After months of ongoing losses, Bitcoin and cryptocurrencies, in general, have suffered another major hit with the release of a report from Riksbank, the central bank of Sweden. The report criticizes cryptocurrencies for their excessive energy use, specifically stating that crypto mining in northern Sweden is consuming as much electricity as 200,000 households.
This line of thought is nothing new, with Bitcoin and other cryptocurrencies garnering criticism from financial institutions and environmentalists around the world. The electricity-intensive proof-of-work system that underlies the Bitcoin blockchain and many other cryptocurrencies have become a point of major contention, with many saying it justifies putting an end to crypto altogether.
Report Harshly Criticizes Bitcoin
The report itself investigates a number of issues regarding cryptocurrencies, including their impact on financial stability. It includes data and recommendations from both the Swedish Environmental Protection Agency and the Financial Supervisory Authority of Sweden. Among these recommendations is a complete ban on proof-of-work mining, which would see Bitcoin banned from the country.
At this time, these are only recommendations in a report, and no prospective legislation has arisen to implement such a ban. Many have argued in response to the report that any such ban would have no legal foundation. They say that while some may call Bitcoin a wasteful use of power, the freedom to make that determination isn’t something that the government can take from the individual. It goes without saying that the massive growth of get-rich-quick schemes like “Immediate Edge” have contributed to this decision.
The Current State of the Bitcoin Energy Problem
Sweden is among the first countries to have a central bank speak out against cryptocurrencies on the basis of energy use. However, the Bitcoin energy problem has been well-known for years and is an increasingly prominent topic of public debate.
As of early 2022, Bitcoin alone is consuming power at a rate of nearly 140 terawatt-hours per year. Put into perspective, this is more than the annual consumption of the entire country of Norway, home to over 5 million people.
This energy consumption arises from Bitcoin’s proof-of-work blockchain. The blockchain is driven by miners, who have dedicated computers that carry out complex calculations to carry out transactions and propagate the blockchain. However, these calculations become more complex as time goes on and the blockchain grows, meaning that Bitcoin will continue to use more energy.
However, proof-of-work isn’t the only system that can be used to drive a blockchain. Proof-of-stake is a competing method used by cryptocurrencies like Cardano and Solana. This method relies on ownership stakes in the cryptocurrency to validate transactions rather than computational power.
These systems can use significantly less power than Bitcoin and other proof-of-work blockchains. Energy consumption can be reduced by a factor of 1,000, effectively solving the energy problem. However, there are many obstacles to making that happen.
Cardano and Solana are the 7th and 9th largest cryptocurrencies, with all spots above them using proof-of-work. Ethereum, the 2nd largest cryptocurrency, has plans to switch to proof-of-stake with Ethereum 2.0, but this plan has yet to materialize. The change from proof-of-work to proof-of-stake may require abandoning older cryptocurrencies, including Bitcoin. It isn’t clear if the market is willing to do that.
Latest Recommendations Represent Major Shift for Sweden
The recommendation to ban proof-of-work cryptocurrencies like Bitcoin is one that few would have suspected would come out of Sweden. While many countries around the world are aggressively curtailing crypto, particularly in India with its new taxes and China with its complete ban, Sweden has been something of a crypto pioneer in Europe.
There are believed to be over 4 million Swedish citizens with crypto wallets, showing significant adoption among regular investors. The Financial Supervisory Authority provides clear tax instructions for crypto investors and lets investors claim losses, unlike many countries that are much less hospitable to investors.
Sweden is also at the forefront of central bank digital currencies (CBDC) with its eKrona, the second official digital currency in the world. While CBDCs are only tangential to cryptocurrencies, the adoption of the eKrona shows that Sweden isn’t afraid of experimenting with digital finance.
The new recommendations show a significant shift in the overall perspective that Sweden has on cryptocurrencies. Where they once showed initiative and innovation, it seems like the Swedish government could soon be moving backward on crypto.