This is an opinion piece by Guglielmo Cecero, legal manager of European bitcoin trading app Relai, and Raphael Schoen, content lead at Relai.
Bitcoin is under attack. It is seen more and more as a “dirty coin.” Elon Musk’s Tesla, Wikipedia, Green Peace and other organizations have stopped accepting BTC for their products or as a means to donate money.
Musk, who is not only one of the richest people but also one of the most controversial people on the planet, has said: “Cryptocurrency is a good idea on many levels, and we think it has a promising future, but this can’t come at great cost to the environment.” Oh.
And it’s not just Musk. Politicians have also targeted Bitcoin.
Before the European Commission Markets in the regulation of crypto assets (MiCA), caused quite a stir within the Bitcoin community, especially due to left-wing factions in the EU Parliament who were opposed to proof-of-work (PoW) and the power consumption of the Bitcoin network. In the tripartite dialogue, a version of MiCA was finally approved that did not ban PoW or mining.
As it became known in April 2022, some members of the European Parliament (MEP) tried to push for a ban on bitcoin mining and another on BTC trading in the course of the bill. Fortunately, they failed.
However, the foundations have been laid for further steps. For example, cryptocurrency issuers, which we know are mostly just tech startups, will be required to provide some form of reporting on energy consumption and the associated carbon footprint of the respective asset. Brokers and exchanges, in turn, are required to inform their clients of these exact figures when they purchase crypto assets.
The growing dislike of Bitcoin also gained traction through a Greenpeace USA anti-Bitcoin campaign launched in March, which was funded by Ripple co-founder Chris Larsen, among others. Interestingly, Greenpeace accepted bitcoin donations between 2014 and 2021 until they were suspended due to environmental concerns.
Almost half of the EU parliament does not like Bitcoin
As mentioned, a Bitcoin mining or trading ban was not included in the MiCA legislation. However, the members of the EU parliament who tried to implement this in MiCA are highly unlikely to give up; we can assume otherwise.
In March 2022, the Economic and Monetary Affairs Committee (ECON) of the EU Parliament voted against banning PoW. Thirty-two members voted against, 24 in favor. The issue seems to be getting more and more ideological, with the Social Democrats, Greens, and the Left mostly wanting a PoW ban, while Conservatives, Liberals, and right-wing factions tended to vote against it.
The final draft of MiCA created by Conservative MEP Stefan Berger including a commitment: Instead of a PoW ban, they agreed to include a rating system for cryptocurrencies to assess their environmental impacts (more on that later).
in a email conversation with PoliticoSpanish MEP from the EU Greens, Ernest Urtasun, explained:
“Creating an EU labeling system for cryptocurrencies will not solve the problem as long as cryptomining can continue outside the Union, also driven by EU demand… The Commission should focus rather on developing minimum standards of sustainability with a clear calendar to comply”.
And I add:
“The recent Ethereum upgrade just showed that phasing out environmentally harmful protocols is actually doable, without causing any disruption to the network.”
The ECB does not like Bitcoin, not at all
While we see different opinions on Bitcoin in the European Parliament, the signals we receive from the European Central Bank (ECB) are very clear. The ECB is issuing warnings about cryptocurrencies on a regular basis, naming its “exorbitant carbon footprint” as “reason for concern”.
Recently, on November 30, 2022, the ECB published a blog post titled “Bitcoin’s last battle.” In it, ECB Director General for Market Infrastructure and Payments Ulrich Bindseil and adviser Jürgen Schaff argue that “Bitcoin’s conceptual design and technological shortcomings make it questionable as a means of payment.”
According to Bindseil and Schaff, Bitcoin transactions are “cumbersome, slow, and expensive,” which explains why the world’s largest cryptocurrency, created to outperform the existing monetary and financial system, “has never been used in any meaningful way for any purpose.” legal”. world transactions. Bindseil and Schaff added that since Bitcoin is neither an effective payment system nor a form of investment, it “should not be treated as such in regulatory terms and therefore should not be legitimized.”
While it may seem paradoxical to very vocally attack something that is on the “path of irrelevance”, this is not the first time that the ECB has attacked Bitcoin.
