Fabio Panetta, a member of the European Central Bank’s executive board, said that the bank was “seriously considering” a Bitcoin ban (including other cryptocurrencies) due to the environmental damage they can cause.
He also said that the ECB was looking into a tax on digital assets to discourage use and mitigate environmental harm. Panetta’s comments In his speech at the London School of Economics came amid a growing debate over the sustainability of cryptocurrencies, which typically require high levels of electricity to mine and process transactions.
Panetta also used the occasion to reaffirm the ECB’s call for the creation of a digital euro. According to him, only a central bank digital currency can provide solid foundations for the broader digital finance ecosystem required to harness the possibilities of digital technologies
ECB considers tax to be imposed on digital assets
Environmental activists have called for a ban on Bitcoin and other digital tokens, arguing that their large energy requirements are damaging the environment. Panetta noted that the ECB was also looking into other potential measures to address the issue, including “a regulatory framework for digital currencies that could be used for payment services,” as well as “a more comprehensive approach to reduce the environmental impact of digital currencies.”
He added that the ECB was also considering “a tax on digital assets which could be used to finance environmental projects.”
The comments come a month after Panetta’s boss, ECB President Christine Lagarde, warned that the European Union needed to take a unified approach to cryptocurrencies. “We must remain vigilant and use all our regulatory tools to prevent the risks posed by crypto-assets,” Panetta said. “This includes the possibility of outright prohibition in certain cases, either temporarily or permanently, or the introduction of a European tax on certain crypto-assets.”
Bitcoin ban imminent?
The European Commission is currently considering introducing a “digital finance package” that will impose new rules on crypto-assets and the exchanges that trade them, as well as on digital payments and crowdfunding platforms.
The idea of a European tax on cryptocurrencies has been floated before, with Germany’s finance minister Olaf Scholz calling for a 5 percent levy on digital assets in November 2020. However, the proposal has not gained much traction and is unlikely to be implemented in the near future.
Panetta’s comments show that the ECB is taking the issue of cryptocurrencies seriously, and is willing to take drastic steps to protect consumers and the financial system.
According to Fabia FTX exchange, which allegedly stole up to $10 billion from its customers to conceal the losses of a sister trading firm, is enough proof that “finance cannot be trustless and stable at the same time.”
Ethereum addresses environmental concerns with Proof of Stake
As a result of widespread concern about the sustainability of cryptocurrencies, some studies claim that Bitcoin’s energy consumption equals that of entire small countries. Ethereum addressed this concern by switching to Proof of Stake, which is more energy efficient. Proof of stake is a consensus algorithm that is more energy efficient than proof of work, the algorithm used by Bitcoin.
Proof of Stake does not require the same amount of energy to validate transactions, making it more sustainable. Additionally, proof of stake incentivizes users to hold their tokens instead of trading them, creating a more stable price. This makes it a better choice for many cryptocurrency investors
According to Panetta, the EU should “tax crypto assets based on their social costs,” which include “the high energy and environmental costs” associated with some crypto mining and validation activities.