A framework for carbon-neutral Bitcoin investment through proportional co-investment in sustainable mining operations that balances price incentives with difficulty disincentives.
We propose a way to invest in bitcoin without contributing, even slightly, to unsustainable bitcoin mining. If one co-invests in sustainable mining operations in proportion to the size and duration of one’s bitcoin holdings, one’s bitcoin and green mining investments together will produce no net incentive to mine bitcoin in a carbon-intensive way. We estimate that, given current price, hashrate, issuance, and transaction fee levels, a quarterly allocation of approximately .28% of one’s bitcoin investment into green mining will suffice. Unlike other proposals to green bitcoin, ours preserves bitcoin’s fungibility and costs nothing. In fact, it provides a positive return.
We begin with two assumptions. First, bitcoin is an attractive investment, environmental impact aside; second, carbon-intensive bitcoin mining is to be minimized. Readers who think bitcoin has no value whatsoever, or who think any focus on carbon reduction is a mere distraction, may look elsewhere for guidance. For readers who do share our assumptions, we will:
1. explain how owning bitcoin incentivizes mining, including carbon-intensive mining;
2. show how green mining, given bitcoin’s issuance structure, provides a disincentive to other miners, including carbon-intensive miners;
3. show how to balance these two incentives;
4. calculate the cost to balance a given bitcoin investment;
5. discuss possible financial products and services to achieve this balance for investors;
6. introduce a novel pairing of BitBonds, a proposed U.S. Treasury product, with investments in bitcoin mining;
7. explain and defend, in brief, a proportional rather than marginal approach to carbon accounting;
8. compare our proposal, favorably, to other options;
9. show that the strategy described here applies across other domains too; many investors with distinctive values who are interested in holding bitcoin can implement those values with coinvestments in bitcoin mining.
Read the full Policy Brief HERE
