Regulation
How PayPal and Tron may have influenced European crypto policy
PARIS, FRANCE – FEBRUARY 16: In this photographic illustration, a visual representation of digital… [+] cryptocurrencies, Bitcoin, Ripple, Ethernum, Dash, Monero and Litecoin Photographic illustration by Chesnot
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This article explores how PayPal and Stake test protocols such as Tron may have attempted to influence European decision-making by commissioning reports, particularly in the context of the upcoming regulation of cryptocurrency markets. It also examines the role of Cryptocarbon Research Institutewhich has been active in Crypto-ESG reporting since 2021 and seeks to create a narrative where Proof-of-Stake is greener than Proof-of-Work.
2021: The beginning
Dutch central banker and blogger Alex DeVries, together with Ulrich Gallersdörfer, Lena Klaaßen and Christian Stoll, published “The true cost of digital currencies: exploring the impact beyond energy use,” highlighting the negative impacts of bitcoin beyond energy consumption. In the same year, Gallersdörfer and Stoll, as well as Klaaßen, founded CCRI, focusing on contract research, IT services and sustainability consultancy.
2022: commitment from PayPal and PoS protocols
In 2022, CCRI partnered with South Pole, a company focused on developing global emissions reduction projects and strategies. They published a joint report, developed in consultation with PayPal. The report included researching industry methodologies, identifying gaps in existing guidance, and engaging cryptocurrency and greenhouse gas accounting stakeholders for feedback. This collaboration resulted in potential allocation solutions, which were reviewed and summarized in a proposed framework.
January 2022: The CCRI published its first contractual work, “Energy Efficiency and Carbon Footprint of Blockchain PoS Protocols,” funded by Avalanche
Avalanche
Inc.
August 2022: The CCRI has issued a relationship on the energy efficiency and carbon footprint of the TRON Blockchain, funded by TRON Network Inc.
September 2022: THE relationshipThe Merger – Implications on Electricity Consumption and Carbon Footprint of the ConsenSys Software Inc.-Funded Ethereum Network
October 2022: The Energy Efficiency and Carbon Footprint of the Polygonal Blockchain relationship was published, with funding from Polygon Technology.
2023: ESMA call and MiCAR technical standards
September 2023: The European Securities and Markets Authority issued a notice develop sustainability standards for crypto-assets, citing evidence that crypto-assets can cause significant damage to the climate and environment, depending on their consensus mechanisms. The duration of the contract was set at 13 months.
October 2023: ESMA published the second consultation document ON Not technical standards, requiring specific ESG disclosures from crypto asset service providers before the 13-month period expires, although the tender has not yet been awarded.
During the consultation period, several stakeholders raised concerns about the availability and reliability of data in ESMA’s requests to CASPs. The CCRI supported the proposed regulatory technical standards, citing requests for support from token issuers and CASPs that indicated a positive impact on transparency regarding the environmental impacts of crypto assets.
Alex DeVries commented on the upcoming MiCA regulations, stating: “MiCA will contain environmental disclosure requirements for all crypto-assets offered by crypto-asset service providers in the EU. ESMA is tasked with working out the details of these requirements and prerequisites can be found Here. Whether tokens use proof-of-work or proof-of-stake; these sustainability indicators will have to be made public regardless.”
European Union flag golden stars and blue sheet PHOTO BY FRANCIS JOSEPH DEAN
Corbis via Getty Images
ESMA will probably finalize these requirements in the coming months, it being a little too early to comment on this aspect. If the final requirements are close to draft, the impact would be drastic as all cryptocurrency investors would be faced with the environmental costs of digital assets. It would be a great challenge for platforms offering these assets to collect and provide all the required information, as currently only limited tokens have active information sources (e.g. my Bitcoin
Bitcoin
Cambridge Bitcoin Energy Consumption Index or Electricity Consumption Index).”
Central banker Alex DeVries also contributed to the discussion, using his “Digiconomist” blog to criticize bitcoin’s energy consumption. He referenced his previous studies with CCRI co-founder Christian Stoll, suggesting that a significant portion of bitcoin mining comes from illegal facilities.
De Vries argued that calculating the grid’s energy consumption requires minimal inputs, in contrast to the CCRI’s more detailed methodology. He also highlighted that industrial research results often deviate from independent analyses, criticizing CCRI’s business model, which is based on contract research.
Requests for comment from Tron, Polygon, Avalanche, ConsenSys and South Pole were not returned. PayPal requested additional information but did not respond further. Alex DeVries responded, providing insights into MiCA’s environmental disclosure requirements. Lena Klaaßen, co-founder of CCRI, also provided information on the organization’s development, methodologies and the impact of the upcoming MiCA regulations.
Transparency
The situation presents a complex dilemma. On the one hand, De Vries claims that the calculations are simple, while more detailed CCRI reports suggest otherwise. The potential conflict of interest arises when research is funded by the protocols being evaluated. PayPal’s involvement further complicates the issue of trust, given its vast network. Trusting the numbers published by CASPs is also problematic, as they have a vested interest in presenting favorable data.
Klaaßen emphasized: “Our mission is to provide transparency on the environmental impact of crypto assets. Before founding CCRI in 2021, my co-founders and I began examining bitcoin’s electricity consumption and carbon footprint as researchers academics Today we provide the largest dataset of environmental aspects for over 30 crypto-assets. We rely on both techno-economic models for Proof-of-Work assets and primary data collection for Proof-of-Stake assets. to ensure a high level of accuracy.”
European Union photo by Planet Observer
Universal Images Group via Getty Images
When you look at the data provided, continuous updates are necessary if substantial changes occur. So far, CCRI uses data from the Cambridge Bitcoin Electricity Consumption Index dating back to January 2022, which does not reflect adequately changes in the sector.
The German company DLC GmbH Crypto risk metrics also offers the required MiCAR ESG data points. When asked about their views on the topic, a spokesperson highlighted the complexity of accurate energy intensity calculations, while also highlighting their independence from blockchain protocol payments. They also noted that the company is compliant IDW 951 standards and regulated companies using their product have been audited by multiple Big 4 companies without any data concerns.
The interaction between financial entities such as PayPal, PoS protocols and regulatory bodies highlights the complexities in ensuring transparency and sustainability in the cryptocurrency industry. As MiCA regulations take shape, the influence of these stakeholders will continue to grow, requiring careful examination of methodologies and potential conflicts of interest. This demonstrates the need for robust, independent methodologies and transparent reporting to effectively manage new regulations.