Multi-billion dollar companies around the world are betting on Bitcoin (Bitcoin).Recent analysis by Nickel Digital Asset Management, European Investment Manager Established The investment in BTC by 20 listed companies with a market value of more than US$1 trillion is approximately US$9.6 billion. Individual investors are also becoming more and more interested in this asset.
Grayscale Research’s “3rd Annual Bitcoin Investor Research” found that Demand for Bitcoin has risen sharplyAccording to this research, 55% of current Bitcoin investors have started buying the asset in the past 12 months. The Grayscale report also pointed out that the market interested in Bitcoin investment products expanded to 59% in 2021, up from 55% in 2020 and slightly more than one-third in 2019, reflecting steady growth.
However, while the world’s enthusiasm for Bitcoin may be increasing, concerns about its environmental impact are more obvious than ever. For example, Grayscale Research also found in its investor research that more than 30% of investors are worried about the potential negative impact of Bitcoin on the environment. Interestingly, this consideration will not become apparent until 2021, as the report shows.
Model for calculating Bitcoin’s carbon emissions
Given the growing concerns about Bitcoin’s carbon footprint, new models are emerging to help investors and companies understand how to ensure that their BTC holdings are sustainable. For example, the Frankfurt School Blockchain Center and the digital asset management company INTAS.tech Publish A study on November 16 outlined a new way to offset the carbon dioxide emissions caused by the Bitcoin network. This formula produces two methodological factors: a transaction-based method and an ownership-based method.
Philip Sandner, a professor at the Frankfurt Academy Blockchain Center, told Cointelegraph that asset managers and investors across Germany are particularly concerned about whether Bitcoin’s carbon dioxide footprint meets environmental, social and governance (ESG) standards. Therefore, Sandner explained that he wanted to create a formula that would enable asset management companies, mining companies, exchanges, and individuals to calculate the carbon dioxide footprint of their BTC:
“Usually, we will allocate the largest burden of carbon dioxide compensation to Bitcoin mining companies, but there are still ETF issuers, companies and exchanges who want to prove to customers that they are taking steps to compensate for their carbon dioxide footprint. ”
According to Sandner, the goal at the beginning of the study was to first calculate the global energy consumption of Bitcoin between September 1, 2020 and August 31, 2021. The results show that 0.08% of the world’s carbon dioxide equivalent comes from Bitcoin. Based on this figure, Sandner stated that the maintenance of the global Bitcoin network requires 37.97 million metric tons of carbon dioxide equivalent.
In order to calculate Bitcoin’s carbon footprint from an investor’s perspective, the study pointed out that companies can focus on the network usage (in bytes) or Bitcoin holdings specific to the growth of the Bitcoin blockchain in a specific time frame. period. According to the document, the average bitcoin transaction on the bitcoin blockchain contains 670 bytes, and the estimated carbon footprint is 369.49 kilograms of carbon dioxide equivalent. Sandner explained:
“These carbon emissions can be compensated by the EU Emissions Trading System certificate. A certificate for one ton of carbon dioxide is about US$50, which is equivalent to about US$18 to compensate for a single BTC transaction. Now, if the investor or company Holding one BTC, this will cost about 2 tons of carbon emissions. If the EU emissions trading system is used to compensate, then it will be about 100 US dollars.”
Benjamin Schaub, a senior consultant at INTAS.tech, told Cointelegraph that companies can apply the mentioned transaction and bitcoin ownership formula to calculate the carbon footprint they should offset. “The great thing about this model is that all the required data is publicly available. There are no assumptions here, just about how the company interacts with the Bitcoin network.”
Schaub added that Iconic Holding GmbH, which provides exchange-traded products in Germany, is currently applying this approach to ensure sustainability: “We are still in discussions with some very large exchanges. I firmly believe that in the next year Here, the major players in the field will be more concerned about this topic.”
Although it is difficult to predict the future, it is worth noting that some major exchanges and exchange-traded funds (ETFs) have begun to adopt similar methods to offset Bitcoin’s carbon footprint.For example, Schaub pointed out that cryptocurrency exchanges BitMEX is trying to make its BTC holdings carbon neutralAccording to a recent BitMEX Research blog post, the company Believe The most effective way for users and exchanges to evaluate Bitcoin’s carbon footprint is through on-chain transaction fees. A BitMEX spokesperson told Cointelegraph that the company concluded that, according to the company’s formula, every dollar spent on bitcoin transaction fees can incentivize up to 0.001 metric tons of carbon emissions.
There are currently only a few ways to help companies offset their Bitcoin carbon emissions, Sandner commented that as the Bitcoin network ages, transaction fees become more and more important. Therefore, he believes that companies must consider a transaction-based approach when ensuring carbon neutrality.
Schaub further pointed out that the source of electricity used should be considered, and pointed out that the model developed by INTAS.tech and the Frankfurt School Blockchain Center looks at the energy mix applied in the United States and Germany: “This ensures that we can observe more and more miners Aware of this topic, and looking for electricity from renewable sources.”
In addition to exchanges like BitMEX developing models for calculating Bitcoin’s carbon emissions, some ETFs are also doing the same.For example, Canadian Bitcoin ETF issuer Ninepoint Partners launches carbon neutral Bitcoin ETF May 2021. Alex Tapscott, managing director of Ninepoint Digital Assets, told Cointelegraph that although this is the right approach, it also benefits the entire enterprise:
“Many investors with ESG requirements worry about Bitcoin’s footprint and stay on the sidelines. We want to make it easier for them to become stakeholders and participate in the rise of Bitcoin.”
Tapscott added that generally, investors in Bitcoin funds and miners themselves demand that the industry be more sustainable. In view of this, Tapscott believes that in 10 years, Bitcoin will be close to 100% renewable: “It may even help subsidize the development of renewable projects because it is a rough and ready-made buyer that can be placed at the source. At the same time, carbon offset is a good way to bridge the gap.”
How accurate are these models?
Although it is becoming increasingly important for companies to offset their Bitcoin carbon emissions, it is important to recognize the challenges associated with the model in question.
For example, Sandner stated that all the numbers compiled in the model he helped create are changing over time. “For example, as we saw recently in China’s mining ban, the hash rate is changing. The computing power has dropped by 50%.” Therefore, Sandner realized that the fluctuation of indicators must be considered. He added that every country has a different carbon dioxide-intensive energy mix, noting that Norway tends to be more environmentally friendly than other regions.Finally, Sandner pointed out that the carbon price needs to be carefully observed and added that the price has already Increase During December.
In addition, a BitMEX spokesperson mentioned that the company’s formula is not a perfect method, and pointed out that the exchange expects and welcomes criticism. However, the company believes that the formula is indeed an improvement over other estimates. According to the post, the equation used is quite simple because only the average Bitcoin price is used instead of an estimate of the electricity cost of Bitcoin mining.
Sandner ultimately believes that the largest part of the work that needs to be done is still in progress, noting that most of these methods are still emerging:
“For example, the Bitcoin Mining Commission in the United States is working hard to find new models. Once these methods are developed, companies will need to adopt them, but it’s too early. Awareness is beginning to emerge, but this is just the beginning.”