infrastructure Ulrich Bindseil and adviser Jürgen Schaff argued that, “Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment.”
According to Bindseil and Schaff, Bitcoin transactions are “cumbersome, slow and expensive,” which they say explains why the largest cryptocurrency in the world – created to solve the monetary and financial system there – “has never been used to any significant extent for real legal-world transactions .” Bindseil and Schaff added that if Bitcoin is not an effective payment system or a form of investment, “it should be considered not in terms of regulation and therefore should not be legitimized.”
Although it may seem paradoxical to attack so vocally that it is on the “road to irrelevance,” it is not the first time that the ECB has attacked Bitcoin.
In July 2022, the ECB singled out Bitcoin in a research article and compared proof of work to fossil fuel cars while considering proof of stake to be more similar to electric vehicles. Let’s ignore for a minute that this doesn’t make sense and look at what he wrote in detail:
“Public authorities should not prevent innovation, because it is a driver of economic growth. Although the benefit to the community of bitcoin itself is doubtful, blockchain technology in principle can provide benefits and applications of technology that are not yet known. Therefore, authorities can choose not to intervene to support digital innovation At the same time, it is difficult to see how the authorities could choose to ban gasoline cars during the transition period but turn a blind eye to bitcoin-type assets built on PoW technology, with a footprint of country-sized energy consumption and annual carbon emissions. euro area countries and GHG savings targets. This is mainly because alternative, less energy-intensive blockchain technology exists.
In general, the ECB believes that it is impossible for the European Union not action on carbon emissions in PoW-based assets like bitcoin. The authors of the paper argue that in their view, it is likely that the EU will take the same steps to phase out PoW as it did with fossil fuel cars. Mainly because, according to them, there are “alternative, less energy-intensive” technologies like PoS.
“To continue the car analogy, public authorities have the option to incentivize the crypto version of electric vehicles (PoS and various blockchain consensus mechanisms) or to limit or ban the crypto version of fossil fuel cars (PoW blockchain consensus mechanism). So, when A hands-off approach by public authorities is possible, unlikely, and policy actions by authorities (for example, disclosure requirements, carbon tax on crypto transactions or holdings, or outright bans on mining) are possible. Price impact on crypto assets targeted by policy actions can it also corresponds to the severity of the policy action and whether it is global or regional in scale.
Most of the citizens used to think of money as something other than what it really is, and the ECB is also to blame for this. Money is seen as something that has its own value, rather than something whose value comes from the interaction between the people who use it.
The Euro is subject to constant changes (regular inflation) and traumatic events (devaluation, forced exchange rates, etc.), but these are ignored or underestimated. People believe they have it, even though they can only replace other things.
How much and for what will 100 euros be exchanged in one year, five years or ten years? This, no, is up to us.
The function of these exchanges is constantly changing due to factors beyond our control. The interaction between the people who use it is the main factor and, in turn, this interaction depends on the rules of economic and monetary policy that few people know.
Bitcoin is exempt from this rule (and this is the reason why the ECB wants to ban it), it is just a code that the ECB and regulators are trying to make useful. Bitcoin also and above all shows value through features that are totally independent of government power and, therefore, ECBs.
What will happen next?
In 2025, we will see a rating system for cryptocurrencies according to their environmental impact in the European Union – think of energy labels for refrigerators or TVs. You can already expect that bitcoin will get the worst classification. This move will essentially be positive for Ethereum and bad for Bitcoin.
Source
It is unlikely that the label will scare investors into buying bitcoin, especially since the Bitcoin community says that the Bitcoin network is not an obstacle but a solution to greener energy.
Therefore, the Bitcoin mining industry has an incentive to be greener: The fossil fuel analogy in the ECB paper makes no sense. The energy mix of a PoW network like Bitcoin can come from renewable green sources. Bitcoin can be a way to directly monetize energy, as has happened with flared gas that will be flared anyway. However, it is questionable how fast and effective this effort will be for policy makers, especially since fossil energy companies like Exxon are currently mining Bitcoin using flared gas.
The authors of the ECB paper have stated that a higher bitcoin price equals more energy consumption, as more miners will participate. Destroying the demand for bitcoin would be an effective solution to reduce the hash rate. At least in theory.
Conclusion
The academic and political consensus seems to be approaching like trying to retire the “old” PoW, and move to the “new” PoS standard. Especially since the recent merger of Ethereum, many people believe that this could be the way forward for the Bitcoin network. We doubt it and plan to elaborate on that in a future post. As we have seen in various scenarios, banning Bitcoin is difficult, if not impossible. The Nigerian government tried, failed and finally gave up, for example.
It will be quite a while until 2025, and with the energy crisis, increased focus on carbon emissions as well as overall global uncertainty, the only thing we can do at this point is to expect the unexpected.
Even if the worst case scenario happens, and we see a Bitcoin ban of some sort happen in the EU, we doubt that this will continue forever. Bitcoin does not ask for permission. Bitcoin is something that ontologically struggles to stay inside the fence. It is not an idea derived from an anarchist position, but rather an argument that derives from the characteristics of the technology introduced by Satoshi Nakamoto. Regulators work in the logic of authorizing and it becomes clear that they struggle to intercept the phenomenon of Bitcoin, which functions regardless of the permission of others.
This is a guest post by Guglielmo Cecero and Raphael Schoen. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.