Debates are ongoing about the amount of energy required to mine Bitcoin (BTC). While technology pioneers like Elon Musk recently mentioned that the crypto industry was headed for a greener future, some academic researchers have found that mining BTC uses more electricity than that of small countries.
While these arguments are still hotly debated, it has been shown that awareness of green crypto initiatives has increased. For example, some Bitcoin miners are now looking at nuclear power as a solution to removing the CO2 emissions from the electricity used to mine BTC. At the same time, crypto companies have started offsetting their carbon emissions to ensure the sustainability of the industry.
Compensation for CO2 emissions is required for the acceptance
Francisco Benedito, CEO of ClimateTrade – a fintech company that helps organizations achieve sustainability by offsetting carbon emissions – told Cointelegraph that the crypto sector is experiencing a “green hype cycle” that is making the industry sustainable drive forward. Although Benedito believes this is expressed in different ways, he stated that offsetting carbon emissions has now become one of the most important initiatives.
This is especially the case as crypto companies continue to face mounting pressure from investors, lenders, and regulators to decarbonise themselves in the coming years. Venki Kumar, manager of climate data and technology at KPMG US, told Cointelegraph that crypto companies are now expected to estimate the carbon footprint of their digital asset holdings: “Like any other digital technology, crypto has a carbon footprint depending on the mix of energy resources available for use by network validators. “
However, estimating a company’s carbon footprint is only half the battle. To ensure sustainability and acceptance, many organizations offset their CO2 emissions in order to counteract the CO2 energy generated by their use. For example, global investment firm SkyBridge Capital recently teamed up with carbon credits provider MOSS Earth to buy and instantly withdraw tokens that represent approximately 38,436 tons of CO2. Daniel Barile, partner and portfolio manager at SkyBridge, told Cointelegraph that the company believes this move is good for Bitcoin adoption:
“We recognize that the carbon emissions associated with Bitcoin mining are an issue for many current and future potential Bitcoin investors and believe that ‘greening’ existing Bitcoin holdings will ultimately expand the potential investor base. In the longer term, we expect Bitcoin mining to be fully renewable by the end of the decade. “
Barile further noted that the company’s latest transaction offsets the estimated historical carbon footprint of Bitcoin currently held in its products, including its multi-strategy funds and the First Trust SkyBridge Bitcoin Fund.
SkyBridge’s initiative to offset its greenhouse gas emissions came shortly after the major cryptocurrency exchange Gemini announced a collaboration with Climate Vault, a nonprofit that helps companies achieve carbon neutrality. It has been determined that through this partnership, Gemini will, as a first step, acquire CO2 certificates for nearly 350,000 tons of CO2 to offset the use of the Bitcoin network. In addition to SkyBridge and Gemini, Ninepoint Partners LP, a Canadian issuer of Bitcoin Exchange Traded Funds (ETF), has also announced plans to offset the carbon footprint of its BTC ETF product.
Will CO2 offsetting boost acceptance?
While offsetting carbon emissions seems to be a trend for crypto companies looking to go green and drive adoption, questions remain about how to correctly estimate Bitcoin’s carbon footprint.
According to Barile, SkyBridge’s ultimate goal is to offset the estimated historical carbon footprint of Bitcoin that is currently held across all of its products. However, Barile mentioned that this cannot be done with precision: “The process of estimating Bitcoin’s historical carbon footprint is subject to numerous assumptions and limitations.”
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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 the wallet address to see what transactions have taken place on the associated blockchain with specific accounts. These transactions are then linked to the estimated emissions per transaction:
“One BTC is roughly equivalent to one tonne of emissions or one carbon credit. For Ethereum transactions, we look at gas fees. In the case of Bitcoin, we have an estimate based on the amount of the transaction. “
Even with tools designed to calculate crypto carbon emissions, accuracy relies entirely on the data. Explaining this, Kumar noted that users of such tools should understand that the accuracy of the CO2 emissions estimated by these solutions is likely to depend on the input data. In addition, such solutions depend on core assumptions underlying the methodology used in developing these tools.
While Kumar makes an important point, determining Bitcoin’s carbon footprint can be easier compared to other cryptocurrencies or data centers. Bill Tapscott, CEO of CarbonX – a greenhouse gas reduction software company – told Cointelegraph that precision without comparison is relative:
“Compared to data centers, Bitcoin has the advantage of having a publicly observable hash rate for analysis; highly specialized hardware with specific emission factors during use and after disposal; and clear incentive structures for miners – ie a direct correlation between mining and rewards that maximizes efficiency – while unused servers in a data center remain running. “
Tapscott noted that the accuracy of Bitcoin’s carbon footprint is much better understood as it has been studied in comparison to other digital assets and proof-of-work or proof-of-stake blockchains. Although noteworthy, Kumar added that another challenge facing the crypto industry is developing the market for voluntary carbon credits: “It takes a long time to realize the environmental value of investing in forest degradation prevention, reforestation and other initiatives.”
Even so, Kumar said that KPMG expects companies to further reduce the use of carbon credits to offset their crypto emissions and eventually switch to renewable energies like solar to ensure green crypto. However, Kumar pointed out that regulatory initiatives are needed more than ever to encourage companies to speed up the transition to green resources: “This would likely catalyze increased carbon offsets.”