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Carbon neutral bitcoins? This new approach aims to help investors offset BTC's Carbon emissions

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Through developmental methods people involved in crypto business are calculating their carbon emissions.

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Billions of companies around the world rely heavily on Bitcoin (BTC). A recent analysis by European investment manager Nickel Digital Asset Management found that 20 publicly traded companies with a market cap of more than $1 trillion have around $9.6 billion invested in BTC. Private investors are also showing increasing interest in investment.

The “Third Annual Bitcoin Investor Survey” by Grayscale Research found that the demand for Bitcoin has been increasing rapidly. According to the survey, 55% of current Bitcoin investors started buying assets in the last 12 months alone. The Grayscale report also notes that for those interested in Bitcoin investment products, the market is growing to 59% in 2021, from 55% in 2020 and a little over a third in 2019, which is steady growth Reflecting growth.

But while the world's craze for Bitcoin may increase, concerns about its environmental impact are clearer than ever. For example, Grayscale Research also found in its investor survey that more than 30% of investors are concerned about Bitcoin's possible negative impact on the environment. Interestingly, these considerations don't become clear until 2021, as the report shows.

Model for calculating Bitcoin CO2 emissions

With Bitcoin's carbon footprint suffering more and more, a new model has emerged designed to help investors and businesses understand the sustainability of their BTC. For example, the Frankfurt School Blockchain Center and digital asset manager INTAS.tech published a study on November 16 outlining a new approach to offsetting CO2 emissions from the Bitcoin network. The formula develops factors in two approaches: a transaction-based approach and a ownership-based approach.

Philipp Sandner, professor at the Frankfurt School Blockchain Center, said that asset managers and investors in particular in Germany are concerned that Bitcoin's carbon footprint is in line with environmental, social and governance (ESG) standards. So Sandner stated that he wanted to come up with a formula that would allow asset managers, mining companies, exchanges, and individuals to calculate their BTC carbon footprint:

“Usually, we charge Bitcoin companies with the largest carbon offsets, but there are still issuers, companies, and ETF exchanges who want to prove to their customers that they are doing something for their carbon footprint to offset their Bitcoins”. According to Sandner, the aim of the study is to calculate Bitcoin's global energy consumption between September 1, 2020 and August 31, 2021. The results show that 0.08% of global CO2 equivalent comes from Bitcoin. Based on these figures, Sandner determined that maintaining the global Bitcoin network would require 37.97 million tonnes of CO2 equivalent.

In order to calculate Bitcoin's carbon footprint from an investor's perspective, the study found that the company focused on using the network in bytes which is proportional to the growth of the Bitcoin blockchain over time, or the number of Bitcoins that can be used for a given period of time. certain period of time. According to the document, the average Bitcoin transaction contains 670 bytes on the Bitcoin blockchain, which translates into an estimated carbon footprint of 369.49 kilograms of CO2 equivalent. Sandner explains:

“These CO2 emissions can be offset by certificates from the EU emissions trading system. A certificate per tonne of CO2 costs around $50, which is about $18 to offset a BTC transaction. If an investor or company now held BTC for a year, it would cost about two tons of CO2 emissions. If offset by trading EU emissions, it would be around $100.

Benjamin Schaub, Senior Consultant at INTAS.tech, said that companies can use the above formula for Bitcoin transactions and holdings to calculate their carbon footprint, which then needs to be offset. “The great thing about this model is that all the necessary data is publicly available. There are no assumptions here, it's just about how the company interacts with the Bitcoin network." Schaub adds that Iconic Holding GmbH, which sells exchange-traded products in Germany, is currently using this approach to ensure sustainability: “We are also in talks with some very large stock exchanges. I firmly believe that the big players in the industry will be more interested in this topic next year."

While it is difficult to predict the future, it appears that several major exchanges and exchange-traded funds (ETFs) have started using a similar approach to offset Bitcoin's carbon footprint. Schaub noted, for example, that cryptocurrency exchange BitMEX is trying to make its BTC assets neutral. According to a recent blog post by BitMEX Research, the company believes the most effective way for consumers and exchanges to assess Bitcoin's carbon footprint is through serial transaction fees. A BitMEX spokesperson told said that the company has concluded that every dollar spent on Bitcoin transaction fees could increase CO2 emissions by up to 0.001 tonne based on the company's formula.

Currently, there are several approaches to helping companies offset their carbon footprint from Bitcoin, with Sandner noting that transaction fees are becoming increasingly important as the Bitcoin network ages. Therefore, he believes that companies should consider a transaction-based approach to ensure carbon neutrality. Schaub also said that the resources used must be taken into account. The model developed by INTAS.tech and the Frankfurt School Blockchain Center looks at the energy mix in the US and Germany: "This ensures that we can observe more miners who are aware of this topic and who are seeking electricity from renewable sources."

In addition to exchanges such as BitMEX, which develops a model for calculating Bitcoin's CO2 emissions, several ETFs do the same. For example, Canadian Bitcoin ETF issuer Ninepoint Partners launched a CO2 neutral Bitcoin ETF in May 2021. Alex Tapscott, Managing Director of Digital Assets at Ninepoint, said that while this is true, it also benefits businesses. “Many investors with ESG requirements are concerned about Bitcoin's footprint and are staying away. We want to make it easier for them to become stakeholders and participate in the rise of Bitcoin.

Tapscott adds that often, bitcoin fund investors along with the miners themselves are calling on the industry to be more sustainable. With this in mind, Tapscott believes that Bitcoin will be almost 100% renewable in 10 years: Meanwhile, offsetting CO2 emissions is a great way to fill the gap.”

How accurate are these models?

While it is becoming increasingly important for companies to offset their CO2 emissions with Bitcoin, it is important to recognize the challenges of the model discussed. For example, Sandner found that all the numbers put together in the model change over time. “Hash rates are changing, for example, as we recently saw with China's digging ban. For this reason,” Sandner realized that fluctuations in indicators had to be taken into account in order for prices to rise in December.

A BitMEX spokesperson also said the company's formula is not a perfect methodology, noting that the exchange anticipates and welcomes criticism. However, the company believes the formula has improved above other estimates. According to the publication, the equation used is quite simple because it only uses the average bitcoin price, not the estimated electricity cost for bitcoin mining.

Ultimately, Sandner believes that much of the work remains to be done, and notes that most of these approaches are still emerging: “The US Bitcoin Mining Board, for example, is trying to find a new model. Once this method is developed, companies need to adopt it, but it's too early. Consciousness is starting to develop, but that's just the beginning."

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