In a vote last week on a draft of the Markets in Crypto Assets Regulation (MiCA) bill, a regulatory framework for digital assets in the European Union, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) agreed to leave out a provision that many in the crypto industry have characterized as a “de facto Bitcoin ban.”
The proposed provision was part of an effort to enforce minimum environmental sustainability standards for crypto assets — a key aim of the bill, along with supervision and consumer protection. It would have limited “proof of work” (PoW), an energy-extensive consensus mechanism that employs large amounts of CO2-emitting computational power and is used in popular cryptocurrencies like Bitcoin and Ether, as well as in the minting of many non-fungible tokens (NFTs). The parliamentary vote on MiCA and the quashing of the PoW provision coincide with a moment in which cryptocurrency advocates are on the defensive in response to United States and European lawmakers’ warnings that Russian oligarchs may capitalize on cryptocurrency to circumvent sanctions.
The decision on the PoW provision, which was defeated with a 30-23 vote with six abstentions, has been described as a major victory for the crypto industry and its advocates, who feared that the MiCA provision would hinder innovation. Three days before the vote, French politician Pierre Person tweeted: “By banning Bitcoin and Ether, by complicating the use of NFT and DeFi, the European Parliament is mortgaging our monetary and financial sovereignty.” In a Twitter thread on the defeat of the provision, Patrick Hansen, head of strategy at the crypto start-up Unstoppable Finance, described the vote as a “big relief & political success for the bitcoin & crypto currency in the EU,” adding that “the crypto community in the EU has clearly become a political force!”
The ample carbon footprint of PoW consensus mechanisms — a study by the University of Cambridge put Bitcoin’s energy consumption on par with that of a small country — has come under increasing scrutiny. Like Bitcoin, Ethereum, the blockchain on which most NFTs are minted, uses PoW, though it has committed to eventually migrating to an alternative, more energy-efficient consensus mechanism called “proof of stake.” According to calculations by artist Memo Akten, the minting of an NFT currently uses an average of 142 kilowatt-hours (kWh) of energy, creating 83 kilograms of CO2; factor in bids, sales, and ownership transfers, and those numbers balloon even further. Atken calculated that the footprint of the average NFT on a marketplace like SuperRare “is equivalent to a EU resident’s total electric power consumption for more than a month, with emissions equivalent to driving for 1000 Km, or flying for 2 hours.”
“Right now PoW accounts for similar emissions as all private jet flights,” artist Kyle McDonald, whose work has explored the environmental cost of crypto, told Hyperallergic. “Ethereum energy use alone is larger than that of Facebook and Google, combined. And NFTs make up around 10-20% of all activity on Ethereum. If PoW NFTs led to an overall emissions reduction for the arts, it would be harder to criticize. But that’s not what I’m seeing right now.”
McDonald, who pointed out that the policies in MiCA were most pertinent to Bitcoin, added: “If cryptocurrencies can’t meet ‘minimum environmental sustainability standards,’ we need to ditch them. And if our representatives can’t protect us from environmental destruction, we need to ditch them too. I wouldn’t be surprised if we see more direct action, like vandalism of mining facilities. Especially in the US, where miners are regularly re-opening abandoned natural gas wells and coal plants.”
Dr. Tina Rivers Ryan, an art historian and curator at Albright-Knox Museum who has written extensively about NFTs, believes that artists and collectors should ask themselves what the potential costs — environmental and otherwise — of transacting with a particular blockchain might be, and whether the benefits outweigh them.
“For some, the answer is: no blockchain is worth it. (It’s still entirely possible to sell digital art using just a sales agreement and a credit card.) Others are happy to work with the PoW blockchain Ethereum because of its historical role in the development of NFTs and the wealth that is currently stored in it,” Ryan said in an email to Hyperallergic. “Most digital artists I know fall in the middle, choosing to mint with a PoS blockchain like Tezos, where the average sales are lower, but so is the energy consumption.”
Of the removal of the PoW provision, Jess Northend, policy lead of the Science and Innovation Unit at the nonprofit Tony Blair Institute for Global Change, told Hyperallergic that regulators should address crypto’s environmental impact “without stifling innovation.”
“The amendment voted down this week would simply have shifted the use of Proof of Work elsewhere and likely had a range of unintended consequences, undermining the EU’s burgeoning crypto market,” Northend said. “Policy makers should instead support the use of Proof of Stake wherever possible, alongside renewable energy for mining, nudging the market towards less energy-intensive consensus mechanisms.”
Further efforts to mitigate crypto’s substantial carbon footprint in Europe is in the cards: A parliamentary majority voted to pursue alternative legislation that would include crypto assets in the EU’s sustainable finance taxonomy, which would make it more difficult for mining companies to get funding but would not be as limiting as the MiCA provision.
Speaking of behalf of the Socialists and Democrats, who abstained from the vote, Finnish Member of Parliament Eero Heinäluoma expressed disappointment over the results of the vote. “If we don’t curtail this massive carbon footprint by putting crypto-currencies on a more sustainable path, our efforts to combat the climate crisis and boost our energy independence risk being in vain,” he said in a statement.