EU’s Bitcoin Power Punt Is a Regulatory Dilemma

Welcome to Bloomberg Crypto, our twice-weekly look at Bitcoin, blockchain and more. If someone forwarded this to you, sign up here. In today’s edition, Emily Nicolle confronts an inconvenient truth about crypto regulation:

It’s not easy going green

Can regulators tackle cryptocurrencies’ environmental impact without stifling innovation? The European Union’s attempt to answer that question just failed for a second time, after lawmakers sought to effectively ban blockchains that mint tokens such as Bitcoin using the energy-intensive “proof-of-work” consensus mechanism.

It’s understandable why things didn’t work out. The ramifications of the shot-down green amendment to the EU’s Markets in Crypto Assets bill (MiCA) could have been huge, even when softened from a previous version that called for banning proof-of-work tokens outright.

Europe is home to a significant proportion of crypto exchange-traded products. Under the failed provision, ETPs that are physically backed by Bitcoin and Ether might have been forced to cease trading if the underlying cryptocurrencies did not improve their carbon footprint by an undetermined deadline. That would have left only those ETPs tracking coins on more eco-friendly blockchains — such as Uniswap and Polkadot, which use the proof-of-stake model — available for trading. Instead, the approved draft calls for authorities to determine whether crypto can be considered a sustainable investment by 2025.

The document — which also includes tighter rules on preventing money laundering and market manipulation — will now be debated by the EU’s top three authorities before it can become law.

Regulators everywhere will be watching this process with great interest, not least those inside the White House. A factsheet on the Biden administration’s executive order for crypto last week promised to support responsible development of digital assets while “reducing negative climate impact,” indicating that the power consumption and carbon emissions of cryptocurrencies like Bitcoin is front-of-mind for many seeking to curb the sector’s worst habits.

If you talk to crypto firms, they will eagerly point to industry research arguing that proof-of-work’s energy impact is a necessary expense, and can only be as green as the energy you feed it. After China’s exit from the mining industry, Bitcoin’s carbon footprint worsened as some operators moved to fossil-fuel-heavy centers such as Kazakhstan and Texas — and if more countries join Beijing, there’ll be fewer renewable-energy sources for crypto to turn to. But others say the mining process is simply too intensive to ignore, creating an average of one MacBook Air’s worth of e-waste per economically meaningful transaction.

How regulators will be able do anything about it without bringing down an entire industry is a puzzle that remains to be solved.

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Charting it out

Hearing them out

Musician Iman Europe has made 22.2 Ether (now worth almost $60,000) selling five singles and a music video as NFTs since November 

“I had one person buy my song for the amount it would have taken a million streams to get.”

Iman Europe

Singer-songwriter

What we’re reading, watching (and writing)

• Shorting Tether Renews Debate Around Most Traded Cryptocurrency
• Where Are the Earliest Bitcoin Investors Now? (Vice’s Motherboard) 
• Crypto’s War Test Leaves Future of Money Debate Wide Open
• Reese Witherspoon and Gwyneth Paltrow Push for Crypto Sisterhood (Wall Street Journal)
• Spotify Who? Musician’s Earnings Go From $300 to $60,000 in Web3
• What’s the Future of Crypto? Boring — and Bright: Tyler Cowen (Bloomberg Opinion)

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