John Ainger and Alberto Nardelli
Tue, October 18, 2022 at 3:49 AM·2 min read
(Bloomberg) -- The European Union will develop an energy efficiency label for cryptocurrencies like Bitcoin in a bid to rein in the growing electricity consumption of the industry.
The European Commission will work with international partners to come up with a grading measure that will encourage more environmentally friendly crypto systems, such as “proof of stake,” according to a draft proposal seen by Bloomberg News set to be announced Tuesday. The EU will also call on countries to target miners’ energy consumption this winter as it tries to navigate the season with far less Russian gas.
“Just as their use has grown significantly, the energy consumption of cryptocurrencies has more,” the the EU’s executive arm said in the draft action plan. “In harnessing the use of cryptocurrencies and other blockchain technologies in energy markets and trading, care must be taken to use only the most energy efficient versions of the technology.”
While the EU makes up only around 10% of proof-of-work crypto mining -- a more-energy intensive system used by Bitcoin to issue new digital tokens -- any action taken by the bloc can still have knock-on effects globally. It has previously considered banning proof-of-work practices before deciding that cryptoasset providers should be required to disclose the energy consumption and environmental impact of the assets they choose to list.
By comparison, proof-of-stake mining -- which is now used by Ethereum -- can use 99.9% less energy than proof-of-work. The idea is that a labeling system could encourage other cryptocurrencies to make the switch.
The bloc will also produce a report that evaluates the climate impact of the industry by 2025, while urging member states to put an end to tax breaks for cryto-miners, according to the document. In the event of an electricity shortage, countries must also be ready to stop mining activities, the EU will recommend.
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