On CompensationStandards.com, Liz recently wrote about a company that announced using Bitcoin as part of its director compensation program. We’re nowhere near this being a “trend,” – but if the subject arises, remember that adding crypto to any comp package or other business arrangement could significantly impact corporate Net-Zero or other CO2 emissions reduction initiatives.
Bitcoin vs. “Net-Zero”
As has been widely reported, Bitcoin has a massive carbon footprint from the energy required for mining. Even Elon Musk has reversed his two month-old position that Tesla would accept Bitcoin for car purchases – because of the crypto’s carbon footprint. The topic is even catching the eye of the corporate treasurer world.
Why is Bitcoin at odds with carbon commitments? Partly because most Bitcoin mining globally is done in China, which uses coal as its primary fuel source for electricity production. One US company owns and operates its own natural gas fired power plant – formerly run by an electrical utility – primarily supplying electricity to its on-site Bitcoin mining operations, but also serving local homes and businesses. According to the air permit, the site is authorized to emit over 53,000 tons of CO2 equivalents per 30-day period (in contrast to one media report claiming it only emits 100 tons per year of CO2).
Some statistics from BuyBitcoinWorldwide suggest that Bitcoin could require a massive amount of power generation and carbon emissions in the years to come:
- Around 2 million bitcoins remain available to be mined
- 900 new bitcoins are mined per day
- It is estimated the last bitcoin will be mined in 2140
Does “Green Crypto” Exist?
Well-known analyst Cathie Wood’s investment advisory firm ARK Investment Management offered an alternative perspective that crypto mining will spur delivery of lower carbon energy generation technology. The brief paper, which included what ARK called a proof of concept, posits that:
… in the absence of Bitcoin mining, renewables can satisfy only 40% of the grid’s needs… including Bitcoin mining, solar and batteries can satisfy 99% of the grid’s demand.
Not surprisingly, some disagree with the paper’s conclusion. I myself noticed ARK’s proof of concept was a computer simulation for solar energy using assumptions about weather and grid data for Austin, Texas. Being from Austin (Hook ’em!!) and having visited a couple major technology centers in China, I can testify that the level of solar intensity in most regions of China is much lower than Austin, so ARK’s weather assumptions are likely too optimistic. However, it does seem reasonable to think that use of low carbon energy will grow in China during the decades that Bitcoin is expected to be mined. Speculating how much and how fast is like speculating in Bitcoin itself.
Another viewpoint is expressed in Harvard Business Review by Nic Carter, a general partner at Castle Island Ventures and the co-founder of Coin Metrics, a blockchain analytics firm. Nic sums it up this way:
…when we ask, “Is Bitcoin worth its environmental impact,” the actual negative impact we’re talking about is likely a lot less alarming than you might think. But there’s no denying that Bitcoin (like almost everything else that adds value in our society) does consume resources. As with every other energy-consuming industry, it’s up to the crypto community to acknowledge and address these environmental concerns, work in good faith to reduce Bitcoin’s carbon footprint, and ultimately demonstrate that the societal value Bitcoin provides is worth the resources needed to sustain it.
At least one coin has emerged with the intention of reducing energy use. CNN reported that Chia coin, started in 2017, uses a technique they call “farming” rather than “mining” to produce their coin. The Chia Network claims their process requires less hardware and energy:
Mining requires expensive custom single use hardware and access to electricity at wholesale or better prices which only purpose built corporations can afford to mine. Farming is more decentralized because it relies on empty hard disk space and anyone with a mobile phone, laptop, or corporate network tends to have extra space not currently being used. Unlike mining, once you’re done farming your storage you can repurpose it to, for example, store your family photos.
What You Can Do
If you’re trying to meet your stakeholders’ climate expectations and also leave room for crypto enthusiasm, what can you do? Like most of this stuff, you’ll have to balance your different needs and goals – but one key to a solid decision will be getting accurate info about the currency’s carbon footprint. That’s difficult to do, at this point.