Refine
Document Type
Language
- English (2) (remove)
Keywords
- Blockchain (1)
- Cryptocurrency (1)
- carbon emissions (1)
- climate change (1)
- green finance (1)
Bitcoin's energy consumption and social costs in relation to its capacity as a settlement layer
(2021)
Bitcoin runs on energy. The decentralized network’s amount of energy consumption has resulted in multifaceted discussions about its efficiency and environmental impact. To put Bitcoin’s energy consumption into perspective, we propose to relate (a) the energy consumption in TWh and (b) resulting social costs in the form of carbon emissions to the Dollar value settled on the Bitcoin network. Both metrics allow to relate and quantify the capacity of Bitcoin as a settlement layer to the network’s energy consumption and resulting carbon missions, or social costs. We find that in early 2021 Bitcoin (a) settles between $2,333 and $7,555 for each Dollar spent on energy and (b) that, on average, a Dollar settled on the Bitcoin blockchain causes in social costs between 0.007% and 0.01%, depending on the estimated energy consumption converted into the costs of carbon emissions. These results help to assess the efficiency, cost and sustainability of Bitcoin and may allow a comparison of Bitcoin with existing settlement base layers such as Fedwire or gold
After creating a new blockchain transaction, the next step usually is to make miners aware of it by having it propagated through the blockchain’s peer-to-peer network. We study an unintended alternative to peer-to-peer propagation: Exclusive mining. Exclusive mining is a type of collusion between a transaction initiator and a single miner (or mining pool). The initiator sends transactions through a private channel directly to the miner instead of propagating them through the peerto-peer network. Other blockchain users only become aware of these transactions once they have been included in a block by the miner. We identify three possible motivations for engaging in exclusive mining: (i) reducing transaction cost volatility (“confirmation as a service”), (ii) hiding unconfirmed transactions from the network to prevent frontrunning and (iii) camouflaging wealth transfers as transaction costs to evade taxes or launder money. We further outline why exclusive mining is difficult to prevent and introduce metrics which can be used to identify mining pools engaging in exclusive mining activity.