The price of Bitcoin has surpassed $100,000—just another coin in the carbon machine?

The recent surge in the price of Bitcoin, which recently surpassed the symbolic threshold of $100,000 per BTC, has drawn a great deal of attention and reignited criticism regarding its environmental footprint, due to its growing energy consumption (to date, 121 TWh in 2023 according to the Cambridge Bitcoin Electricity Consumption Index (CBECI), which is 0.5% of global electricity production, or 35% of the United Kingdom’s electricity production). Several publications have attempted to measure Bitcoin’s carbon footprint, often by quantifying the emissions generated per transaction and comparing them to those of a conventional transaction (e.g., Mora et al. (2017), De Vries et al. (2022)), but with methodological choices that have been subject to criticism:

• The number of transactions recorded on Bitcoin does not correspond to the number of actual payments, as some of them can now be grouped together and recorded as a single transaction on Bitcoin using so-called Layer 2 solutions (the Lightning Network operates as a second layer, built on top of Bitcoin without significantly affecting its issuance^[1], and allowing multiple payments to be bundled into batches so they can be recorded as a single transaction on Bitcoin); similarly, a payment made through the traditional system can generate multiple transactions due to the involvement of intermediaries; yet from the end user’s perspective, it is the number of payments that matters, not the number of transactions;
• Bitcoin's carbon footprint does not depend on the number of payments made on the network, but rather on the computing power used to secure it and maintain the integrity of the transaction ledger (see https://www.jbs.cam.ac.uk/wp-content/uploads/2020/08/2019-09-ccaf-2nd-global-cryptoasset-benchmarking.pdf, p. 83). This mode of operation renders any projection based on carbon intensity obsolete current per transaction: Projecting this carbon intensity over time requires making assumptions not only about trends in energy consumption and the methods Bitcoin uses to generate electricity, but also about the number of payments that pass through its network.
• This metric views Bitcoin primarily as a medium of exchange, overlooking its current status as an investment asset: in October 2023, the data platform estimated the average holding period for Bitcoin to be 3.8 years IntotheBlock^[2], to the point that the term “hodling” (literally, “Hold On for Dear Life”) was coined to describe the practice of holding onto one’s Bitcoins despite periods of downward volatility.
  The approval of spot ETFs in early 2024 in the United States, now offered by institutional players such as BlackRock or VanEck^[3], combined with the U.S. president-elect’s plan to establish a strategic reserve of Bitcoin for his country, is accelerating this trend.

Carbone 4 conducted a study to identify areas for improvement that address these limitations by analyzing Bitcoin’s carbon performance in terms of two characteristics typically associated with currency (which Bitcoin aspires to be): 1) as a medium of exchange (carbon footprint per transaction, taking into account the specific nature of Bitcoin’s operation), and 2) as a store of value, or at the very least as an investment vehicle.

This forthcoming study leads to several conclusions, which are summarized here:

1. Unless Bitcoin accounts for a significant portion of payments and drastically reduces the carbon intensity associated with securing the network, the carbon footprint per payment remains higher with Bitcoin than with a traditional payment; however, this observation must be qualified by the fact that the marginal carbon cost of a transaction is virtually zero.

2. This metric must be supplemented by others, as Bitcoin is viewed today less as a payment instrument than as a potential store of value—or, at the very least, as an investment vehicle. : In this regard, our study examines the assessment of the carbon footprint per dollar invested.

3. In this regard, the carbon footprint of an investment in Bitcoin is higher than that of gold or real estate and lower than that of the Livret A savings account today (even if the economy’s overall emissions were to be cut in half (See the article).

4. Given Bitcoin’s market capitalization (approximately $1,900 billion as of December 10, calculated as the price of Bitcoin multiplied by the number of tokens in circulation), which recently surpassed that of silver, Tesla’s, and is on track to reach that of Google’s, and given the recent acquisition of Bitcoin by institutional investors such as BlackRock or VanEck, Bitcoin’s impact on the climate lies primarily in its economic effects: Buying Bitcoin also means not leaving money in a savings account, not buying gold, and not investing in an activity that finances the development of fossil fuels—or, conversely, one that contributes to the green transition. In practice, given its still-high volatility (even though it tends to decrease as its market capitalization grows^[4]) and its financial performance, Bitcoin is still viewed as a risky asset, which is why it may attract investment flows that might otherwise have been directed toward other similar assets (such as companies in the Nasdaq). Its very strong performance may also affect the savings rate: Bitcoin’s appeal may indeed lead to a reassessment of the trade-off between consumption and savings, and play a role at the macroeconomic level. Believing in its long-term appreciation encourages people to place greater value on resources and goods available in the future compared to those available today (if I expect the value of my savings to appreciate significantly over time, I am more inclined to postpone my investments and consumption). Bitcoin is therefore likely to lead to increased savings and redirect financial flows, which could result in two opposing but significant effects from a climate perspective:

• By diverting some of the money that would otherwise go toward consumption or financing the real economy, it can lead to a slowdown in physical flows and, from this perspective, in GHG emissions (see Lyn Alden, Broken Money, 2023)
• but at the same time, it diverts a portion of savings away from activities that would help finance the ecological transition (seeAlain Grandjean, Nicolas Dufrêne, An Eco-Friendly Currency,(2020)

These impacts are potentially broader than those quantified by the carbon footprint alone: hence the need to inform this discussion with other empirical studies and research. To overlook this discussion is thus undoubtedly to miss the most crucial issue from a climate perspective. Although more challenging because it is harder to quantify, the economic and monetary sphere must therefore be recognized as one of the essential areas for assessing Bitcoin’s environmental performance (not exclusively in terms of climate) and comparing it with other dimensions (social, political).

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