Experts from the European Central Bank (ECB) have criticized cryptocurrencies based on the Proof-of-Work (PoW) algorithm. In their opinion, projects using Proof-of-Stake (PoS) are one of the few options for the sustainable development of digital assets.
The ECB stressed that in 2021, the average consumption of electricity by the Bitcoin and Ethereum networks exceeded the figures for Austria, the Netherlands and Spain in 2020, as well as the installed capacity of the world’s largest gravity hydroelectric dam Three Gorges Dam.
“Estimates of the carbon footprint of Bitcoin and Ethereum also indicate that the combined annual emissions [сетей] as of May 2022 nullify past and planned greenhouse gas emission reduction activities for most eurozone countries,” the report says.
According to analysts, bitcoin has “doubtful” benefits for society, but blockchain technology itself has great potential. The ECB emphasized that a possible solution to the problem is to stimulate projects based on PoS by states.
The experts explained that the Proof-of-Stake algorithm uses digital assets (staking) as a resource, and not computing power. Due to this, using such networks will consume significantly less electricity.
“It is hard to imagine how the authorities could decide to ban internal combustion vehicles during a transitional period, but turn a blind eye to assets like bitcoin that are built on the basis of PoW. […]. Continuing the analogy with cars, government agencies have a choice – to stimulate the cryptocurrency version of the electric vehicle (PoS and its variations) or to restrict / ban fossil fuel vehicles (PoW),” the analysts wrote.
In recent years, politicians and the public have been actively discussing the impact of miners on the environment.
In April 2022, a position similar to that of the ECB specialists was voiced in the US Congress. Officials asked the Environmental Protection Agency to check the mining industry for environmental risks. They also noted the “less energy-intensive” Proof-of-Stake technology.
In June 2022, the Bank of Sweden called for a ban on bitcoin for the sake of the environment. Earlier, other regulators of the country made a similar proposal.
Recall that in the same month, the New York State Senate approved a two-year moratorium on the production of cryptocurrencies using electricity generated from carbon sources.
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