“Better insight into Bitcoin’s climate impact ”;
(Website DNB, 13 January 2022).
DNB concludes in its report “The carbon footprint of bitcoin” that a single Bitcoin transaction produces 402 kg of CO2 emissions.
Last year, DNB also paid attention to CO2 emissions in the report “The future of the Cash Infrastructure in the Netherlands” (full report Dutch only). In that report, debit cards seem to give a total CO2 emission of less than 1 gram per transaction.
It is good that attention is being paid to the environmental impact of payment systems, as I had argued before. In fact, an energy label should be attached to every payment product. So it’s good that DNB is also looking at the energy and environmental emission of the payment system. But is DNB making the right comparison?
You can have questions how fair the comparison is of DNB’s analysis and method for Bitcoin. DNB uses the CBEI index for the energy and CO2 calculation. This index from the University of Cambridge only includes Bitcoin “layer-1” activities; the so-called Proof-of-Work containing the entire security, mining and trade. This total is then divided by the number of transactions at this “layer-1” level. The actual payment transactions with which consumers and companies pay each other in Bitcoins are not included in the analysis.
The DNB report on cash and debit cards does look at the payment transactions of consumers and point-of-sale institutions. It rightly ignores the energy consumption / CO2 emissions needed to keep the entire euro system safe and reliable.
Things go wrong as soon as the results of the two studies are compared. To make a good comparison at the Bitcoin, should be looked look at the energy consumption / CO2 emissions of the layer-2 activities. These transactions are processed, for example, via Lightning or Nocust. DNB does refer to these “layer-2” developments in its report. The Lightning network is briefly discussed and it is reported that the “layer-2” activities may be less energy intensive.
Or, for a fair comparison of “layer 1” Bitcoin activities, DNB would also have to make a climate impact for the euro system. Such an analysis should not only look at the energy consumption / CO2 emissions of the gold & currency stock. The environmental impact of the systems and procedures used by supervisors, banks and other financial parties should also be included in order to maintain high confidence in the regular payment system.
Just another point of attention; window dressing. The report on point-of-sale payment traffic shows a nice reduction in CO2 emissions at the data centers in particular. For this it will certainly be possible to submit the correct certificates and there will certainly be less CO2 in the air due to the use of solar and wind energy. Payment transactions, however, are a 24×7 activity. You may wonder how CO2 neutral the power supply is at night. Even though CO2 emissions are certified green and the CO2 will hopefully be converted back into vegetation within 100 years.
All in all, it is certainly a good step to provide insight into the environmental impact of payment products. Hopefully more will follow soon and every payment product will receive a good energy label that is as green as possible.
Read the article on the website of DNB
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