Bitcoin mining, which has received criticism for its excessive energy usage, may be subject to a new energy labeling system in the European Union. Bloomberg states the EU will work on a grading measure to promote environmentally-friendly cryptocurrency mining practices.
Bitcoin uses “proof of work” to add to the blockchain, a process that requires a lot of energy to run. PoW requires many separate computers to come to a consensus before new information can be added to the ledger. This draws a lot of energy because computers must solve complex problems to earn the chance to edit the blockchain. The more the blockchain grows, the more powerful the computers needed to add to it must become.
“Proof of stake,” however, requires much less power. With this system, there is no competition to write a new block. Block creators instead use their current crypto holdings and are selected by the algorithm to add new blocks. With this method, much less energy is drawn and powerful super-computers are unnecessary.
Bitcoin Must Become More Energy-Efficient
Lowering energy consumption this coming winter is especially important because the EU cannot rely on Russian gas as a resource. “In harnessing the use of cryptocurrencies and other blockchain technologies in energy markets and trading, care must be taken to use only the most energy-efficient versions of the technology,” said the head of the EU.
Although the EU only makes up about 10% of PoW crypto mining, the massive amounts of energy needed have global repercussions. This has prompted policymakers to implement other changes as well. In 2025, the organization will publish a report on the climate impact of cryptocurrency. It will also encourage governments to end tax breaks for crypto miners and force miners to suspend operations in the event of a power shortage.