Following a crackdown in China, Sweden has seen a sharp rise in crypto production, which is tapping into its renewable energy resources.
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Swedish authorities have called for an EU-wide ban on energy-intensive cryptocurrency mining, which they say threatens targets to limit global warming to 1.5°C under the 2015 Paris Agreement.
In an open letter to the European Union, Erik Thedéen, director of the Swedish Financial Supervisory Authority, and Björn Risinger, director of the Swedish Environmental Protection Agency, warned that the mining of cryptocurrencies like Bitcoin and Ethereum had sparked an increase in energy consumption in the country amounting to “several hundred percent”.
This cryptocurrency mining is increasingly drawing on Sweden’s renewable energy sources, which Thedéen and Risinge say is “urgently required for the development of fossil-free steel, large-scale battery manufacturing and the electrification of our transport sector,” as well as other essential services.
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China’s recent cryptocurrency crackdown – which includes an outright ban on any activity relating to the issuing or trading of virtual tokens or the running of cryptocurrency-exchange businesses – has seen producers turning their attention elsewhere.
This includes the Nordic region, where prices and taxes are more favourable and there is a plentiful supply of renewable energy to tap into.
“If we were to allow extensive mining of crypto-assets in Sweden, there is a risk that the renewable energy available to us will be insufficient to cover the required climate transition that we need to make,” Thedéen and Risinge warn.
The letter specifically calls for a Europe-wide ban on the cryptocurrency mining mechanism known as “proof of work”, which involves contributing computer processing power to solve mathematical puzzles on the network and validate transactions on the blockchain.
On the Ethereum network, the computational efforts required to perform transactions are known as ‘gas’, the cost of which is set by the miners according to the supply and demand on the network. The more powerful the computer, the more likely a miner will receive a coin.
But this process also demands a huge amount of energy. According to Thedéen and Risinge, electricity consumption for Bitcoin mining in Sweden now amounts to 1 Terawatt-hour (TWh) annually – equal to the electricity required to power 200,000 households.
“It is currently possible to drive a mid-size electric car 1.8 million kilometres using the same energy it takes to mine one single Bitcoin,” they say. “This is the equivalent of forty-four laps around the globe. Nine-hundred Bitcoins are mined every day. This is not a reasonable use of our renewable energy”.
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A number of policy options are proposed by Thedéen and Risinge to curb energy-intensive crypto mining, including taxes on cryptocurrency production and better communication about its environmental impact. However, they note that neither of these options are like to tackle the immediate problem, particularly “given the rapid growth and demand for crypto-assets.”
The letter, therefore, calls on the EU to introduce measures to halt crypto-mining production that use energy-intensive methods, and for legislation to prevent companies that trade and invest in crypto-assets to describe themselves or their business as environmentally sustainable.
While this could lead to crypto-producers relocating to countries with a friendlier stance on cryptocurrencies but little or no access to renewable energy sources, Thedéen and Risinge say “it is important that Sweden and the EU lead the way and set an example in order to maximize our chances of meeting the Paris Agreement,” and they call on other global authorities to follow suit.
They add: “A ban on the proof of work mining method within the EU could be an important first step in a global move towards a greater use of more energy-efficient crypto mining methods.
“It would also mean that our renewable energy is used as efficiently as possible in order to support the transition towards climate neutrality.”