The stock market is more harmful to the climate than Bitcoin

It is such a thing with Bitcoin’s carbon footprint. While the energy consumption of the world’s largest decentralized grid can be determined quite easily, estimates of CO₂ emissions are much worse. After all, mining is a decentralized organized process. Depending on the location of the mines, companies use different energy sources for mincing. Also, minors don’t like to be watched; it is therefore not known exactly whether the majority of the electricity used to secure the network comes from renewable or fossil energies.

Expressed in figures: According to data from Cambridge Bitcoin Electricity Consumption Index Bitcoin consumes 127.98 TW/H of electricity. This statistic results from really publicly available data such as mining difficulty, hash rate, and common mining devices and their power efficiency.

The CO₂ balance is a mystery

The situation is different with the CO₂ balance; here you have to rely on the estimates of science. Scientists Krause and Tolaymat (2018) come to the conclusion that Bitcoin only emits 1.2 to 5.2 megatons of CO₂ per year. At the other end of the spectrum is the estimate of Jiang et. al (2021), which has CO₂ emissions of a whopping 130.50 Mt per year.

However, and this is crucial, these numbers have so far only been treated in absolute terms in the literature and have not been pegged to the market capitalization of Bitcoin. However, the measurement of so-called carbon intensity is in fact the norm when assessing the ecological footprint of assets. For comparison: companies that are summarized in the world’s most important stock market index, the S&P500, emit 3,000 Mt of CO₂, several times that of Bitcoin – but also have a market capitalization around fifty times greater.

Bitcoin can improve wallet carbon footprint

In a paper published in November last year, authors Dirk Baur from the University of Western Australia and Josua Oll from the University of Oldenburg do just that: they compare Bitcoin’s CO2 emissions to its market value. . And what’s more: in the article, the authors compare the climate impact of an investment of USD 10,000 in bitcoins with that of an equivalent investment in stocks. There you have it: depending on the CO₂ estimate, adding Bitcoin can even reduce your own CO₂ footprint.

This is evident from the spreadsheet below.

In all green background areas, adding Bitcoin to the wallet reduces the ecological footprint. The values ​​in the orange part of the table represent an increase in CO₂ emissions due to bitcoin diversification – based on how much CO₂ bitcoin actually emits.

“The table indicates that according to this data, investing money in Bitcoin only has 50-60% of the climate impact of investing in the S&P500,” writing Stefan Richter, the man behind Netpositive.money, an initiative that aims to solve Bitcoin’s energy problem in a factual way.

The stock market index more harmful than bitcoin

The study makes an important contribution to the climate debate surrounding Bitcoin, as it compares Bitcoin’s market capitalization to CO₂ emissions for the first time. It also shows that traditional investment strategies often do more damage than BTC investments. Or as Stefan Richter said in an interview with BTC-ECHO:

I believe that for many people […] Bitcoin is first and foremost an investment. The article specifies that investments always have externalities and establishes a comparison with a standard investment, in particular for the climate impact. Given the prevailing sentiment in the media and society, I find it very surprising that, based on the best available data, Bitcoin is likely to be less harmful than a broad stock index.

Stefan Richter at BTC-ECHO

By the way: we dedicated the cover story of issue 49 of BTC-ECHO magazine to the climate issue.

Warning

This article was published in January 2022. It has been checked and adjusted accordingly for republishing.