Carbon-neutral Bitcoin? New approach aims to help investors offset BTC carbon emissions
As BTC adoption increases and the market grows, there will be greater demand for clean energy to keep up with production. Bitcoin Carbon Exchange will allow investors to offset their carbon emissions by investing in renewable sources of power that generate clean electricity.
The “climatecoin” is a new approach to help investors offset Bitcoin’s carbon emissions. The idea was proposed by the co-founder of Carbon Neutral Investments, who believes that it will be possible to use blockchain technology in order to create a carbon-neutral cryptocurrency.
Bitcoin is attracting billion-dollar investments from corporations all around the world (BTC). According to a recent study by European investment firm Nickel Digital Asset Management, 20 publicly traded firms with a market value of more than $1 trillion have $9.6 billion invested in Bitcoin. Individual investors are becoming more interested in the asset as well.
Grayscale Research’s “Third Annual Bitcoin Investor Study” indicated that demand for Bitcoin had skyrocketed. According to the research, 55% of active Bitcoin investors started purchasing the commodity within the previous year. According to Grayscale’s analysis, the market for Bitcoin investment products grew to 59 percent in 2021, up from 55 percent in 2020 and slightly more than a third in 2019, indicating consistent growth.
Despite the fact that the world’s excitement for Bitcoin is growing, worries about its environmental effect are becoming more prominent than ever. In its investor survey, Grayscale Research discovered that over 30% of investors are worried about Bitcoin’s possible detrimental influence on the environment. Surprisingly, as the research shows, this concern only surfaced in 2021.
Models for calculating Bitcoin’s carbon footprint
Given the growing concern over Bitcoin’s carbon impact, new models are developing to assist investors and companies in determining how to keep their BTC holdings sustainable. The Frankfurt School Blockchain Center and digital asset management INTAS.tech, for example, issued a research on Nov. 16 proposing a novel strategy to mitigating CO2 emissions created by the Bitcoin network. A transaction-based approach and an ownership-based approach are both included in the calculation.
Asset managers and investors in Germany, in particular, are worried about Bitcoin’s CO2 footprint being consistent with environmental, social, and governance (ESG) norms, according to Philipp Sandner, a lecturer at the Frankfurt School Blockchain Center. As a result, Sandner said that he sought to develop a formula that would allow asset managers, mining businesses, exchanges, and individuals to quantify their BTC’s CO2 footprint:
“Normally, we put the brunt of CO2 compensation on Bitcoin mining businesses, but there are still ETF issuers, companies, and exchanges who want to show their consumers that they’re doing something to offset their Bitcoin’s CO2 impact.”
According to Sandner, the study’s initial purpose was to calculate Bitcoin’s worldwide energy usage between September 1, 2020, and August 31, 2021. Bitcoin accounted for 0.08 percent of global CO2 equivalent, according to the findings. Sandner calculated that the global Bitcoin network needs 37.97 million metric tons of CO2 equivalent to keep it running.
Companies can either focus on the proportional network usage in bytes in relation to the Bitcoin blockchain growth during a specific time frame or on the amount of Bitcoin held for a specific period in order to calculate the carbon footprint of Bitcoin from an investor perspective, according to the study. According to the paper, an average Bitcoin transaction on the Bitcoin blockchain has 670 bytes, resulting in a carbon footprint of 369.49 kg of CO2 equivalent. Sandner elaborated:
“Certificates from the EU Emissions Trading System may be used to offset these carbon emissions.” A certificate for one tonne of CO2 costs about $50, or around $18 to compensate for a single BTC transaction. Over the course of a year, an investor or firm owning one BTC would emit nearly two tonnes of carbon dioxide. This would cost roughly $100 if reimbursed under the EU Emissions Trading System.”
Companies might use the method outlined for transactions and Bitcoin ownership to calculate their carbon impact, which should then be compensated, according to Benjamin Schaub, senior consultant at INTAS.tech. “What makes this model so fantastic is that all of the data required is open to the public.” It’s not about making assumptions here; it’s about how businesses interact with the Bitcoin network.”
Iconic Holding GmbH, a German exchange-traded product provider, is now using this strategy to assure sustainability, according to Schaub: “We’re also talking about a couple major exchanges.” I am certain that significant participants in the industry will be increasingly concerned about this problem in the next year.”
While it’s impossible to forecast the future, several big exchanges and exchange-traded funds (ETFs) have begun to use similar strategies to offset Bitcoin’s carbon impact. For example, the crypto exchange BitMEX is striving to make its Bitcoin holdings carbon-neutral, according to Schaub. According to a recent BitMEX Research blog post, the business thinks that on-chain transaction fees are the most efficient approach for users and exchanges to analyze Bitcoin’s carbon impact. Based on the company’s methodology, each $1 spent on Bitcoin transaction fees may incentivise up to 0.001 metric tons of carbon emissions, a BitMEX spokeswoman informed Cointelegraph.
There are now just a few options for businesses to offset their Bitcoin carbon emissions, with Sandner observing that transaction fees are becoming more relevant as the Bitcoin network matures. As a result, he argues that when it comes to achieving carbon neutrality, businesses should use a transaction-based approach.
“This ensures that we can observe more miners becoming aware of this topic and are looking for electricity from renewable sources,” said Schaub, noting that the model developed by INTAS.tech and the Frankfurt School Blockchain Center looked at the energy mix as applied in the US and Germany: “This ensures that we can observe more miners becoming aware of this topic and are looking for electricity from renewable sources.”
Some ETFs are building methods to measure Bitcoin carbon emissions, in addition to exchanges like BitMEX. In May 2021, Ninepoint Partners, a Canadian Bitcoin ETF provider, introduced a carbon-neutral Bitcoin ETF. While this was the proper thing to do, Alex Tapscott, managing director of digital assets at Ninepoint, told Cointelegraph that it also helps the company as a whole:
“Many ESG-conscious investors have steered away from Bitcoin because of its environmental burden. We wanted to make it easy for people to become investors and benefit from Bitcoin’s growth.”
Investors in Bitcoin funds, as well as miners themselves, are often the ones pushing that the business be more sustainable, according to Tapscott. As a result, Tapscott expects that Bitcoin will be almost 100% renewable in ten years: “It may even help fund the construction of renewable projects since it’s a rough and ready buyer you can put at source.” Carbon offsetting is a smart approach to bridge the gap in the meanwhile.”
What is the accuracy of these models?
Although it’s becoming increasingly crucial for businesses to offset their Bitcoin carbon emissions, it’s critical to understand the difficulties that come with the models presented.
Sandner, for example, said that all of the statistics gathered inside the model he assisted in developing are altering over time. “For example, the hashrate is shifting, as we just witnessed with China’s mining restriction. The hashrate has reduced by 50%.” As a consequence, Sandner understands that metric changes must be taken into account. He went on to say that each nation has a distinct balance of CO2 intensive energy, with Norway being greener than the rest of the world. Finally, Sandner said that carbon pricing must be closely monitored, noting that costs have been rising since December.
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Furthermore, a BitMEX representative said that the company’s formula isn’t flawless, but that the exchange anticipates and welcomes criticism. The corporation argues, however, that the algorithm outperforms other estimations. The calculation is easy, according to the report, since it just uses average Bitcoin prices rather than estimations of Bitcoin mining power costs.
Sandner argues that the majority of the work remains to be done, adding that most of these techniques are still in their infancy:
“For example, the Bitcoin mining council in the United States is looking for new models. Companies will need to embrace these technologies after they have been created, but it is yet too early. “Awareness is beginning to develop, but this is just the start.”
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