Threat to Bitcoin? After China, which put a stop to mining operations on its territory, Swedish authorities have in their sights cryptocurrencies that they consider too greedy in energy. The Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency are targeting a so-called “mining” method used to validate Bitcoin, the “ proof of work » (“proof of work”).
Their joint press release, published on November 5, aroused concern: the Spanish site FXmag sees in it “the first steps towards a ban on cryptocurrencies in the European Union”, while the Journal du geek wonders if “Bitcoin [sera] soon to be banned from the EU”.
What does this press release contain? The two agencies formulate three requests, including one at European level. These authorities want “the EU to consider an EU-wide ban on the power-intensive ‘proof-of-work’ mining method.”
On the other hand, they do not rule out the door to other methods of producing cryptocurrencies, if these prove to be less consuming of resources. “There are other crypto-asset mining methods, which could also be used for Bitcoin and Ethereum, that are estimated to reduce power consumption by 99.95% with maintained functionality. » 20 minutes review this proposal.
Is proposing to ban the use of the “proof of work” method in the EU the same as banning Bitcoin there?
This “proof of work” method is the “trademark” of Bitcoin, explains to 20 minutes Nathalie Janson, Associate Professor of Economics at Neoma Business School. It is this method that “makes some think Bitcoin is superior” to other cryptocurrencies.
This process puts miners in competition to validate transactions. “Since you are going to verify the blocks through this competition, you have a near-improbability of tampering with the process, notes the researcher. If someone were to tamper with the validation, they would have to re-tamper all the blocks that were previously validated. »
This method, renowned for its safety, has drawbacks, recalls Nathalie Janson: “It is true that the “proof of work” consumes energy, and it is not very fast either. »
Are there alternatives to this “proof of work” method?
The “lightning network” is one of them. It “makes it possible to maintain the quality of the level of security of validation, by always having “proof of work”, but by considerably reducing the number of times it is used”, explains the professor. This method makes it possible to lower energy consumption, but responds “only halfway to the Swedish proposal”, notes the economist, because the Swedish authorities propose to completely ban the “proof of work”.
Another track, to which the Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency allude: the “proof of stake” method. They estimate that it reduces “energy consumption by 99.95% with maintained functionality”. These two agencies use here the terms of Ethereum, the second most widespread cryptocurrency, which will switch, for a new version, to this method. This dramatic figure is based on a comparison of the estimated power consumption of ‘proof of work’ and ‘proof of stake’. It has, however, not been validated by researchers.
The disadvantage of this method is that it is considered less secure by Bitcoin users and that it presents more instability, recalls Nathalie Janson.
Could Bitcoin be produced with these other mining methods?
For Natalie Janson, the “lightning network” could be accepted by the “hardcore” Bitcoin community, because it retains “proof of work”. On the other hand, she does not see them adopting the “proof of state”.
For these users, the “proof of work” is “what made the success” of Bitcoin and made it “take off in price”. Difficult, therefore, to consider a change of method.
What does the European Commission think?
Contacted by 20 minutes, the two Swedish agencies did not confirm whether they had brought these proposals to the table in Brussels. The balance within the Commission leans more in favor of regulation than of a ban, as indicated in June 2020 Valdis Dombrovskis, the vice-president in charge of “an economy at the service of people”.
Why do these Swedish agencies want to start regulating cryptocurrencies?
In their press release of November 5, while the COP26 is taking place in Glasgow, they draw up a severe indictment against the “proof of work” method, which they fear will see the use of energy resources which could be used for other priorities. “This year, between April and August, electricity consumption for Bitcoin mining in Sweden has increased by several hundred percent and now stands at 1TWh annually, they noted. This is the equivalent of electricity for 200,000 Swedish households. »
These agencies fear that part of the renewable energy, necessary for the country’s energy transition, will no longer be available if larger-scale mining operations were to develop in the Nordic country.