EU expensing $843k to pull back the curtain on crypto’s climate impact

The bloc aims to explore the possibility of setting sustainability standards for crypto assets, potentially guiding future financial regulations in the sector

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The European Union wants to figure out how crypto asset networks might be affecting climate change and reduce their impact.

On Tuesday, the bloc released a notice showing intent to engage an institution to create a methodology aimed at reducing the environmental effects, as needed.

“There is evidence that crypto-assets can cause significant harm on the climate and environment and generate negative economic and social externalities, depending on the consensus mechanism used to validate transactions,” a contract notice showed, without specifying which assets.

The note expressed concerns that growing interest in crypto and the expansion of mining activities, even within the EU, might jeopardize the EU’s efforts to meet its climate and sustainability objectives to align with the Paris Agreement.

“The action aims at enhancing the EU capacity to assess and mitigate the impact of crypto-mining and develop specific sustainability standards,” it said.

Consequently, the study’s findings may impact prospective policies aimed at establishing environmental sustainability criteria for crypto assets.

The EU will earmark about 800,000 euros (~$843,000) for commissioning this study, which is expected to last 13 months.

The deadline for submitting tenders or requests to participate is set for Nov. 10.

Proof-of-work vs. proof-of-stake 

Bitcoin relies on a proof-of-work mechanism, which necessarily expends energy to solve computational puzzles.

Cryptocurrencies, particularly Bitcoin, often face criticism for their perceived high energy consumption, leading to concerns about environmental impact and resource usage.

Most crypto assets, such as Ethereum, employ a proof-of-stake system where validators secure the network by staking assets as collateral. This alternative approach drastically lowers energy consumption compared to Bitcoin, although there are tradeoffs.

For instance, Ethereum previously relied on proof-of-work in its consensus design, but following the Merge in September 2022, the network instantly reduced its energy consumption by 99.95%.

But the true environmental effects of crypto networks that still use proof-of-work remain a subject of ongoing debate, and misconceptions are common.

For instance, according to climate tech investor Daniel Batten, bitcoin has managed to offset 6% of emissions through methane mitigation efforts. 

In contrast, other industries such as banking, gold, steel, automotive, aluminum and construction have not reported any emissions offset through methane mitigation at this time, he tweeted.

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New insights come from the recent revision of the Cambridge University Bitcoin Electricity Consumption Index (CBECI), a tool that provides daily estimations of the network’s energy requirements. 

Researchers, after revisiting this widely used index on Aug. 31, came to the realization that earlier assumptions regarding Bitcoin’s energy consumption had been overstated.

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