Bitcoin’s carbon footprint rises with prices – DNB research

Bitcoin’s carbon footprint increases with its value, research carried out by the Dutch central bank finds.

In 2020 bitcoin’s total carbon footprint rose by 25%, according to a new method developed by De Nederlandsche Bank. The research aims to make the crypto asset’s environmental impact more comparable to other means of payment.

The study finds that every bitcoin transaction produced 402kg of CO₂ in 2020, 32% higher than in 2019. To put it into perspective, this is roughly two-thirds of the monthly carbon emissions of a Dutch household (611kg), the DNB says.

“The increase in the environmental cost per transaction can be attributed to a sharp increase in the overall energy consumption of the bitcoin network,” the paper says. Energy consumption is highly dependent on bitcoin prices. “As the value of crypto assets such as bitcoin increases, it attracts more miners, who then consume more electricity to mine cryptos.”

Bitcoin prices rose from $7,347 in January 2020, to $32,149 on January 1, 2021. The crypto asset’s carbon footprint is likely to have increased further last year. Prices kept rising in 2021, peaking at $67,582 on November 8. In earlier trading today (January 14), bitcoin prices stood at $42,302.

Higher prices and the impact on emissions per transaction are a key metric of the asset’s environmental impact. Even as bitcoin’s total transactions fell by 6% from 119 million in 2019 to 112 million in 2020, its total carbon footprint increased from 36 to 45 megatonnes.

“Since the energy mix between renewables and fossil fuels remained fairly constant over this period, the increase in carbon emissions can be attributed almost entirely to the growth of computational power required by the bitcoin network,” the DNB research finds. Rising energy consumption in bitcoin transactions will be linked to its prices, the DNB says.

The DNB points out that not all crypto assets are based on energy-intensive algorithms.

This echoes a warning from Sweden’s Financial Supervisory Authority in 2021 about the risks posed by these payment methods. The FSA quoted a study by the University of Cambridge and Digiconomist of the two largest crypto assets, bitcoin and ethereum.

The study estimated that they have a combined electricity usage that is twice as big as Sweden. The Swedish supervisor also pointed to crypto’s mining process as the main reason for this high carbon footprint.

“Anyone who wants to mine assets competes to solve an encryption puzzle, and the winner receives new crypto assets as a reward,” the FSA said. “The only way to solve the puzzle is by repeatedly running computer programmes that guess the right answer. When a large number of crypto producers’ computers work simultaneously, the demand for electricity soars.”