In July 2022, the ECB singled out Bitcoin in a Investigation article and compared proof of work to fossil fuel cars while considering proof of participation more similar to electric vehicles. Let’s ignore for a minute that this is nonsense and look at what he wrote in detail:
“Public authorities should not stifle innovation, as it is a driver of economic growth. Although the societal benefit of bitcoin itself is doubtful, blockchain technology may in principle provide as yet unknown technological benefits and applications. Therefore, the authorities could choose not to intervene with a view to supporting digital innovation. At the same time, it’s hard to see how authorities could choose to ban gasoline-powered cars during a transition period and turn a blind eye to bitcoin-like assets built on PoW technology, with country-sized energy consumption footprints. and annual carbon emissions that currently offset the past and target GHG savings of most euro area countries. This is especially true given that there is an alternative blockchain technology that consumes less energy.”
In general, the ECB believes that it is highly unlikely that the European Union not take action in terms of carbon emissions on PoW-based assets like bitcoin. The authors of the article argue that, in their opinion, the EU is likely to take similar steps to eliminate PoWs as it is doing with fossil fuel cars. Especially since, according to them, there is an “alternative, less energy-intensive” technology like PoS.
“To continue the car analogy, public authorities have the option of incentivizing the crypto version of the electric vehicle (PoS and its various blockchain consensus mechanisms) or restrict or ban the crypto version of the fossil fuel car (PoS mechanisms). PoW Blockchain Consensus). Therefore, while a hands-off approach by public authorities is possible, it is highly unlikely, and policy measures are likely to be taken by authorities (e.g. disclosure requirements, carbon tax on transactions or holdings of cryptocurrencies, or absolute bans on mining). The impact on the price of crypto assets targeted by political action is likely to be proportional to the severity of the political action and whether it is a global or regional measure.”
The vast majority of citizens are used to thinking of money as something other than what it really is, and the ECB is also to blame for this. Money is perceived as something that has value on its own, rather than something whose value comes from the interaction between the people who use it.
The euro is subject to both constant changes (regular inflation) and traumatic events (devaluation, forced exchange rates, etc.), but these are ignored or underestimated. People think they own it, although they can only exchange it for other things.
For how many and for what things will 100 euros be exchanged in one year, five years or ten years? This, in no way, depends on us.
Their exchange feature is constantly changing due to factors beyond our control. The interaction between those who use it is the main factor and, in turn, this interaction depends on economic and monetary policy rules that few people know about.
Bitcoin escapes these rules (and this is why the ECB wants to ban it), it’s just code that the ECB and regulators are trying to break. Bitcoin also and above all expresses its value through characteristics that are totally independent of the power of a government and, therefore, of the ECBs.
What will happen next?
In 2025, we will see a rating system for cryptocurrencies based on their environmental impact within the European Union: think energy labels for refrigerators or televisions. You can already expect Bitcoin to rank worst. This move will essentially be positive for Ethereum and bad for Bitcoin..
Such a label is highly unlikely to scare investors from buying bitcoin, especially since the Bitcoin community says that the Bitcoin network is not an obstacle but a solution to more green energy.
Therefore, the Bitcoin mining industry has an incentive to become greener – the fossil fuel analogy in the ECB paper is nonsense. The power mix of a PoW network like Bitcoin can come entirely from green and renewable sources. Bitcoin can serve as a way to monetize energy immediately, as-is it is already happening with the flared gas that would be burned anyway. However, how fast and effective this effort will be for policymakers is questionable, especially since fossil energy companies like Exxon are now mining Bitcoin using flared gas.
The authors of the ECB paper are already hinting that a higher bitcoin price equates to higher energy consumption, as more miners will be involved. Therefore, destroying the demand for bitcoin would be an effective solution to reduce the hash rate. At least in theory.
Conclution
The academic and political consensus seems to point towards something like trying to retire the “old” PoW and move towards the “new” PoS standard. Particularly since the recent Ethereum merger, many viewers believe that this could be a viable path for the Bitcoin network. We doubt it and plan to elaborate on it in a future post. As we have seen in different scenarios, banning Bitcoin is difficult, if not impossible. The Nigerian government He tried, failed, and finally gave up.for example.
It will be quite some time until 2025, and with an energy crisis, an increased focus on carbon emissions, and overall global uncertainty, all we can do right now is expect the unexpected.
Even if the worst case scenario happens, and we see a Bitcoin ban of some kind in the EU, we doubt this will stick around forever. Bitcoin does not ask for permission. Bitcoin is something that ontologically struggles to stay within a fence. It is not an idea derived from anarchist positions, it is an argument derived from the inherent characteristics of the technology introduced by Satoshi Nakamoto. Regulators work on authorization logic, so it is clear that they are fighting to intercept the Bitcoin phenomenon, which works independently of someone else’s permission.
This is a guest post by Guglielmo Cecero and Raphael Schoen. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
