In its report, the European Central Bank (ECB) assesses that a mining ban is “likely” for cryptocurrencies such as Bitcoin based on the Proof of Work (PoW) system. The report primarily focuses on Bitcoin's electricity consumption. According to the report, this figure is currently between the annual consumption of Spain and the Netherlands.

Suggested Taxation for Bitcoin Transfers

The European Central Bank writes that due to rising energy prices as a result of the war between Russia and Ukraine, lawmakers should "take a closer look" at the efficient use of electricity resources. Also, according to the report, due to the climate neutrality goal, renewable energy sources should not be allowed to be affected by cryptocurrency mining.

btc mining

The central bank considers a number of policy measures “possible” by governments to address the “significant CO₂ footprint” of PoW-based cryptocurrencies. The European Central Bank is also proposing a “carbon dioxide tax” for Bitcoin transfers to take place.

In addition, a complete ban on mining could also be considered, according to the report. Here, the authors refer to China, where cryptocurrency mining has been banned for over a year. This could slow the adoption of PoW-based cryptocurrencies and also encourage more environmentally friendly alternatives such as Proof-of-Stake (PoS).

btc bitcoin mining

To support its argument, the European Central Bank cites the EU ban on internal combustion vehicles from 2035, saying that Bitcoin and other PoW-based cryptocurrencies are equivalent to them, while PoS is similar to electric cars. According to the report, government officials have the option to promote the crypto version of the electric vehicle or to restrict or ban the crypto version of the fossil fuel-powered vehicle.

In addition, the DeFi industry continues to attract the attention of the ECB. It was emphasized that Uniswap has a company-like structure and tokens are in the hands of a small number of people. Although DeFi is seen as “decentralized” according to the regulator, the truth is different. The ECB continues to discuss a structure in which DeFi can be regulated.