Debates regarding the amount of energy required to mine Bitcoin (BTC) have been ongoing. While tech pioneers such as Elon Musk have recently mentioned that the crypto industry is headed toward a greener future, some academic researchers have noted that mining BTC consumes more power than that of small countries.
While these arguments are still hotly debated, it has become clear that awareness of green crypto initiatives has been on the rise. For instance, some Bitcoin miners are now looking at nuclear power as a solution to remove carbon emission from the electricity leveraged to mine BTC. At the same time, crypto companies have started to offset their carbon emissions to ensure industry sustainability.
Offsetting carbon emissions is necessary for adoption
Francisco Benedito, CEO of ClimateTrade — a fintech company helping organizations achieve sustainability by offsetting CO2 emissions — told Cointelegraph that the crypto sector is experiencing a “green hype cycle,” which is pushing industry sustainability. Although Benedito believes this is being exhibited in a number of different ways, he explained that offsetting carbon emissions has now become one of the most important initiatives.
This is especially the case as crypto companies continue to face increasing pressure from investors, lenders and regulators to decarbonize in the coming years. Venki Kumar, manager of climate data and technology at KPMG U.S., told Cointelegraph that crypto organizations are now expected to estimate the carbon footprint of their digital asset holdings: “Like any other digital technology, crypto has a carbon footprint, which fluctuates depending on the mix of energy resources available for use by network validators.”
Yet estimating a company’s carbon footprint is only half the battle. In order to ensure sustainability and adoption, many organizations are offsetting their carbon emissions to counteract the carbon energy created by their usage. For example, global investment firm SkyBridge Capital has recently partnered with carbon credit provider MOSS Earth to purchase and immediately retire tokens representing approximately 38,436 tons of carbon. Daniel Barile, partner and portfolio manager at SkyBridge, told Cointelegraph that the firm believes this action is good for Bitcoin adoption:
“We acknowledge that the carbon emissions associated with Bitcoin mining is a concern for many current and future potential Bitcoin investors and believe that ‘greening’ existing Bitcoin holdings ultimately broadens its potential investor base. Longer-term, we project that Bitcoin mining will be fully renewable by the end of the decade.”
Barile further noted that the firm’s recent transaction offsets the estimated historic carbon footprint of the Bitcoin currently held across its products, including within its multi-strategy funds and the First Trust SkyBridge Bitcoin Fund.
SkyBridge’s initiative to offset its greenhouse gas emissions came shortly after major cryptocurrency exchange Gemini announced a collaboration with Climate Vault, a nonprofit dedicated to helping companies achieve carbon neutrality. It’s been noted that through this partnership, Gemini will purchase carbon permits for nearly 350,000 metric tons of carbon as a first step to offset its usage of the Bitcoin network. In addition to SkyBridge and Gemini, Ninepoint Partners LP, a Canadian Bitcoin exchange-traded fund (ETF) issuer, also revealed plans to offset the carbon footprint of its BTC ETF product.
Will carbon offsetting spur adoption?
While offsetting carbon emissions appears to be a trend for crypto companies wanting to go green and promote adoption, questions regarding correct estimates of Bitcoin’s carbon footprint remain.
According to Barile, SkyBridge’s ultimate goal is to offset the estimated historic carbon footprint of the Bitcoin currently held across all of its products. However, Barile mentioned that it is impossible to do this with precision: “The process of estimating the historic carbon footprint of Bitcoin is subject to numerous assumptions and limitations.”
To put this in perspective, Andreas Homer, CEO of Aerial — a sustainability platform that uses a tool to track crypto carbon emissions — told Cointelegraph that Aerial calculates crypto carbon emissions by looking at wallet address to see what transactions have taken place on the blockchain associated with certain accounts. Those transactions are then linked with the estimated emissions per transaction:
“One BTC is equivalent to roughly 1 ton worth of emissions, or one carbon credit. With Ethereum transactions, we look at gas fees. In the case of Bitcoin, we have an estimate based on the quantity of the transaction.”
Even with tools designed to calculate crypto carbon emissions, accuracy is fully dependent on data. Elaborating on this, Kumar noted that users of such tools should understand that the accuracy of the carbon emissions estimated by these solutions is likely dependent on the input data. In addition, such solutions depend on core assumptions underpinning the methodology followed in developing those tools.
Although Kumar makes an important point, determining the carbon footprint of Bitcoin may be easier in comparison to other cryptocurrencies or computer data centers. Bill Tapscott, CEO of CarbonX — a GHG mitigation software projects company — told Cointelegraph that precision is relative without comparison:
“Compared to computer centers, Bitcoin has the advantage of having a publicly observable hash rate for analysis; a highly specialized hardware with specific emissions factors while in use and after disposal; and clear incentive structures for miners — i.e., a direct correlation between mining and rewards which maximizes efficiency — whereas, in a datacenter, idle servers will be left spinning.”
Tapscott remarked that the accuracy of Bitcoin’s carbon footprint is much better understood because it has been studied compared to other digital assets and proof-of-work or proof-of-stake blockchains. While notable, Kumar added that another challenge facing the crypto industry is the evolution of the voluntary carbon credits market: “It takes a long time to realize environmental value from the investments made in preventing forestry degradation, reforestation and other initiatives.”
Despite this, Kumar shared that KPMG expects companies to continue to lower the use of carbon credits to offset their crypto emissions and eventually transition to renewables, such as solar power, to ensure green crypto. However, Kumar pointed out that regulatory initiatives are needed more than ever to encourage businesses to increase the speed at which they transition to green resources: “This would likely catalyze increased carbon offsets.”
Ray Schuetz received a Masters Degree in computer science from The University of Texas (Austin). Ray has been working as a full-time blockchain consultant for the past 3 years. In his spare time, Ray enjoys writing for EthereumCryptocurrency.com and other crypto news publications.