By current estimates, 191 tonnes of carbon are emitted for each mined bitcoin. That's the equivalent of chopping down over 13,000 trees. A shocking number, but the reality is worse. The calculations radically underestimate the footprint of bitcoin.

Why is that the case?

Let’s revisit carbon impact for equities. To create a footprint for your portfolio, Sugi looks at the emissions of underlying companies and allocates you a portion of that impact, based on your ownership share of those companies. Our calculations include three different types of emissions: the emissions a company generates (Scope 1), those in its electricity supply (Scope 2), and those in its ‘value chains’ - from its suppliers and the end users of its products (Scope 3).

Can we use the same analysis for bitcoin?

Bitcoin is more like a commodity or product than a company - but this risks under-calculating the emissions attributable to its mining and trading. Instead, prominent organisations in this space (such as the Crypto Climate Accord) treat bitcoin like an equity when it comes to calculating emissions. But they largely ignore Scope 3 emissions.

Where do bitcoin emissions come from?

Whereas Scope 1 emissions dominate mining of physical commodities, bitcoin mining doesn’t itself produce carbon. There are no bitcoin collieries, mine fires or leaking gases, spewing emissions into the atmosphere.

Instead, the big measurement, the one that drives the headline figure of 191 tonnes, is Scope 2 - the electricity used by the hundreds or thousands of computers that collaborate to mine a single bitcoin and the air conditioning units needed to prevent mining facilities from overheating.

Scope 3, however, is also significant and shouldn’t be lost from the calculation.

Getting down and dirty with Scope 3

First of all, any computer, let alone one which is specialised to mine bitcoin, has a complex supply chain, involving many components that are transported great distances. Manufacturing emissions can be considerable, and they’re multiplied for every computer involved in the bitcoin mining process, some of which have a short operational lifespan.

Then there are emissions from previous bitcoin trades. This includes emissions from transactions on the blockchain (around 500kg of carbon for each transaction), but also the significant emissions associated with centralised cryptocurrency exchanges, such as Coinbase. Once a bitcoin is transferred onto an exchange, it may change hands tens of thousands of times without being recorded on the ‘main’ blockchain.

With the exception of Coinbase, the major exchanges are privately owned and none of them discloses its environmental footprint. Bitcoin are traded 24/7, and all those servers, humming away day and night, are another source of emissions. Although each bitcoin may form a small part of those servers’ activities, bitcoin can be subdivided almost infinitely, and each fragment has its own footprint. Server emissions are a significant part of the global bitcoin infrastructure that shouldn’t be disregarded.

For a greener alternative, try ‘proof of stake’ and ‘peer to peer’

So, after all of that, what can an environmentally conscious bitcoin investor do?

Well, there are fledgling moves to decarbonise bitcoin. The Crypto Climate Accord encourages its signatories to move to 100% renewable energy. However, the initiative is largely focused on bitcoin mining emissions; few of the signatories are centralised exchanges. You can also now buy bitcoin with inbuilt offsets, which are marketed as carbon neutral. Though buyer beware: achieving carbon neutrality very much depends on which emissions you count in the first place. As discussed above, most reports are under-counting.

Investors in this space could also consider other currencies that are created using more energy-efficient algorithms. Proof-of-stake currencies, such as Cardano, are gaining in popularity for this reason. And while the picture is more complex when it comes to trading, currencies that change hands peer to peer don’t rely on thousands of servers at big exchanges, which can be much more efficient.

Ultimately bitcoin, by its nature, will be difficult to decarbonise. Maybe, as with many other mined products, it’s time for investors to choose a greener alternative.