ESG data for bitcoin

This page provides an overview of the principal adverse impacts on the climate and other environment-related adverse impacts of the consensus mechanism used in bitcoin, as required for bitcoin companies under article 66(5) MiCA. It also includes an explanation of the bitcoin consensus mechanism, and a section on the incentive mechanisms and applicable fees.

The bitcoin consensus mechanism: Proof of Work (PoW)

Proof of Work (PoW) is a protocol used to achieve consensus and secure the bitcoin network. In PoW, miners compete to solve complex mathematical 'puzzles', a process that requires computational power and energy. The first miner to solve the 'puzzle' adds a new block of transactions to the blockchain, earning a block reward, which consists of the newly created bitcoin (the block subsidy) and transaction fees paid by users.

Furthermore, the network of bitcoin nodes (every computer that runs bitcoin software to validate transactions) will always follow the longest chain. If a longer chain emerges with more blocks added to it, nodes will switch to that chain, discarding the shorter one. This ensures a single, agreed-upon version of the blockchain and guarantees that all participants agree on its state. This prevents double-spending and secures the network against attacks.

Incentive mechanisms and applicable fees

Bitcoin's incentive mechanisms play a critical role in maintaining and securing the network. Miners, who validate transactions and add them to the blockchain, are rewarded with newly created bitcoin (the block subsidy) and the transaction fees paid by users to send their bitcoin through the network. The block subsidy decreases over time due to the halving process, which occurs every four years, reducing the number of new bitcoins entering circulation. As the block subsidy diminishes, transaction fees are expected to become the primary incentive for miners. During periods of network congestion, users can set custom fees for their transactions, with higher fees often being prioritised by miners. This dynamic incentivises the efficient use of the network while ensuring its long-term sustainability and security.

Energy consumption sources and methodologies

The energy consumption of this asset is aggregated across multiple components: For the calculation of energy consumptions, the so called “top-down” approach is being used, within which an economic calculation of the miners is assumed. Miners are persons or devices that actively participate in the proof-of-work consensus mechanism. The miners are considered to be the central factor for the energy consumption of the network. Hardware is pre-selected based on the consensus mechanism's hash algorithm: SHA-256. A current profitability threshold is determined on the basis of the revenue and cost structure for mining operations. Only Hardware above the profitability threshold is considered for the network. The energy consumption of the network can be determined by taking into account the distribution for the hardware, the efficiency levels for operating the hardware and on-chain information regarding the miners' revenue opportunities. If significant use of merge mining is known, this is taken into account. When calculating the energy consumption, we used - if available - the Functionally Fungible Group Digital Token Identifier (FFG DTI) to determine all implementations of the asset of question in scope and we update the mappings regulary, based on data of the Digital Token Identifier Foundation. To determine the energy consumption of a token, the energy consumption of the network(s) lightning_network is calculated first. Based on the crypto asset's gas consumption per network, the share of the total consumption of the respective network that is assigned to this asset is defined. When calculating the energy consumption, we used - if available - the Functionally Fungible Group Digital Token Identifier (FFG DTI) to determine all implementations of the asset of question in scope and we update the mappings regulary, based on data of the Digital Token Identifier Foundation.

Key energy sources and methodologies

To determine the proportion of renewable energy usage, the locations of the nodes are to be determined using public information sites, open-source crawlers and crawlers developed in-house. If no information is available on the geographic distribution of the nodes, reference networks are used which are comparable in terms of their incentivization structure and consensus mechanism. This geo-information is merged with public information from the European Environment Agency (EEA) and thus determined. The intensity is calculated as the marginal energy cost wrt. one more transaction.

Key GHG sources and methodologies

To determine the proportion of renewable energy usage, the locations of the nodes are to be determined using public information sites, open-source crawlers and crawlers developed in-house. If no information is available on the geographic distribution of the nodes, reference networks are used which are comparable in terms of their incentivization structure and consensus mechanism. This geo-information is merged with public information from the European Environment Agency (EEA) and thus determined. The intensity is calculated as the marginal emission wrt. one more transaction.