The European Securities and Markets Authority (ESMA) has announced a new proposal to reduce the carbon footprint of cryptocurrencies: ban the proof-of-work validation system. With the implementation of this measure, all the countries of the European Union should avoid using this process in the profile of proof of stake, which consumes less energy and is therefore more respectful of the climate.
From Proof of Work to Proof of Stake
ESMA Vice-President Erik Thedéen said that ” bitcoin and cryptocurrencies in general could jeopardize the EU’s chances of achieving its climate target: to reduce the carbon footprint by at least 55% by the end of this decade. This is why the regulator has proposed banning the proof-of-work validation system. The two most widely used cryptocurrencies (Bitcoin and Ether) both rely on this process, although Ethereum is moving towards an update making it 99.95% less energy intensive.
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The concern for ESMA is that the proof of work consumes a lot of energy to add an additional block to the blockchain. Each miner on the network must perform calculations requiring a lot of energy and time in order to encrypt all the transactions of a block as well as the encrypted transactions of the previous blockchain.
Thus, the European regulator wishes to move towards proof of participation (or proof of stake), much less energy-intensive than proof of work. On the other hand, many believe that the blockchain thus forged does not present the same robustness and the same level of quality when it is based on proof of stake.
Restrictions around cryptocurrencies around the world
” The financial sector and many large institutions are now active in the cryptocurrency markets », specifies Erik Thedéen. ” We need to have a discussion about moving the industry to more efficient technology. Around the world, several countries have imposed restrictions on cryptocurrency mining. In China, the Chinese central bank has banned cryptocurrency transactions. In Bangladesh, Algeria, and Egypt, authorities have banned the purchase, sale, use, or possession of cryptocurrencies.
Within the European Union, Sweden has already shown its concerns and called for a ban on proof of work, at the instigation of Erik Thedéen, also director of the Swedish financial supervision agency, and Björn Risinger, Director of the Swedish Environmental Protection Agency.
In the United States, a number of members of Congress and states now want cryptocurrencies to function properly and retain proof of work. However, the House Energy Committee, the US energy regulator, will hold a hearing this week titled “Cryptocurrency Cleanup,” focusing on the climate toll of cryptocurrencies.