The European Securities and Markets Authority (ESMA) is mentioning cryptocurrencies and digital assets in their 110-page report on market trends.
While ESMA concedes that crypto is itself an innovation, they say it has “unintended consequences” of large environmental impact that has yet to be addressed by regulation.
“Innovation can support sustainability by addressing ESG (environmental, social and corporate governance) information gaps through green financial technology (FinTech) solutions, but the environmental cost of one particular innovation – cryptocurrencies – is soaring…
This issue is becoming increasingly relevant with the soaring environmental costs of Bitcoin mining, which could consume as much energy as Italy and Saudi Arabia combined by 2024 if not contained. Estimates vary but they agree that the carbon footprint of cryptocurrencies is far from negligible. “
The ESMA adds that although the distributed ledger technology (DLT) – the engine that powers cryptocurrencies – may have interesting use cases, the energy consumption of some DLT protocols can also be a source of environmental concern.
“DLT has the potential to enhance firms’ efficiency and improve consumer outcomes but applications are still limited. Scalability, interoperability and cyber-resilience will require monitoring as DLT develops. Other challenges include anonymity as well as governance and privacy issues.”
The ESMA says that crypto assets (CA) exist outside of European regulations and will require increased monitoring moving forward.
“Most crypto assets are highly volatile in price and operate outside of the existing EU regulatory framework, which raises investor protection issues. Interconnectedness risk requires monitoring as CAs grow in size.”Don't Miss a Beat – Subscribe to get crypto email alerts delivered directly to your inbox
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