Debate: Swedish government promoting a ban on Bitcoin mining in the EU
Last weekend, a debate about Bitcoin, climate, and energy efficiency took place in Sweden. It was started by director generals of the Swedish Financial Supervisor Authority and Environmental Protection Agency writing in daily media paper Dagens Nyheter arguing that mining of Bitcoin should be forbidden in the EU. After that, the Warp Institute think-tank Mathias Sundin and the CEO of crypto-trading portal Trijo Totte Loefstroem have separately replied to the directors.
Here is a summary of the recent debate.
Position of the director generals
Director generals of the Swedish Financial Supervisory Authority, Erik Thedéen, and the Swedish Environmental Protection Agency, Bjoern Risinger, argue that the social benefit of crypto-assets is questionable since they consider several aspects of crypto-assets to be problematic. Besides mentioning consumer risks, criminal purposes, and financing of terrorism, they argue that crypto-assets also have a large negative impact on the climate since the mining process results in large emissions of greenhouse gases and threatens the climate transition that needs to happen urgently. Therefore, they argue that crypto-assets need to be more regulated.
One of their main criticism is around Bitcoin’s proof of work (PoW) mining process. They write that when a large number of crypto-producers’ computers work simultaneously, the demand for electricity soars. The directors refer to the University of Cambridge and Digiconomist studies estimating that the two largest crypto-assets, Bitcoin and Ethereum, together with use around twice as much electricity in one year as the whole of Sweden and that crypto-assets at their current market value lead to a release of up to 120 million tonnes of CO2 in the atmosphere per year.
According to the directors, the reason for the crypto-industry’s large carbon footprint is that the majority of crypto-production takes place in countries with low energy prices and a high share of fossil-dependent electricity production. Due to the increased focus on CO2 emissions and in light of China’s recent Bitcoin prohibition, crypto-producers are therefore turning their attention to the Nordic region, where prices are low, taxes for mining-related activities are favorable, and there is good access to renewable energy.
The directors argue that if Sweden would allow extensive mining of crypto-assets, there is a risk that the renewable energy available will be insufficient to cover the required climate transition Sweden needs to make considering the development of fossil-free steel, large-scale battery manufacturing, the electrification of our transport sector. According to estimates from Cambridge University, they write that it is currently possible to drive a mid-size electric car 1.8 million kilometers that is using the same energy it takes to mine one single bitcoin. Also, they write that:
“Our conclusion is that policy measures are required to address the harms caused by the proof of work mining method. It is important that both Sweden and the EU can use our renewable energy where it provides the greatest benefit for society as a whole.”
Finally, the directors argue that the emissions need to stop here and now, and renewable energy needs to be used for the climate transition of essential services. Regarding policy and institutions, they are proposing that:
- The EU to consider an EU-level ban on the energy-intensive mining method proof of work. Other methods for mining crypto-assets could also be used for Bitcoin and Ethereum that are estimated to reduce energy consumption by 99.95% with maintained functionality.
- Sweden to introduce measures that halt the continued establishment of crypto-mining production using energy-intensive methods.
- Companies who trade and invest in crypto-assets that were mined using the proof of work method cannot describe nor market themselves or their activities as sustainable.
Position of Mathias Sundin
In his reply to the directors via Dagens Nyheter, Mathias Sundin writes in the article “More efficient to ban the mining of gold than the mining of cryptocurrencies” that if the directors care about the climate, they should focus instead on gold mining since that process is more energy consuming than mining Bitcoin.
According to Sundin, stopping Bitcoin production in Sweden is counter-productive, since Sweden has one hundred percent carbon dioxide-free electricity production. Instead, Sundin argues that more bitcoin should be produced in Sweden. Bitcoin is often called digital gold because cryptocurrency has been given roles as reserve values in the financial world and increasingly in the other financial system.
Sundin refers to a report made by Galaxy Digital that gold is estimated to use approximately 238 terawatt-hours per year of energy for mining, recycling, and processing into, for example, jewelry. At the same time, Bitcoin mining consumes approximately 110 terawatt-hours per year. He argues that the big difference between gold and bitcoin when it comes to mining is that Bitcoin mining can be done with one hundred percent renewable energy, which is much more difficult with gold.
According to Sundin, it is clear that the directors' article is not only about environmental reasons regarding their opposition to bitcoin. This is because crime and terrorism occur even more frequently with cash and via banks in the traditional financial system. In addition, Sundin writes, Bitcoin is a traceable currency, which makes it easier to find criminals in the Bitcoin network.
Therefore, according to Sundin, it is not surprising that central authorities in the current financial system do not like cryptocurrencies. Unlike kronor, euros, and dollars, Bitcoins are not controlled by any individual country, and they are decentralized and controlled by committed people. Sundin argues that it is not the role of Swedish authorities to control what technology we use in society.
Sundin also describes that when he ran for the Swedish parliament in 2014, he was the first political candidate to make campaign donations possible via Bitcoin to highlight and talk about this new, revolutionary technology. According to Sundin, we have only seen the beginning of the decentralized financial system emerging since it creates smart money, smart contracts, and sleepless ways to transfer money and value worldwide.
Sundin argues that cryptocurrencies enable trust and development democratically controlled by people. Thanks to Sweden’s carbon-free energy production, many successful start-ups, and a technologically curious population, Bitcoin and the blockchain can become an important industry for us, making the world a better place.
Position of Totte Loefstroem
In his reply to the directors, Totte Loefstoem writes in his article “Cryptocurrencies are changing the world as much as the Internet did” that many in the crypto industry believe that it is impossible to stop the progress of Bitcoin, but that he personally is far from sure that this is would be the case. On the contrary, according to Loefstroem the case is that at the current moment, there is an ongoing blow to Bitcoin’s infrastructure itself, which is a real threat to the industry’s opportunities to grow and flourish.
As Loefstroem writes it, the directors’ article is just one in a series of statements about Bitcoin and cryptocurrencies from this government agency but what distinguishes it from previous proposals is that this time it goes so far as to propose a ban on the extraction of cryptocurrency with the method that is usually called PoW.
In a similar argument as Sundin, Loefstroem writes that the fact is that the directors also write that a high degree of the extraction that takes place within Sweden’s administrative borders is done with renewable electricity and that they admit that a ban would probably mean that these companies move abroad and that the total emissions in connection with this would increase.
Loefstroem writes that the PoW system makes the machines secure regarding the network and process transactions, including when it comes to reducing hacking risks. He also writes that Thedéen and Risinger are wrong regarding alternatives to PoW, as in the case of Proof of Stake and its possibilities to highly reduce emissions since such alternatives available today have not been tested on a large scale yet.
Loefstroem also writes that “we find the core of the poodle at the beginning of the article, where the authors state that the societal benefits of Bitcoin should be questioned” and that “I who work with this type of issue on a daily basis do not agree, but rather trace a future where bitcoin fulfills a much larger function than we can imagine today.”
According to Loefstroem, in the same way that the internet has radically changed and improved how we communicate, Bitcoin can radically change how financial systems work. And that the Internet has taught us that digitization enables automation, which in turn provides efficiency since moving values, which today are both slow and expensive, can undergo the same development and thus save time and costs for both individuals and companies.
Loefstroem finishes by writing that Bitcoin is often seen as a way to make money. Still, in an even more digitalized future, it is probably more about saving money and that it would be a great benefit to society. He also makes a final statement by calling:
“all who in any way work with cryptocurrencies, have bought cryptocurrencies, or are just interested: it is high time that we make our opinion heard. Otherwise, there is a great risk that bitcoin and other cryptocurrencies will never lead to the positive social change we believe in and hope for.”
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