A top financial regulator has suggested the European Union (EU) should ban an energy-hungry process used to mine cryptocurrency.
Erik Thedéen, the vice-chair of the European Securities and Markets Authority and Director-General of the Financial Services Authority of Sweden, told the Financial Times he supports an EU-wide ban on "proof of work" cryptocurrency mining. He suggested a move towards “proof of stake” protocols, which is notably less energy-intensive.
Thedéen said "proof of work" mining had become a significant issue in his homeland of Sweden, fearing the process threatens to undermine climate goals because it requires so much energy.
“The solution is to ban proof of work,” Thedéen said. “Proof of stake has a significantly lower energy profile.”
“We need to have a discussion about shifting the industry to a more efficient technology,” he added.
If all of these techy buzzwords are flying over your head, here's a loose (relatively simple) explanation: the transactions of cryptocurrency are validated and recorded on a public digital ledger, known as the blockchain, shared by everyone participating in the system. Proof of work and proof of stake are two different ways of securely verifying transactions on the blockchain.
In proof of work protocols, computers compete to solve super-complex mathematical problems to produce new blocks in the chain (basically add a record of each transcription to the ledger) and verify the exchanges. As a reward for contributing their computing resources to the network, the solver of the puzzle is given freshly minted cryptocurrency.
While this can prove to be lucrative on a large scale, all of this competition and computing power require a shocking amount of energy.
Proof of stake was developed as a more energy-efficient alternative to this original system. Instead of competing using super-powered computers, new block creators are determined by how large their stake in the network is (how much "money" they have put in the system, essentially). They are not directly rewarded for contributing to the blockchain, but paid a transactional fee. It still requires a fair amount of computational power, although notably less than proof of work.
Some of the biggest cryptocurrencies – including Bitcoin and Ethereum – rely on energy-guzzling proof of work protocols, although Ethereum has started rolling out a series of upgrades called Ethereum 2.0, including a transition to proof of stake.
Some prominent proof of stake platforms include Cardano, Avalanche, Polkadot, Solana, Algorand, and Tezos.
Much has been made of cryptocurrency’s impact on energy use and the environment recently. Last year, it was estimated that mining for cryptocurrency was consuming more electricity than the entirety of Argentina. Pair with concerns of energy use, cryptocurrency mining requires vast quantities of computer mining rigs, which creates colossal quantities of electronic waste. A single transaction of Bitcoin produces 272 grams (9.59 ounces) of e-waste, amounting to a total of 30.7 metric kilotons of e-waste every year.