Bitcoin (BTC) sustainability report

Bitcoin is present on the following networks: Bitcoin.

The Bitcoin blockchain network employs a Proof of Work (PoW) consensus mechanism to achieve decentralized agreement among its numerous participants. This process involves several core components: nodes, miners, the blockchain itself, and cryptographic hash functions. Nodes are computers that run the Bitcoin software, validating transactions and blocks across the network. Specialized nodes, known as miners, undertake the crucial task of creating new blocks by solving intricate cryptographic puzzles. The blockchain serves as a public, immutable ledger, meticulously recording all Bitcoin transactions in a sequential series of blocks. Each block contains a list of validated transactions, a cryptographic link (hash) to the preceding block, a timestamp, and a nonce—a number used only once in the hashing process. The network primarily utilizes the SHA-256 cryptographic hash function to ensure the integrity and security of the data within these blocks, transforming input data into a fixed-size, seemingly random string. The consensus process begins with transactions being broadcast and gathered by miners into a candidate block. These transactions undergo rigorous validation by nodes to confirm adherence to network rules, such as valid signatures and sufficient funds. Miners then engage in a competitive race to find a nonce that, when combined with the block's data and processed through the SHA-256 function, yields a hash value below a dynamic target. This target is adjusted periodically to maintain an average block discovery time of approximately 10 minutes, ensuring a predictable rate of block creation. This computationally intensive search for a valid nonce constitutes the 'Proof of Work' and demands significant energy and resources. Once a miner successfully identifies a valid nonce, the new block is broadcast across the network. Other nodes verify the block's integrity, including the correctness of its hash and the validity of all contained transactions. Upon successful verification, nodes append this new block to their local copy of the blockchain. Network consensus dictates that the longest chain, defined by the cumulative proof of work, is recognized as the legitimate chain. In scenarios of temporary forks, the network resolves these by continuing to extend the most-worked-on chain until a single, longest chain prevails. For the purpose of calculating sustainability indicators, the energy consumption and transactions of the Lightning Network are also considered, reflecting the Digital Token Identifier Foundation's categorization for the relevant functionally fungible group.

Bitcoin is present on the following networks: Bitcoin.

The Bitcoin blockchain network relies on a robust system of economic incentives and applicable fees, primarily linked to its Proof of Work (PoW) consensus mechanism, to ensure network security and data integrity. This framework encourages active participation from miners and fair usage by transacting parties. The core incentive for miners comes from block rewards, which consist of newly minted bitcoins awarded to the miner who successfully adds a new block to the blockchain. Historically, this reward began at 50 BTC. A fundamental design feature, known as 'halving,' reduces the block reward by half approximately every four years, specifically after every 210,000 blocks. This halving mechanism is crucial for regulating the supply of Bitcoin, ensuring that the total number of bitcoins issued will never exceed 21 million, thereby creating scarcity that can influence its long-term value. Beyond block rewards, transaction fees serve as another vital incentive for miners. Users include these fees with their transactions to encourage miners to prioritize and include their data in a block. These fees become increasingly significant as block rewards diminish over time due to the halving events. The transaction fee structure operates as a market, where users can offer higher fees to incentivize faster processing, particularly during periods of high network congestion when block space is limited. This market-driven approach ensures that transactions can be processed efficiently, with those willing to pay more gaining quicker inclusion. The overall incentive system is designed to align the economic interests of miners with the security and stability of the Bitcoin network. It's also noteworthy that when calculating certain sustainability indicators, the additional energy consumption and transaction volume attributed to the Lightning Network are factored in, as per the Digital Token Identifier Foundation's functional fungible group classification.

Bitcoin is present on the following networks: Bitcoin.

