Bitcoin’s Life-Cycle-Assessment

Cryptocurrencies and in general the Proof of Work algorithms are often criticized for the energy consumption required to run the network. Bitcoin, as the most popular cryptocurrency, and its energy usage have been researched by many, usually providing comparisons of its energy usage and the energy usage of smaller countries such as Switzerland or Denmark. While we have addressed this issue in a previous blog post and have researched the ratio of sustainable energy resources in Bitcoin mining, with this post we provide a different outlook on the topic, namely a comparison of the CO2 footprint between traditional financial transactions and Bitcoin transactions.

One of the students of the Cryptoeconomics Institute and a former Blockchain Hub Berlin intern, Jean-Antoine Parrer, has written his Bachelor Thesis titled “Comparative Analysis of CO2 Footprint of Bitcoin Transactions versus Traditional Financial Transactions using Life-Cycle-Assesment”. In the thesis, he presents the comparison using Life-Cycle-Assessment (LCA) method which provides a quantification of all material flow inputs and outputs and their impact on the environment. To do so, the thesis firstly gives a literature overview on the topic, including research conducted by McCook, Vranken, O’Dwyer and Malone, De Vries and more.

After the extensive literature overview, the thesis determines system boundaries and functional units of both processes and examines the resources used to support them. In order to meaningfully compare CO2 footprints of Bitcoin and the traditional means of payment, such as cash or credit card transfers, the functional unit was set as one Bitcoin transaction in the Bitcoin network regardless of its size and not using a trusted third party or an exchange system. By following the Life-Cycle Inventory Analysis, which demands the compilation and quantification of all inputs and outputs for a product throughout its entire life-cycle, the identification of system boundaries resulted in a number of parameters such as energy consumption, e-waste (GPUs, FPGAs, ASICs etc.), equipment transport and hardware recycling ratio.

After having described Bitcoin transaction from an LCA perspective, a comparison to traditional payment methods is given by examining existing reports on debit and credit card, PayPal and cash transactions. Research then concluded that the parameters considered crucial for the assessment of a Bitcoin transaction are not necessarily included in the different methods used for assessing the traditional payment systems. Even though there are a lot of numbers going around regarding the energy-consumption or the environmental impact of traditional payment methods, the thesis emphasizes the importance of examining methods applied by the respective authors.

Read more about Bitcoin’s Life-Cycle-Assessment and see the results of the comparative analysis by downloading the Bachelor Thesis.

Published by Tatjana