Crypto companies will have to disclose just how much climate damage is tied to the tokens they're hawking. At least in Europe, that is.
Late Thursday, the European Parliament and EU states nailed down an agreement to regulate cryptocurrencies, including a requirement that crypto companies selling tokens on the continent disclose their environmental impact.
While the new law does not restrict how much operations can pollute, it will require telling crypto investors precisely how much energy crypto assets consume and how much carbon is emitted in the process. It’s a major step toward making crypto's impact on the climate less of a black box.
This disclosure mandate is part of the landmark Markets in Crypto-Assets (MiCA) law, which seeks to impose some order on what Stefan Berger, the member who represented the European Parliament in the negotiations, called the "Wild West" that is the crypto market. MiCA will require companies to secure a license and take customer protection measures in order to sell cryptocurrencies in the EU.
Berger said in a statement that the new law “will help to move crypto markets away from the dodgy backwaters of the internet by applying minimum standards that are similar to other types of financial services.”
The recent crypto crash served as a backdrop for the negotiations, having illustrated “how highly risky and speculative” the market can be, Berger added. Crypto prices have fallen off a cliff over the past few months, including the high-profile collapse of Terra in mid-May.
Beyond volatility and the risk to investors, cryptocurrencies have also come under fire for the copious amount of energy they use, particularly those that rely on proof of work mining to keep the network secure. (That includes bitcoin, the biggest cryptocurrency on the planet.) The vast energy usage tied to proof of work — and carbon emissions that come with it — have led to both national crackdowns and state-level fights. Most recently, New York became the first state in the U.S. to implement a crypto mining moratorium so lawmakers could get a better handle on its climate impacts.
Berger, however, pointed out that other industries like entertainment, data centers and traveling are also energy intensive. The goal of MiCA, he said, is to make Europe a crypto innovation hub while simultaneously reducing the industry's impact on the climate.
The rule could set the tone for future laws governing what has been a largely unregulated market up to this point. Neither the U.S. nor the U.K. — both major crypto markets — have taken similar regulatory steps, though pressure is mounting for both to do so. The EU law, which is anticipated to take effect at the end of next year, could turn up the heat a bit more.