As a crypto investor with a background in environmental sustainability, I’m thrilled to see the European Union taking a proactive approach towards regulating the crypto market while prioritizing sustainability indicators. The collaboration between the Crypto Carbon Ratings Institute (CCRI) and the Cardano Foundation is a significant step forward for the industry.
On July 2, 2024, the Crypto Carbon Ratings Institute (CCRI) published a detailed analysis of Cardano in accordance with the European Union’s Markets in Crypto-Assets (MiCA) framework. The MiCA regulation obligates crypto asset issuers and service providers to reveal sustainability metrics, as outlined in Articles 6(1) and 66(5) of MiCA. In cooperation with the Cardano Foundation, CCRI implemented stringent monitoring and data gathering procedures for the Cardano blockchain.
As a regulatory analyst, I’m here to break down the European Union’s (EU) groundbreaking approach to regulating crypto-assets: the Markets in Crypto-Assets (MiCA) framework. Starting from an official commencement date in June 2023, MiCA is designed to establish uniform rules across EU member states regarding crypto-assets. The objective? Legal clarity, heightened consumer protection, and market integrity within the burgeoning crypto sphere.
The significant date for MiCA approached on June 30, 2024. During this time, the regulations concerning asset-referenced tokens (ARTs) and e-money tokens (EMTs) became applicable. As a result, token issuers are now obligated to adhere to rigorous guidelines. These include maintaining sufficient liquid reserves, ensuring the ability to redeem tokens, and publishing extensive white papers outlining their business procedures and potential risks.
MiCA (Markets in Crypto-Assets) regulation encompasses a broad spectrum of crypto-assets that fall outside the scope of existing financial regulations. It lays down comprehensive rules for the issuance, trading, and safekeeping of these assets. Crypto-asset service providers (CASPs) operating within the European Union must now obtain authorization from national authorities, comply with anti-money laundering (AML) guidelines, and establish strong consumer protection mechanisms. Additionally, they need to address potential conflicts of interest and effectively manage customer complaints.
One distinguishing feature of MiCA (Markets in Crypto-Assets) regulation is its handling of stablecoins. Algorithmic stablecoins are forbidden under the new rules, while fiat-collateralized stablecoins are subjected to stringent reserve requirements. These precautions are put in place to reduce risks and fortify the crypto market’s stability.
The rule requires crypto-asset providers to share details about the environmental and climate consequences of their operations. This is an essential component of a larger initiative to incorporate sustainability considerations into financial legislation.
By the end of December 2024, all outstanding MiCA regulations will be in effect, encompassing a broader scope of crypto-assets and related service providers. This gradual process facilitates a seamless transition and grants ample time for stakeholders to adapt to the new rules.
The CCRI report highlights that Cardano uses a power-saving consensus algorithm to begin with. In comparison to energy-intensive Proof of Work systems like Bitcoin, Cardano’s Proof of Stake mechanism reportedly requires less electrical consumption according to the CCRI study.
According to CCRI’s latest report, the Cardano network consumes a total of 704.91 Megawatt-hours (MWh) worth of electricity annually, as of May 2024. This low consumption underscores the efficiency of Cardano’s consensus mechanism in conserving energy.
As a crypto investor in Cardano, I’m interested in the environmental impact of the network’s energy consumption. According to the CCRI report, Cardano’s annual electricity usage translates to a carbon footprint of approximately 250.73 metric tons of CO2e. This figure is calculated using location-specific emission factors. Furthermore, the report reveals that the carbon intensity of the consumed electricity is around 356 grams of CO2 per kilowatt-hour.
Based on CCRI’s data, each Cardano network transaction processed per second requires only 0.192 watts of power. This indicates that the Cardano blockchain is quite efficient in handling transactions while consuming a small amount of energy.
In the most recent Positively Unbiased (PoS) Benchmarking Study conducted by the CCRI (CCS Research Institute), Cardano’s performance is compared to that of other networks. The report brings Cardano to the forefront, highlighting its impressive energy efficiency and smaller carbon footprint relative to its peers.
CCRI’s assessment methodology for Cardano involved several steps:
- Network Power Calculation: CCRI multiplied the number of nodes in the Cardano network by the power consumption of a representative node.
- Electricity Consumption: CCRI derived the network’s electricity consumption over a specific period.
- Carbon Footprint: CCRI calculated the network’s carbon footprint by multiplying its electricity consumption by the carbon intensity factor of the network’s grid.
The CCRI study offers comprehensive insights into the hardware employed within the Cardano system, having assessed the energy usage of nodes operating the necessary software. The analysis yielded approximate power consumption limits for reference. By employing this methodology, CCRI was able to calculate the total electricity consumption and associated carbon emissions of the entire network with precision.
According to MiCA regulations, CCRI identified ten essential sustainability benchmarks for Cardano. These indicators focus on various aspects including energy usage, greenhouse gas emissions, waste generation, and the influence on natural resources. To guarantee precision and relevance, CCRI referenced the draft regulatory technical standards supplied by ESMA.
Key Metrics:
- Energy Consumption: 704.91 MWh annually.
- Non-renewable Energy Consumption: 69.12% of total energy used.
- Energy Intensity: 0.000168 kWh per transaction.
- Scope 1 GHG Emissions: 0 tCO2e (as validators do not produce their own electricity).
- Scope 2 GHG Emissions: 244.448 tCO2e annually.
- GHG Intensity: 0.0000597 kgCO2e per transaction.
- Generation of Waste Electrical and Electronic Equipment (WEEE): 8.26t annually.
- Non-recycled WEEE Ratio: 51.93%.
- Generation of Hazardous Waste: 0.004237t annually.
- Impact on Natural Resources: Textual description including water, fossil fuels, and critical raw materials used in the production, use, and disposal of devices.
The CCRI report showcases Cardano’s impressive advancements in sustainability, focusing on its energy-efficient consensus mechanism and smaller carbon footprint compared to other blockchain platforms. By complying with the MiCA regulation and partnering with CCRI, the Cardano Foundation underscores their dedication to openness and eco-friendly practices.
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2024-07-02 16:36