Carbon-neutral Bitcoin? New approach aims to help investors offset BTC carbon emissions

Billion-dollar businesses around the world are betting big in Bitcoin (BTC). Nickel Digital Asset Management, an European investment manager, recently found that around $9.6 billion has been invested in Bitcoin (BTC) by 20 publicly listed companies. This is despite their market capitalization exceeding $1 trillion. Individual investors are also showing increasing interest in the asset.

Grayscale Research’s “Third Annual Bitcoin Investor Study”, found that Bitcoin demand has increased tremendously. The study found that 55% of Bitcoin investors have bought the asset in the past 12 months. Grayscale’s report notes that Bitcoin investors are now interested in 59%, up from 55% for 2020. This is consistent growth.

While Bitcoin’s popularity is growing, environmental concerns have grown more prominent than ever. Grayscale Research’s investor survey also revealed that more than 30% of investors are concerned by Bitcoin’s potential negative effects on the environment. This concern was only apparent in 2021 as evidenced by the report.

Calculate Bitcoin carbon emissions using models

New models have emerged to assist investors and businesses in understanding how to make their Bitcoin holdings sustainable, given the increasing distress caused by Bitcoin’s carbon footprint. The Frankfurt School Blockchain Center and digital asset manager INTAS.tech released a Nov. 16 study that outlined a new way to offset the carbon dioxide emissions from the Bitcoin network. There are two possible approaches to the formula: one transaction-based and one ownership-based.

Philipp Sandner, a professor from the Frankfurt School Blockchain Center, said that investors and asset managers in Germany are particularly concerned about Bitcoin’s carbon footprint. He also stated that ESG standards for Bitcoin have been violated. Sandner explained that he created a formula to allow asset managers, miners, exchanges, and individuals to calculate their BTC’s CO2 footprint.

“Normally, we allocate the greatest burden of CO2 compensation Bitcoin mining companies. But you still have ETF issues, companies, and exchanges who want to prove that they are doing something to reduce their CO2 footprint for their Bitcoin.”

Sandner stated that the initial goal of the study was to calculate the global energy consumption for Bitcoin between Sept. 1, 2020, and Aug. 31, 2021. According to the results, Bitcoin accounted for 0.08% worldwide equivalent CO2 equivalent. Sandner noted that 37.97 million tonnes of CO2 equivalent was required to maintain the global Bitcoin network.

The study points out that investors can use the carbon footprint of Bitcoin to determine the company’s overall network usage. This can be compared to Bitcoin blockchain growth over a time period or the amount of Bitcoin they have held for a given period. The document estimates that an average Bitcoin transaction has 670 bytes on its Bitcoin blockchain. This represents a carbon footprint of 369.49 kgs of CO2 equivalent. Sandner explained:

These carbon emissions can be offset with a certificate from EU Emissions Trading System. A certificate covering one tonne CO2 costs around $50. This would be roughly $18 to cover a single transaction in Bitcoin. This would mean that if an investor or company held one BTC for a year, it would result in roughly two tonnes of carbon dioxide emissions. This would be approximately $100 if it were to be compensated by the EU Emissions Trading System.

Benjamin Schaub, senior consultant with INTAS.tech, explained to Cointelegraph that companies could use the formula for Bitcoin ownership and transactions to calculate their carbon footprint, which should then be offset. This model is great because all of the data is available publicly. It’s not about assumptions, it’s all about how companies interact with the Bitcoin network.

Schaub said that Iconic Holding GmbH, which sells exchange-traded products, is currently using this method to ensure sustainability. “We are also in discussions with a few very large exchanges. “I strongly believe that the space’s major players will be more interested in this topic over the next year.”

Although it is difficult to predict the future of Bitcoin, it is notable that major exchanges and exchange traded funds (ETFs), have begun to use similar strategies to offset Bitcoin’s carbon footprint. Schaub pointed out that BitMEX, a crypto exchange, is trying to make its BTC holdings completely carbon-neutral. A BitMEX Research blog post recently stated that on-chain transaction fees are the best way for users to assess Bitcoin’s carbon footprint. Cointelegraph was told by a BitMEX spokesperson that $1 can be spent on Bitcoin transaction fees to incentivize 0.001 metric tons carbon emissions. This is based on the company’s formula.

Only a few options are currently available for companies to offset their Bitcoin carbon emissions. Sandner commented that transaction fees become increasingly important as the Bitcoin network age. He believes companies should consider a transaction-based approach to carbon neutrality.

Schaub also pointed out that electricity source should be considered. The model created by INTAS.tech, the Frankfurt School Blockchain Center, looked at Germany’s energy mix. “This allows us to observe that more miners are becoming aware of the topic and looking for electricity from renewable resources,” he said.

ETFs, as well as exchanges such BitMEX, are developing models to calculate Bitcoin carbon emission. Ninepoint Partners, a Canadian Bitcoin ETF provider, launched a carbon neutral Bitcoin ETF in May 2021. Ninepoint’s managing director of digital assets, Alex Tapscott, said that this was a good thing. However, it also benefits the company as a whole.

“Many ESG-compliant investors were worried about Bitcoin’s footprint, and they remained on the sidelines.” We wanted to make it easy for them to participate in Bitcoin’s upside and be stakeholders.

Tapscott said that investors in Bitcoin funds are often the ones who demand that the industry become more sustainable. Tapscott is convinced that Bitcoin will become 100% renewable in 10 years. Carbon offsetting, however, is a great way to bridge this gap.

These models are so accurate!

It’s becoming increasingly important for companies to offset their Bitcoin carbon emissions, but it’s crucial to acknowledge the difficulties associated with these models.

Sandner, for example, noted that the numbers in the model he helped to create are constantly changing. “The hashrate is also changing, as we saw recently with the Chinese mining ban. “The hashrate fell by 50%.” Sandner recognizes that metrics can fluctuate and must be considered. Sandner said that every country has its own mix of CO2 intensive energy. He also noted that Norway is more environmentally friendly than other countries. Sandner also pointed out that carbon prices must be closely monitored, noting that they have been rising during December.

Similar: Point of no return The key to mass adoption could be crypto investment products

A BitMEX spokesperson stated that BitMEX’s formula was not perfect and that they welcome criticism. The company does believe that the formula is better than other estimates. The equation is simple because it uses average Bitcoin prices rather than estimates of Bitcoin mining electricity cost.

Sandner believes the greatest amount of work is still ahead. He also noted that many of these approaches are still in development.

“The Bitcoin mining council of the U.S. is looking for new models. These methods will be required to be adopted by companies once they are developed, although it is still too early. Although awareness is beginning to rise, this is only the beginning.

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Eileen Wilson

Eileen Wilson –Technology and Energy My Name is Eileen Wilson with more than 5 years of experience in the Stock market industry, I am energetic about Technology news, started my career as an author then, later climbing my way up towards success into senior positions. I can consider myself as the backbone behind the success and growth of topmagazinewire.com with a dream to expand the reach out of the industry on a global scale. I am also a contributor and an editor of the Technology and Energy category. I experienced a critical analysis of companies and extracted the most noteworthy information for our vibrant investor network.

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