Carbon-neutral Bitcoin funds are gaining traction as investors look for greener crypto


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Bitcoin (BTC) has been a hot topic of discussion lately, even for those outside of the core crypto community, but unfortunately not for the best of reasons. In particular, the amount of energy required to extract Bitcoin has raised concerns among investors considering BTC as a diversification option.

According to the Cambridge Center for Alternative Finance, Bitcoin currently consumes around 110 terawatt hours per year. An article in the Harvard Business Review also found that this equates to 0.55% of the world’s electricity generation, which is roughly equivalent to that of a small county.

While this is the case, it is important to note that any industry that adds value to society is likely to have an impact on the environment. However, with increasing global warming and other environmental issues, it is vital for the crypto sector to understand the amount of energy it uses to mine Bitcoin. When this problem comes into play, individuals within the cryptocurrency community can find solutions to address this challenge in the future.

Today’s green solution: CO2-neutral Bitcoin funds

Influential executives and crypto investors like Elon Musk and Michael Saylor continue to highlight Bitcoin’s energy usage challenges on Twitter to help raise awareness about the future of Bitcoin. Most recently, Musk and Saylor announced the formation of a Bitcoin Mining Council made up of several industry leaders that will ultimately enable sustainable Bitcoin mining initiatives.

While this is a step in the right direction, it could take years for this Bitcoin Mining Council to have any real impact. Jesse Morris, commercial director of Energy Web – a blockchain protocol designed to facilitate application development for the energy sector – told Cointelegraph that while Musk and Saylor are tweeting about a new Bitcoin Mining Council, action must be taken immediately.

Morris stated that Energy Web is currently working directly with a number of Bitcoin miners to develop software that uses blockchain technology to determine the Bitcoin network’s carbon footprint in near real-time. Morris noted:

“I wish the Bitcoin community would move to a more efficient consensus mechanism, but I don’t think this will happen. So we need to find a solution now to solve the challenges with consensus on proof of work.”

Morris also believes that a short-term solution to a greener Bitcoin network could be to develop climate-neutral exchange-traded funds.

While carbon neutral ETFs may sound like a foreign concept, some investment management firms have already taken steps to ensure just that. For example, Toronto-based Ninepoint Partners LP is an independent investment management firm with approximately $ 6.5 billion in assets under management. Alex Tapscott, managing director of digital assets at Ninepoint, told Cointelegraph that Bitcoin makes up a good chunk of the assets under the company’s leadership. “Crypto assets are a fast growing and important asset class for us,” he stated.

Ninepoint founded a Bitcoin Trust that went public on the Toronto Stock Exchange in January of this year. The Bitcoin Trust was then converted into an ETF on May 6th. Following the news of Ninepoint’s Bitcoin ETF, Tapscott stated that the company had decided to offset 100% of its fund’s carbon footprint to ensure interested investors get a green exposure to Bitcoin:

“By paying the cost of Bitcoin’s carbon footprint, we are offering investors the opportunity to get an environmentally friendly exposure to Bitcoin. We believe this is a unique and important offer that will help convince investors who have stood on the fence to buy Bitcoin. “

According to Tapscott, Ninepoint is working with a number of initiatives to ensure the company’s green Bitcoin ETF. For example, Ninepoint works with the Crypto Carbon Ratings Institute, a research company that studies the environmental impact of cryptocurrencies, and with CarbonX, a fintech company for environmental software.

Lena Klaassen, co-founder of the Crypto Carbon Ratings Institute, told Cointelegraph that the company uses its own methods and research to calculate the best estimate of the Bitcoin network’s true carbon footprint. Together with CarbonX, the Crypto Carbon Ratings Institute reports to Ninepoint on the share of its ETF in the Bitcoin network. CarbonX then uses its zero footprint practice, which delivers the appropriate amounts of CO2e, or carbon dioxide equivalent, to offset the pollution.

While Tapscott was unable to reveal specific figures on the fund’s carbon footprint, he stated that this is mainly due to the fact that assets under management fluctuate as new investors arrive and the price of Bitcoin changes. “Bitcoin’s energy footprint changes with its hashing rate. This is a moving target that we adjust monthly to reflect these changes, ”he noted.

Despite the volatility of the market and the cost of offsetting the carbon footprint, fully funded by Ninepoint, Tapscott found that the company sees this as the right thing to do, both for the company’s future and for the entire crypto sector as a whole. Tapscott said:

“There are many investors who want exposure to Bitcoin, but they question its energy footprint, especially the institutions whose environmental, social and governance (ESG) goals are to be achieved.”

Green funds – a continuing trend?

While there are still very few crypto asset management investment firms that are committed to going green, the efforts of some firms could very well create a powerful move.

Shortly after Ninepoint announced its green Bitcoin ETF, One River Digital Asset Management applied for a climate-neutral ETF. One River declined to speak to Cointelegraph about the matter, but Tapscott noted that he hopes Ninepoint’s green initiative will serve as a role model for the entire industry.

While it is difficult to predict the future of the crypto space, it is encouraging to see that BitMEX, a crypto derivatives trading platform, also recently announced the decision to go carbon neutral. Additionally, Marathon Digital Holdings, a US-based bitcoin mining company, announced plans to achieve 70% carbon neutrality. Klaassen added that the Crypto Carbon Ratings Institute now sees a trend for BTC miners – especially those that are publicly traded – to rate their own Scope 1,2 and 3 emissions in order to address them.

Paul Brody, blockchain head at Ernst & Young, told Cointelegraph that carbon neutral mining operations are definitely possible. “If your plan is to keep the bitcoin you are mining only carbon neutral, you have an environmentally friendly solution,” he said.

However, Brody pointed out that when making a transaction with Bitcoin, it may not be possible to know for sure whether the transaction is being processed by a climate-neutral miner. Brody said:

“You cannot know the history of these transactions. However, if you combine a climate neutral mining operation with some degree of carbon offsetting over your other transactions, you most likely have a largely environmentally friendly Bitcoin operation. “

A long term solution for Bitcoin

While Bitcoin ETFs, investment management companies and mining companies continue to commit to becoming carbon neutral, a longer-term solution is still needed to make a green Bitcoin a permanent reality.

In the long term, Morris believes that arrangements must be made that meet official standards. To ensure this, Energy Web recently launched its Crypto Climate Accord, which Morris says has 45 supporters including miners, crypto investors, foundations, exchanges and more. The aim of the agreement is to make Bitcoin fully renewable by considering two aspects.

Morris mentioned that the agreement aims to raise awareness of “greenwashing”. According to Morris, “clean crypto funds” are cause for skepticism, as blockchain networks that do not use a traditional proof-of-work consensus do not use nearly as much energy as Bitcoin.

Because of this, Morris believes that the conversation about energy conservation should be specifically focused on Bitcoin. Morris also stated that the Crypto Climate Accord will take steps to help large institutional and retail investors turn their Bitcoin green by making the Bitcoin network radically transparent.

One challenge that has yet to be addressed is the development of standards. According to Morris, Energy Web is currently considering developing a global standard to track Bitcoin’s carbon footprint.

In addition, the crypto community must continuously work towards an environmentally friendly solution for Bitcoin. Bill Tapscott, Chief Operating Officer of CarbonX, told Cointelegraph, “Although a carbon-neutral path has been taken, the crypto community must take responsibility for the transition to a low-carbon world itself.”