Background Bitcoin Mining
Bitcoin mining is an integral part of the Bitcoin network. The process guarantees the decentralization of the Bitcoin network, as no central entity is in control of who can transact and who cannot. Energy is expended to guarantee the security and the decentralization of the network. It helps to enforce the rules of the Bitcoin network, such as the hard cap of 21 million Bitcoin. Bitcoin miners use energy during the proof of work process. That energy use and the potential CO2 emissions attached to it, depending on the energy source, are a controversial topic (Sai and Vranken, 2024), especially given the rapid growth of the network in recent years. That means, estimating the energy consumption and the emissions of the Bitcoin network have become an increasingly important topic. Not only for researchers and users of the Bitcoin network but more and more so also for policy makers.
To accurately estimate the energy consumption and emissions of the Bitcoin network and their evolution over time, an accurate energy model is needed. Two major indices have attempted to estimate the energy mix and carbon footprint of the Bitcoin network to date. They are the Bitcoin Energy Consumption index by De Vries (2024) and the Cambridge Bitcoin Electricity Consumption Index (CBEI) by Cambridge (2024). However, both models have methodological flaws leading to biased estimates of the network’s emissions.