Sweden’s FI calls for ban on energy-intensive mining of cryptocurrencies
Sweden’s financial markets regulator FI has warned that crypto-assets are a threat to the climate transition and has called for a ban on energy-intensive mining of cryptocurrencies.
The Swedish Financial Supervisory Authority, like other international organisations such as the International Monetary Fund and the US Federal Reserve Board, considers that there are aspects of crypto-assets that are problematic. The consumer risks are significant, and crypto-assets are commonly used for criminal purposes such as money laundering, terrorist financing and ransomware payments. Crypto-assets also have a significant negative impact on the climate as mining leads to both large emissions of greenhouse gases and threatens the climate transition that needs to happen urgently. This is alarming, and crypto-assets therefore need to be regulated.
The University of Cambridge and Digiconomist estimate that the two largest crypto-assets, Bitcoin and Ethereum, together use around twice as much electricity in one year as the whole of Sweden. Crypto-production’s high energy consumption is due to its mining process, which is called proof of work.
The more expensive Bitcoin becomes, the more emissions it generates.
Digiconomist estimates that crypto-assets at their current market value lead to release of up to 120 million tonnes of CO2 in the atmosphere per year.
The reason for the industry’s large carbon footprint is that the majority of crypto-production takes place in countries with low energy prices and a high share of fossil-dependent electricity production. Since the value of Bitcoin has increased so much, this has also extended the life of old fossil-based energy producers.
Due to the increased focus on CO2 emissions and in light of China’s recent Bitcoin prohibition, a greater number of crypto-producers are exploring the possibility of using renewable energy for mining. Crypto-producers are therefore turning their attention to the Nordic region, where prices are low, taxes for mining-related activities are favourable, and there is good access to renewable energy.
Between April and August this year, electricity consumption for Bitcoin mining in Sweden increased by several hundred per cent and now amounts to 1 TWh annually. That is equal to the electricity of 200,000 Swedish households.
The regulator warns:
“If we were to allow extensive mining of crypto-assets in Sweden, there is a risk that the renewable energy available to us will be insufficient to cover the required climate transition that we need to make. This energy is urgently required for the development of fossil-free steel, large-scale battery manufacturing and the electrification of our transport sector”.
FI says that policy measures are required to address the harms caused by the proof of work mining method.
There are several different policy options available. For instance, Sweden and other countries could introduce a tax on the energy-intensive production of bitcoin. Another option is to communicate more widely around the climate problems related to crypto-assets, in the hope that this will lead to both producers and investors demanding a shift to mining methods that require less energy.
Given the rapid growth and demand for crypto-assets, neither of these options are likely to address the environmental harm we see from this mining method today, FI says.
The regulator urges that the EU considers an EU-level ban on the energy-intensive mining method proof of work. There are other methods for mining crypto-assets, that could also be used for Bitcoin and Ethereum, that are estimated to reduce energy consumption by 99.95% with maintained functionality.
FI advises that Sweden should meanwhile introduce measures that halt the continued establishment of crypto-mining production using energy-intensive methods.
That companies who trade and invest in crypto-assets, that were mined using the proof of work method, cannot be allowed to describe or market themselves or their activities as sustainable, the regulator says.
A ban on the proof of work mining method within the EU could be an important first step in a global move towards a greater use of more energy-efficient crypto mining methods, FI says.