The transaction-based approach generally excludes parties who do not have access to their transaction-related data. In addition, a significant portion of Bitcoin’s utility is derived from its long-term macroeconomic model: the store of value. Given these facts, we propose a computational model that focuses on the proportion of Bitcoins held relative to Bitcoins in circulation for a given period. Figure 2 illustrates our two-pronged flexible approach to calculate the carbon emissions of a Bitcoin portfolio.
What Could a CO2 Offset Cost?
Companies could apply the above approaches to transactions and ownership of Bitcoins to calculate their carbon footprint, which they should then offset. Below are example results from our study, covering the analyzed period from September 1, 2020 to August 31, 2021:
Electricity consumption of the Bitcoin network: maintaining the global Bitcoin network required 90.86 TWh and 37.97 MtCO2eq in the given period. We distinguish between renewable electricity sources and fossil fuels by considering the total electricity mix of each country to convert Bitcoin’s electricity consumption into its carbon footprint.
Transaction-based network usage: An average Bitcoin transaction has a size of 670 bytes, which corresponds to an estimated carbon footprint of 369 kgCO2eq. At a market price of $50 on the EU Emissions Trading System per ton of CO2eq, it costs $18.47 to offset an average Bitcoin transaction. We do not want this figure to be misinterpreted: A transaction can transfer single US dollars or hundreds of millions of US dollars. In addition, companies such as crypto exchanges aggregate tens of thousands of users on a few Bitcoin wallets, and only a small subset of transactions may be conducted on the network (e.g., daily net inflows or net outflows). Assessing the carbon footprint of Bitcoin transactions must be done with great circumspection. In addition, since our calculations, the price of CO2 has increased. Consequently, the numbers above are subject to large fluctuations over time.
Ownership-based approach: Holding one Bitcoin over the examined period of one year corresponds to a carbon footprint of 2.04 tCO2eq. At a price of $50 per tonne of CO2eq, the offset for holding one Bitcoin over one year costs $102.20.
Comparing Bitcoin’s CO2 Emissions
As shown in Figure 1, a flight from London to Dubai causes about 894 kgCO2eq. Mining an equivalent amount of gold at a Bitcoin price of $50,000 equates to a carbon footprint of over 13 tCO2eq. The most recent estimate of the world’s total annual CO2 emissions is 45,874 MtCO2eq. Thus, Bitcoin has a total footprint of 0.08% of the world’s CO2eq.
It is important not to take these results out of context in any way. They are best-guess estimates. Exact electricity consumption cannot be determined at this time due to several factors. For an accurate calculation of an investor’s carbon footprint, the situation must be considered individually depending on the company’s business approach (i.e., simple investing, asset management, crypto exchanges, or custodians). It is expected that the results of such calculations will need to be verified and audited by specialized service providers in the future.
In this vein, we see an opportunity for all investors, asset managers, crypto exchanges and custodians to get involved and take responsibility for their associated carbon footprint on the Bitcoin network. In doing so, the goal should not only be to demonstrate corporate social responsibility, but also to add value to make Bitcoin a more sustainable investment in terms of its carbon footprint.
About the Study
The study comprises 34 pages and can be downloaded here (780 kB, direct link to PDF).
 See https://www.statista.com/statistics/1241719/carbon-trading-prices-worldwide-by-select-country/.
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Constantin Lichti is a research assistant and project manager at the Frankfurt School Blockchain Center (FSBC), and also works for the KOSMoS research project. Furthermore, he is responsible for project proposals and grants as well as studies published at the FSBC. As a doctoral candidate his research interests include public blockchains and their individual adoption, as well as how the discourse on blockchain technology is reflected in (social) media. He graduated from the Technical University of Munich with a master’s degree in industrial engineering and management. You can contact him via email (firstname.lastname@example.org) and LinkedIn.
Prof. Dr. Philipp Sandner has founded the Frankfurt School Blockchain Center (FSBC). From 2018 to 2021, he was ranked among the “top 30” economists by the Frankfurter Allgemeine Zeitung (FAZ), a major newspaper in Germany. He has been a member of the FinTech Council and the Digital Finance Forum of the Federal Ministry of Finance in Germany. He is also on the Board of Directors of FiveT Fintech Fund and Blockchain Founders Group — companies active in the field of blockchain startups. The expertise of Prof. Sandner includes crypto assets such as Bitcoin and Ethereum, decentralized finance (DeFi), the digital euro, tokenization of assets, and digital identity. You can contact him via mail (email@example.com) via LinkedIn or follow him on Twitter (@philippsandner).
Benjamin Schaub is a senior consultant at INTAS.tech. His interests include blockchain use case development and integration in the financial industry, as well as crypto custody. You can contact him via email (firstname.lastname@example.org) or LinkedIn (https://www.linkedin.com/in/benjamin-schaub/).