Why Understanding the Nuances of Crypto’s Carbon Footprint Is Important if We Are to Avoid Falsely Carbon-Shaming Individuals

You should never read the end of the book before the beginning. This was a particular problem that we faced when starting to come up with our estimation for the Carbon footprint of a cryptocurrency transaction – we had read the papers by Stoll et al., we had explored the Cambridge Bitcoin Electricity Consumption Index, we had looked at the Digiconomist’s results so we knew what sort of value to expect from our own up-to-date calculation. The problem was that this blinded us from the nuances of the issue at hand.

When we buy a Bitcoin, the assumption is that we are buying a Bitcoin. While this may be true for some, for the vast majority of traders this is not quite true. Most of us will be carrying out transactions on centralised exchanges such as Binance, Coinbase Pro, Bittrex etc. When we carry out a transaction within one of these platforms, the transaction is what is called ‘off-chain’ (i.e., it is never added to the blockchain). Instead, Coinbase Pro etc. keep a ledger of all the funds you have in its own servers and never submits it to the blockchain. Only if we send our crypto to a wallet outside the exchange will the transactions actually happen on-chain.

This, therefore, will have a serious impact on the Carbon footprint of our transactions because on-chain transactions will need to be mined while off-chain ones will not. All those mined on-chain have a Carbon Footprint that can be estimated using the methods outlined by Stoll or the CBECI. But how can we determine the Carbon Footprint of an off-chain transaction? Ideally, this could be calculated by looking at the energy consumption of one of these exchanges due to their servers and offices and dividing this value by the number of transactions. If we then knew where their servers were located, we could estimate the Carbon intensity of this transaction and therefore come to a value for the Carbon footprint of a transaction. Unfortunately, exchanges don’t give data on their energy consumption, the number of transactions or server locations (for security reasons) so we had to find a reasonable equivalent.

Initially, we thought we could just equate the Carbon Footprint of a transaction to that of an email which is around 4 grammes according to a book by Mike Berners-Lee. However, this result is, in the words of Berners-Lee himself, a ‘back-of-the-envelope calculation’. Furthermore, why an email? Surely, we should go for something with more likeness to a digital monetary transaction.

We could consider the Carbon footprint of a VISA transaction at around 0.45 grammes per transaction as estimated by the Digiconomist. Alternatively, we could estimate the energy consumption of a transaction by looking at the energy required to store data at a data storage facility. According to this study, the storage of one Gigabyte of data requires an energy consumption of 5.12 kWh. Therefore, assuming that data centres have the same Carbon intensity as the world average, we get that the average email (of 75 kB) would emit 0.18 grammes of CO2. If we instead assume that an off-chain transaction will be exactly the same size as an on-chain transaction (roughly 900 bytes), we conclude instead that a transaction would emit 0.002 grammes CO2 per transaction. It is important to note that the assumption that the Carbon intensity of data centres will be similar to the world average is somewhat dubious – data centres tend to favour more renewable sources (Google’s servers are 100% renewably-sourced; AWS and Microsoft also aim to achieve 100% sustainable energy).

Ultimately, we found the value quoted by a major financial services company of 1.6 grammes per transaction. The process used by this financial services company for monetary transactions will be very similar to the digital transactions carried out by the centralised exchanges. Therefore, ultimately, this is the value we have chosen to use in our calculations as it bears the most likeness to an off-chain crypto transaction and is from a very reliable source.

Here, at Nozama, our wish is for a greener planet where people are aware of the environmental impact of their actions and willing to do something about it. Furthermore, it is undeniable that cryptocurrencies have a devastating Carbon footprint. However, falsely pinning the blame on individuals is not the solution to this particular problem. This would only serve to underemphasise the instances when individuals are indeed making on-chain transactions with very large footprints and therefore make individuals disinclined to ever offset their actions.

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Johnny Hilditch

Sustainability Research and Applied Physics

As Sustainability Technician at Nozama, Johnny, a Physics graduate from Oxford University where he specialised in Orbital Mechanics, is leading Nozama's Research department on the Carbon Footprint of Cryptocurrencies. His department is working with the development team to come up with a Cryptocurrency Carbon Footprint Tracker.