Chapter 5: Carbon Footprint and Market Value of Cryptocurrencies and the Real Economy

The competitive process of creating blocks in blockchains — the technological backbone of cryptocurrencies — is computation intensive and consumes a large amount of energy. However, its environmental impact may not be significant, or at least not significant enough to undermine the application of digital currency as both a medium of exchange and a store of value. This chapter uses a unique dataset from the United States Environmental Protection Agency (EPA) to compare the carbon footprints of various industry sectors in the US with that of Bitcoin. Overall, the equivalent amount of greenhouse gas emissions from the Bitcoin network in 2020 is about one-third of the amount emitted by the entire mining sector in the US. In cross-sectional analysis, Bitcoin has a significantly larger carbon footprint than many companies and even industries after controlling for the economic value created. What is alarming is the rate of increase in Bitcoin’s energy consumption since 2017 and the possibility that its carbon footprint may eventually surpass all industries in the near future.