Offsetting Carbon Footprint of Crypto: Concepts and Calculations

Offsetting Carbon Footprint of Crypto: Concepts and Calculations

Lately, there have been many debates about the environmental impact of crypto, and it’s no wonder. A large portion of those debates reflect pro- or anti- crypto agendas. We think it’s time to change that: arguments should be backed by numbers, and you can still be both a pro-crypto and environmentally conscious investor.

As discussed in our previous article, from September 2020 through August 2021, the Carbon footprint of one Bitcoin transaction was 369.49 kgCO2e (to learn more, refer to The Environmental Impact of Crypto: What’s the Solution?”).

While some users may be mining crypto on renewable energy, others are operating on energy-consuming and Carbon-producing power sources. The good news is that there’s a way to turn crypto holdings into Carbon-neutral assets. To eliminate its Carbon footprint, one needs to offset the Carbon emission generated by the network.

Keep on reading this article, to find out how to calculate the offset, how much it costs, and what could be changed about it in the future.

How To Calculate Crypto Carbon Offset?

There are two major concepts to determine a BTC holder Carbon footprint – based on completely different justice perceptions:

Concept A. The Transaction-based approach.

[source – The Carbon Emissions of Bitcoin From an Investor Perspective]

According to this concept, it is just to pay for each conducted  transaction. If you use the Bitcoin network more –  you should pay more. 

[source – The Carbon Emissions of Bitcoin From an Investor Perspective]

Concept B. Ownership-based approach.

According to this concept, it is right to pay one’s part in the Bitcoin network footprint, regardless of the individual activity (i.e. number of conducted transactions). For example, if you hold 5% of the whole circulation of BTC, you should pay 5% of the costs to offset the emitted carbon per year.  

[source – The Carbon Emissions of Bitcoin From an Investor Perspective]

Based on approach A, there are 2 ways to calculate  the Carbon footprint:

  1. Calculating the average Carbon emission per transaction. 
  2. Calculating the exact (as much as possible) Carbon emission for the specific transactions one makes. This calculation will depend on numerous factors, like the exact size (KB) of each transaction, miners’ location, miners’ energy sources, and more. 

Calculating Concept B is simpler. We take the average BTC that the user held (e.g. in the entire year of 2020), calculate the user’s part in the whole BTC circulation, and multiply it by the total Bitcoin Carbon emission that year.

How Much Does it Cost?

Calculating the price for the Carbon offset/transaction depends on the country where it’s implemented. According to Philipp Sandner, to offset 1 Bitcoin transaction in Europe, will cost ~$18.47$ (based on $50 for 1 ton of CO2eq)Study: The Carbon Emissions of Bitcoin From an Investor Perspective. However, in other countries, according to the Statista research, offsetting 1 ton of CO2eq costs around $9 – less than 50%. Meanwhile, in Kazakhstan, for example, it is as low as $0.37.   

According to Digiconomist, the footprint of a single transaction is approximately 950Kg, and offsetting that would cost less than $4.

[source: Statista]

For the ownership-based network usage, Sandner calculates that holding 1 Bitcoin over one year costs $102.20.

Crypto Carbon Offsetting: Current Concerns 

Currently, the crypto Carbon offset research is in a very early stage. Much more should be done in order to reach a just and widely accepted calculation. 

Here are some of the current issues that need to be addressed:   

  1. Too many quoted figures that are based on political agendas and assumptions that may not always be true or accurate.
  2. The available data sources are not accurate enough or complete. Miners energy usage is not objectively tracked.  
  3. Researchers lack knowledge related to crypto transactions and the ways to calculate the transaction size and, as a result, the way to define its Carbon footprint.
  4. There are many conceptual issues that haven’t been discussed:

• If Carbon emissions are to be paid by users, do miners need to pay as well?

• If so, how should the payment be divided between users and miners? 

• Should miners as the ones creating the emissions automatically allocate part of their rewards to Carbon offsetting? 

• Should we differentiate between miners that use green energy and the ones that don’t? At the end of the day, all miners are attempting to mine, hence emitting CO2, so the total carbon emission is not dependent on which miner has eventually minted the block.      

• How can we make a standard, so that all parties are aligned, and the total offset is actually equal to the emissions?

Welcome Green Crypto from Diversifi

With the environment in mind, we have built Green Crypto – a zero-Carbon solution that helps institutional investors offset the Carbon footprint of their crypto (this covers Bitcoin mining, Ether mining, and smart contracts execution, including minting NFTs).

In calculating the Carbon footprint of crypto transactions, we currently use concept A – payment for the actual activity. Based on market demand, we plan to support both approaches.

Using the product is simple: one needs to specify the amount of BTC or ETH. We then automatically calculate and execute the purchase of the needed Carbon credits, using Cloverly’s API.

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