Bitcoin’s Energy Consumption and Social Costs in Relation to its Capacity as a Settlement Layer

11 Pages Posted: 27 Aug 2021

See all articles by Lennart Ante

Lennart Ante

Blockchain Research Lab

Ingo Fiedler

University of Hamburg - Institute of Commercial Law

Date Written: August 24, 2021

Abstract

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 emissions, 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.

Keywords: blockchain, Bitcoin, network value, carbon emissions, climate change, sustainability, green finance

Suggested Citation

Ante, Lennart and Fiedler, Ingo, Bitcoin’s Energy Consumption and Social Costs in Relation to its Capacity as a Settlement Layer (August 24, 2021). Available at SSRN: https://ssrn.com/abstract=3910778 or http://dx.doi.org/10.2139/ssrn.3910778

Lennart Ante (Contact Author)

Blockchain Research Lab ( email )

Colonnaden 72
Hamburg, 22303
Germany

Ingo Fiedler

University of Hamburg - Institute of Commercial Law ( email )

Max-Brauer-Allee 60
Hamburg, 22765
Germany
+4940428386539 (Phone)
+4940428386443 (Fax)

HOME PAGE: http://www.wiso.uni-hamburg.de/institute/irdw

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