Swedish financial regulator wants to ban proof-of-work mining in the EU

The Swedish “Finansinspektiven” sees great risks from the most common method for producing crypto assets and is supported by the Swedish environmental protection agency. The authorities are observing that their country is increasingly becoming the focus of miners who are migrating from other countries.

Due to the increased focus on carbon dioxide emissions and in view of the more strictly controlled Bitcoin ban in China, more and more crypto producers are coming up with the idea of ​​using renewable energies for mining, according to the Swedes in an official statement. These crypto miners are now turning their attention to the Nordic region because electricity prices are low there, taxes for mining activities are cheap and there is also good access to renewable energy.

It can already be observed that crypto producers are settling in northern Sweden. Between April and August 2021, electricity consumption for Bitcoin mining alone in Sweden increased by several hundred percent and now amounts to 1 terawatt hour per year. That would correspond to the electricity consumption of 200,000 Swedish households.

No renewable energy left – Sweden needs electricity itself

However, Sweden needs the renewable energy used by the crypto miners itself in order to ensure the desired energy transition of its basic infrastructure. Last but not least, the steadily increasing use of energy by miners endangers compliance with the Paris Agreement.

If the mining of cryptocurrencies were to be permitted on a large scale in Sweden, there would be the risk that the available renewable energy would not be sufficient to cope with the necessary energy transition. The energy available in Sweden is desperately needed for the development of fossil-free steel, the production of batteries on a large scale and the electrification of the transport sector.

According to estimates by the University of Cambridge, a medium-sized electric car could currently drive 1.8 million kilometers with the same energy that is needed to mine a single bitcoin. That would be the equivalent of forty-four laps around the globe. 900 Bitcoins would be generated every day. That is “no sensible use of our renewable energies”. Therefore, the general directors of the Swedish Financial Supervisory Authority and the Environmental Protection Agency agree: The energy-intensive mining of crypto assets should be banned.

The authorities make the following demands:

• The European Union should consider banning the energy-intensive proof-of-work mining method. There would be other methods of mining crypto assets that could also be used for Bitcoin and Ethereum. Energy consumption could be reduced by an estimated 99.95 percent while maintaining functionality.
• Until an EU ban, Sweden should lead the way and take measures in its own country to stop the further establishment of crypto mining with energy-intensive methods.
• Companies that trade in and invest in crypto assets that have been mined using the proof-of-work method should no longer be allowed to label themselves or their activities as sustainable or to market them.

It is quite clear to the authorities that such measures can lead to crypto miners relocating to countries in which higher carbon emissions could then be the result. However, it is important that Sweden and the EU lead by example. Other countries and regions should be “strongly encouraged to follow suit”.

Part of this encouragement could be a ban on the proof-of-work method in the EU. Because that could pave the way for the greater use of more energy-efficient crypto mining methods. But that is of secondary importance. It is more important that renewable energies in Sweden are used as efficiently as possible in order to support the transition to climate neutrality.

The authorities consider softer political measures to be entirely unsuitable. Sweden and other countries could introduce a tax on the energy-intensive production of Bitcoin, for example. Another option would be to communicate the climate issues related to cryptocurrencies more broadly, in the hope that this will lead to both producers and investors demanding a switch to mining methods that require less energy.

However, both mining activity and the demand for crypto assets are growing rapidly. As a result, environmental damage rose too quickly to wait for such measures to take effect. Rather, “emissions should be stopped here and now”.