carbon emission flows and sustainability of Bitcoin blockchain

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ARTICLE NATURE COMMUNICATIONS | https://doi.org/10.1038/s41467-021-22256-3 As Bitcoin attracted considerable amount of attention in recent years, its underlying core mechanism, namely blockchain technology, has also quickly gained popularity. Due to its key characteristics such as decentralization, audit- ability, and anonymity, blockchain is widely regarded as one of the most promising and attractive technologies for a variety of industries, such as supply chain finance, production operations management, logistics management, and the Internet of Things (IoT)1–3. Despite its promises and attractiveness, its first appli- cation in the actual operation of the Bitcoin network indicates that there exists a non-negligible energy and carbon emission drawback with the current consensus algorithm. Therefore, there is an urgent need to address this issue. In this paper, we quantify the current and future carbon emission patterns of Bitcoin blockchain operation in China under different carbon policies. In recent years, the system dynamics (SD) based model is widely introduced for carbon emission flow estimation of a specific area or industry4,5. In comparison to its counterparts, SD modeling has two main advantages in carbon emission flow assessment: first, by combining the feedback loops of stock and flow para- meters, SD is able to capture and reproduce the endogenous dynamics of complex system elements, which enables the simu- lation and estimation of specific industry operations6–8. In addition, since the SD-based model is focused on disequilibrium dynamics of the complex system9,10, intended policies can be adjusted for scenario policy effectiveness evaluation. Conse- quently, based on system dynamics modeling, we develop the Bitcoin blockchain carbon emission model (BBCE) to assess the carbon emission flows of the Bitcoin network operation in China under different scenarios. This paper uses the theory of carbon footprint to create a theoretical model for Bitcoin blockchain carbon emission assessment and policy evaluation11,12. First, we establish the system boundary and feedback loops for the Bitcoin blockchain carbon emission system, which serve as the theoretical framework to investigate the carbon emission mechanism of the Bitcoin blockchain. The BBCE model consists of three interacting sub- systems: Bitcoin blockchain mining and transaction subsystem, Bitcoin blockchain energy consumption subsystem, and Bitcoin blockchain carbon emission subsystem. Specifically, transactions packaged in the block are confirmed when the block is formally broadcasted to the Bitcoin blockchain. To increase the probability of mining a new block and getting rewarded, mining hardware will be updated continuously and invested by network partici- pants for a higher hash rate, which would cause the overall hash rate of the whole network to rise. The network mining power is determined by two factors: first, the network hash rate (hashes computed per second) positively accounts for the mining power increase in the Bitcoin blockchain when high hash rate miners are mining; second, power usage efficiency (PUE) is introduced to illustrate the energy consumption efficiency of Bitcoin blockchain as suggested by Stoll13. The network energy cost of the Bitcoin mining process is determined by the network energy consump- tion and average electricity price, which further influences the dynamic behavior of Bitcoin miners. The BBCE model collects the carbon footprint of Bitcoin miners in both coal-based energy and hydro-based energy regions to formulate the overall carbon emission flows of the whole Bitcoin industry in China. The level variable GDP consists of Bitcoin miner’s profit rate and total cost, which reflects the accumulated productivity of the Bitcoin blockchain. It also serves as an auxiliary factor to generate the carbon emission per GDP in our model, which provides guidance for policy makers in implementing the punitive carbon taxation on the Bitcoin mining industry. Bitcoin blockchain reward halving occurs every four years, which means that the reward of broadcasting a new block in Bitcoin blockchain will be zero in 2140. As a result, the Bitcoin market price increases periodically due to the halving mechanism of Bitcoin blockchain. Finally, by combining both carbon cost and energy cost, the total cost of the Bitcoin mining process provides a negative feedback for miner’s profit rate and their investment strategies. Miners will gradually stop mining in China or relocate to elsewhere when the mining profit turns negative in our BBCE simulation. The comprehensive theoretical relationship of BBCE parameters is demonstrated in Supplementary Fig. 1. We find that the annualized energy consumption of the Bitcoin industry in China will peak in 2024 at 296.59 Twh based on the Benchmark simulation of BBCE modeling. This exceeds the total energy consumption level of Italy and Saudi Arabia and ranks 12th among all countries in 2016. Correspondingly, the carbon emission flows of the Bitcoin operation would peak at 130.50 million metric tons per year in 2024. Internationally, this emis- sion output surpasses the total greenhouse gas emission output of the Czech Republic and Qatar in 2016 reported by cia.gov under the Benchmark scenario without any policy intervention. Domestically, the emission output of the Bitcoin mining industry would rank in the top 10 among 182 prefecture-level cities and 42 major industrial sectors in China, accounting for approximately 5.41% of the emissions of the electricity generation in China according to the China Emission Accounts & Datasets (www. ceads.net). In addition, the maximized carbon emission per GDP of the Bitcoin industry would reach 10.77 kg/USD based on BBCE modeling. Through scenario analysis, we find that some com- monly implemented carbon emission policies, such as carbon taxation, are relatively ineffective for the Bitcoin industry. On the contrary, site regulation policies for Bitcoin miners which induce changes in the energy consumption structure of the mining activities are able to provide effective negative feedbacks for the carbon emission of Bitcoin blockchain operation. Results The energy and carbon emission problem of Bitcoin mining in China. Although the Proof-of-Work (PoW) consensus algorithm has enabled Bitcoin blockchain to operate in a relatively stable manner, several unexpected behaviors of the Bitcoin blockchain have been detected: first, the attractive financial incentive of Bitcoin mining has caused an arms race in dedicated mining hardware14. The mining hardware has evolved through several generations. Initially, miners used the basic Central Processing Unit (CPU) on general-purpose computers. Then, a shift was made to the Graphic Processing Unit (GPU) that offered more power and higher hash rates than the CPU. Finally, the Application-Specific Integrated Circuits (ASICs) that are optimized to perform hashing calcula- tions were introduced. Nevertheless, the rapid hardware develop- ment and fierce competition have significantly increased the capital expenditure for Bitcoin mining15; second, the Bitcoin mining activity and the constant-running mining hardware has led to large energy consumption volume. Previous literature has estimated that the Bitcoin blockchain could consume as much energy per year as a small to medium-sized country such as Denmark, Ireland, or Bangladesh16; finally, the large energy consumption of the Bitcoin blockchain has created considerable carbon emissions (see Sup- plementary Fig. 2 for details). It is estimated that between the period of January 1st, 2016 and June 30th, 2018, up to 13 million metric tons of CO2 emissions can be attributed to the Bitcoin blockchain17. Although the estimate ranges vary considerably, they have indicated that energy consumption of network and its corresponding environmental impacts have become a non-negligible issue. The growing energy consumption and the environmental impacts of the Bitcoin blockchain have posed problems for many 2 NATURE COMMUNICATIONS | (2021)12:1938 | https://doi.org/10.1038/s41467-021-22256-3 | www.nature.com/naturecommunications

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