As India and the US prepare to fix an unregulated world of cryptocurrencies, top Swedish financial and environment authorities have called for an European Union (EU)-wide ban on cryptocurrency mining, saying the consumer risks are significant as crypto assets are commonly used for criminal purposes such as money laundering, terrorist financing and ransomware payments.
Cryptocurrency mining also threatens targets to limit global warming to 1.5 degree Celsius under the 2015 Paris Agreement, according to the Swedish Financial Supervisory Authority and the Swedish Environmental Protection Agency.
The most common method for producing crypto-assets requires enormous amounts of electricity and generates large CO2 emissions.
"The social benefit of crypto-assets is questionable. The Swedish Financial Supervisory Authority, like other international organisations such as the International Monetary Fund and the US Federal Reserve Board, considers that there are aspects of crypto-assets that are problematic," Erik Thedeen, director of the Swedish Financial Supervisory Authority, said in an open letter.
"Crypto assets also have a significant negative impact on the climate as mining leads to both large emissions of greenhouse gases and threatens the climate transition that needs to happen urgently. This is alarming, and crypto-assets therefore need to be regulated," Thedeen added.
The letter comes at a time when the banking regulators in the US have announced a plan to clarify the rules and regulations around how banks can use cryptocurrencies over the next year, at a time when governments the world over, including India, are weighing the risks associated with cryptocurrencies and safeguard investors.
In India, the upcoming Cryptocurrency and Regulation of Official Digital Currency Bill, 2021 seeks to prohibit all private cryptocurrencies in India.
The University of Cambridge and Digiconomist estimate that the two largest crypto-assets, Bitcoin and Ethereum, together use around twice as much electricity in one year as the whole of Sweden.
Digiconomist estimates that crypto-assets at their current market value lead to release of up to 120 million tonnes of CO2 in the atmosphere per year.
"To get a better sense of this number, we can compare it with emissions from long-distance flights. Using the aviation industry's own data from ICAO Carbon Emissions Calculator and adding the high elevation effect shows that the emissions from the two largest crypto-assets' today is equal 100 million round-trip flights between Sweden and Thailand," said Bjorn Risinger, Director General at the Swedish Environmental Protection Agency.
The reason for the industry's large carbon footprint is that the majority of crypto-production takes place in countries with low energy prices and a high share of fossil-dependent electricity production.
Since the value of Bitcoin has increased so much, this has also extended the life of old fossil-based energy producers, the authorities noted.
They called for an EU-level ban on the energy-intensive mining method proof of work.
"It is important that Sweden and the EU lead the way and set an example in order to maximise our chances of meeting the Paris Agreement. We should also strongly encourage other countries and regions to follow suit," the open letter read.