Introduction

The report explores Bitcoin’s environmental sustainability through the lens of Green FinTech. It underscores the dual impact of cryptocurrencies: their potential to foster financial inclusion and innovation, contrasted with significant environmental challenges, particularly energy consumption during mining. The study uses empirical analysis to examine the relationship between Bitcoin’s miner revenue and electricity usage.

Green FinTech definition

Green FinTech integrates financial technology with sustainability goals, employing tools like artificial intelligence, blockchain, and big data analysis to promote economic inclusion and environmental protection. The report identifies that Green FinTech applications, such as mobile banking and decentralised finance (DeFi), can reduce poverty and inequality while fostering sustainable practices. However, cryptocurrencies like Bitcoin raise questions about environmental friendliness due to their energy-intensive mining processes.

Literature review

Bitcoin mining consumes substantial electrical energy due to the computational processes required in the proof-of-work mechanism. The report estimates energy usage through Bitcoin’s hash rate, representing the computational power of its network. Bitcoin mining’s renewable energy utilisation ranges from 39% to 70%, but significant reliance on non-renewable sources contributes to carbon emissions. Previous studies suggest that rising Bitcoin prices increase mining activity and CO2 emissions. The report builds on these findings by employing advanced econometric models to analyse Bitcoin’s environmental impact.

DCC GARCH model

The dynamic conditional correlation-generalised autoregressive conditional heteroskedasticity (DCC-GARCH) model measures the correlation between Bitcoin miners’ revenue and electricity consumption. Data spanning from July 2014 to July 2021, totalling 2,580 daily observations, was analysed. Results indicate a consistent positive correlation, averaging 50%, with peaks during Bitcoin price surges. The relationship between hash rates and energy consumption is also strongly positive, with conditional correlations varying between 0.19 and 0.77. The analysis suggests that mining activity intensifies during price increases, amplifying energy consumption and associated environmental effects.

Empirical results

The analysis highlights significant volatility in the correlation between Bitcoin miners’ revenue and electricity consumption, particularly between 2014 and 2017. A notable rise in this correlation occurred during the COVID-19-induced cryptocurrency rally, demonstrating the market’s influence on mining behaviour. The findings emphasise that mining profitability depends on energy costs and efficiency, with miners in regions with cheap or renewable energy gaining a competitive advantage.

Conclusion

The report concludes that Bitcoin’s energy consumption, driven by its proof-of-work mechanism, poses environmental challenges. While Bitcoin embodies financial innovation, its reliance on non-renewable energy contributes to greenhouse gas emissions. To address these concerns, the report recommends transitioning to renewable energy sources such as solar, wind, and geothermal for mining. It also suggests that eco-friendly cryptocurrencies with lower energy demands could gain prominence in green finance initiatives. Future research should focus on energy-efficient cryptocurrencies to align FinTech with sustainability goals.