The methodology for calculating the Bitcoin blockchain network's energy consumption primarily employs a 'top-down' approach, which is rooted in an economic assessment of the network's miners. Miners are defined as the individuals or hardware entities actively engaged in the Proof-of-Work (PoW) consensus mechanism, and they are considered the central drivers of the network's energy usage. The process begins with the pre-selection of mining hardware, specifically tailored to the SHA-256 hash algorithm employed by Bitcoin. A crucial step involves determining a current profitability threshold, which is established by analyzing the revenue and cost structures associated with mining operations. Only hardware that surpasses this profitability benchmark is included in the energy consumption model for the network. The overall energy consumption is then computed by considering several factors: the distribution of various hardware types in use, their respective operational efficiency levels, and on-chain data pertaining to the revenue opportunities available to miners. If the practice of merge mining is identified as a significant factor, its contribution is also incorporated into the calculations. To ensure comprehensive coverage, the Functionally Fungible Group Digital Token Identifier (FFG DTI) is utilized, when available, to identify all relevant implementations of the asset within scope. These mappings are regularly updated based on data from the Digital Token Identifier Foundation. The underlying assumptions regarding the hardware deployed and the number of network participants are diligently verified against empirical data. Generally, participants are presumed to act with economic rationality. Furthermore, a precautionary principle is applied, meaning that in cases of uncertainty, conservative assumptions are made, typically resulting in higher estimates for potential adverse environmental impacts. For the energy consumption of a specific token, a fraction of the total network energy is attributed based on the crypto-asset's activity within the network.

Bitcoin is present on the following networks: Bitcoin.

The methodology for determining the key energy sources and the proportion of renewable energy utilized by the Bitcoin blockchain network involves a multi-step process. A primary aspect of this approach is to ascertain the geographical locations of the network's nodes. This data is collected through various means, including leveraging public information websites, deploying open-source crawlers, and employing proprietary in-house developed crawlers. In instances where comprehensive geographical information regarding node distribution is unavailable, the methodology resorts to using reference networks. These reference networks are carefully selected based on their comparability to the Bitcoin network in terms of their incentivization structure and the underlying consensus mechanism. Once the geographical information for the nodes is established, either directly or through reference networks, this data is then integrated with publicly accessible information from reputable sources like Our World in Data. Specifically, the dataset titled 'Share of electricity generated by renewables – Ember and Energy Institute' is utilized to quantify the renewable energy component. This dataset is compiled from original data by Ember and the Energy Institute's Statistical Review of World Energy (2024), with significant processing by Our World in Data. The energy intensity for the network is then calculated as the marginal energy cost associated with processing one additional transaction. This comprehensive approach aims to provide a robust estimation of the renewable energy footprint of the Bitcoin blockchain network by triangulating node locations with global energy mix data.

Bitcoin is present on the following networks: Bitcoin.

The methodology for assessing the key Greenhouse Gas (GHG) emission sources for the Bitcoin blockchain network parallels the approach used for energy sources, focusing on geographical data and established emission factors. To determine the GHG emissions, the initial critical step involves identifying the physical locations of the network's nodes. This is achieved through a combination of public information sites, the deployment of open-source crawlers, and the utilization of custom-developed in-house crawlers. Should specific geographical distribution data for the nodes prove insufficient or unavailable, the methodology incorporates data from reference networks. These reference networks are carefully chosen for their similarities to Bitcoin's incentivization models and consensus mechanisms, ensuring a relevant proxy for geographic energy sourcing. Once the geo-information is compiled, it is meticulously merged with public data from Our World in Data. For GHG emissions, the relevant dataset cited is 'Carbon intensity of electricity generation – Ember and Energy Institute', which is licensed under CC BY 4.0. This dataset integrates original data from Ember's Yearly Electricity Data (for Europe and global) and the Energy Institute’s Statistical Review of World Energy (2024), processed extensively by Our World in Data, to provide carbon intensity values for electricity generation across various regions. The GHG intensity of the network is subsequently calculated as the marginal emission generated per additional transaction. This detailed approach ensures that the estimations for the Bitcoin blockchain network's GHG footprint are as accurate and geographically informed as possible, reflecting the emissions tied to its operational energy consumption.