EU regulators have recently raised the question of whether or not bitcoin mining should be banned in Europe. Bitcoin’s proof of work protocol was one of the primary drivers behind the discussion as some believe it may pose a threat to the continent’s goals of supporting climate change.
European Securities and Markets Authority VP, Erik Thedéenis one of the main voices citing concern. Thedéen views bitcoin mining as contradictory to the EU’s goals of being more sustainable and energy-efficient.
Currently, there are two main forms of achieving consensus when using a blockchain - proof of stake and proof of work. Proof of stake is considered to be a more environmentally-friendly alternative, while proof of work mining takes a lot of energy to complete. However, proof of stake is not a like-for-like replacement for proof of work and comes with trade-offs. Erik is suggesting a ban on proof of work mining.
While mining is undoubtedly an integral part of running a blockchain network, proof of work has seen an increasing amount of criticism due to its perception that it uses too much energy. This has put it in the cross hairs of a variety of different regulatory and legislative pushes.
Erik Thedéen isn’t the first to be concerned about this issue. Both Kazakhstan and Kosovo faced energy-related challenges due to bitcoin mining. As both foreign and domestic investments increase, bitcoin mining has greatly increased power consumption, leading to blackouts, increasing energy prices, as well as electricity shortages in the two nations.
While some countries have decided to completely ban bitcoin and bitcoin mining, others have fully embraced the advantages it provides. El Salvador was the first country to accept bitcoin as a legal tender, and it recently proposed plans to expand its geothermal power generation capabilities, something which bitcoin mining makes feasible by providing demand for the excess power that may not be used for other purposes. The demand from proof of work mining can make new power infrastructure projects economically viable where they were formerly not.
Bitcoin’s power consumption is well documented, and even well-known names have shared their concern. Elon Musk, CEO of Tesla, went back on plans to accept bitcoin as payment for Tesla vehicles after citing energy concerns.
The industry has begun to rally in defense of itself, with the formation of the Bitcoin Mining Council spearheaded by Michael Saylor which aims to bring more transparency around bitcoin’s energy usage and the benefits that bitcoin mining brings to the energy grid and to power generation. Castle Island Ventures Partner Nic Carter has also joined in defending bitcoin mining, having written extensively about it for publications including Newsweek and Harvard Business Review.