By Jessica Bahia Melo and Ketki Saxena
Investing.com - The level of energy consumption required for cryptocurrency mining is a contentious issue: mining Bitcoin consumes more energy annually than some countries like the Netherlands.
The issue has also been a key focus of regulation recently. Last week, the New York State Senate in the United States passed a bill that would suspend cryptocurrency mining operations that use carbon-based energy.
While critics highlight high energy consumption as an inefficient use of resources, mining companies believe that the security and decentralization features justify the move.
However, analysts at Julius Baer note that the negative environmental impact of cryptocurrencies is exaggerated due to the strong focus on Bitcoin and that alternative consensus mechanisms, such as proof-of-stake consume significantly less energy.
The New York piece of regulation is the most recent example of “how the environmental footprint of digital assets remains in the spotlight for regulators and investors", as per the statement from research analyst Sipho Arntzen.
The Bank of Canada, currently working on its own central bank digital currency “the digital loonie”, is also looking at the environmental impacts as part of its research, and aims to offer an alternative that is more environmentally friendly than Bitcoin and other rivals.
Whether regulation will encourage greener crypto-mining, or simply encourage miners to migrate to more crypto-friendly jurisdictions, however, remains up for debate.
As per Arntzen, “Due to the decentralized nature of blockchain technology, crypto mining can take place anywhere, with the main location decision factor being the prevailing regulatory environment and electricity costs as one of the main costs of entry. with many cryptocurrency miners leaving the state on a large scale for more crypto-friendly states or countries, potentially discouraging the use of blockchain technology in the state”.