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European Union Crafting Energy Efficiency Label for Cryptos

2 mins
Updated by Ryan James
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In Brief

  • The European Union is working to create a metric that would classify cryptocurrencies according to their energy efficiency.
  • By creating the energy efficiency label, the EU hopes to encourage the most sustainable forms for crypto mining.
  • Many countries in the EU are dealing with an energy crisis, due to sanctions placed on Russia, previously a provider of cheap gas.
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The executive body of the European Union is working to produce a metric that will express the energy efficiency of a cryptocurrency.

In collaboration with international partners, the European Commission is crafting the energy efficiency label in an effort to promote more sustainable means of producing cryptocurrencies.

The EC claims that the energy consumption behind cryptocurrencies has grown disproportionately higher than the surging adoption they have seen over the past two years. Consequently, the executive body is striving to create a framework with which it could encourage “the most energy-efficient versions of the technology,” according to a draft proposal.

The EU’s global influence

Through the creation of a standard that would clearly distinguish how much energy has gone into the creation of different cryptocurrencies, the EC hopes that issuers would become more inclined to choose the most economic option.

Currently, proof-of-work, the method used to mine the largest cryptocurrency Bitcoin, consumes as much energy as entire nations. Meanwhile, proof-of-work, a method recently adopted by the second-largest crypto Ethereum, has seen its energy use drop almost entirely, by 99.9%, a figure typically only seen in the elections of dubious democracies.

The copious amount of energy expended by cryptocurrencies using proof-of-work nearly led the EU to ban the practice before it determined that crypto-asset providers must instead disclose the impact of each of the coins they offer. Although EU countries contribute only 10% to the total amount of proof-of-work mining globally, actions taken by the confederation can dramatically influence policy internationally.

In fact, the EU is in the final stages of producing one of the first comprehensive regulatory frameworks for cryptocurrencies, the Markets in Crypto Assets (MiCA) legislation. EU financial services commissioner Mairead McGuinness recently urged US lawmakers to follow suit, and contribute to establishing international industry standards.

European energy crisis

As part of the efforts to create the energy efficiency label, the EU said it would also produce a report evaluating the climate impact of the cryptocurrency industry, which it expects to release by 2025.

Another consideration behind the recent energy consciousness has been the rising cost of fuel throughout the continent, in the wake of sanctions placed on Russia, which had been a primary exporter of cheap gas to many European countries, prior to its invasion of Ukraine earlier this year. If electricity supplies begin to dwindle during what is expected to be a challenging winter, the EU will recommend that member countries discontinue any further crypto-mining activities.

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In adherence to the Trust Project guidelines, BeInCrypto is committed to unbiased, transparent reporting. This news article aims to provide accurate, timely information. However, readers are advised to verify facts independently and consult with a professional before making any decisions based on this content.

Nicholas Pongratz
Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics...