Carbon-Neutral Bitcoin for Nation States

Abstract

Sovereign adoption of bitcoin, whether as legal tender or in treasury reserves, increases the profitability of energy-intensive bitcoin mining, creating significant carbon emissions. This paper explores methods for adopting bitcoin while mitigating or eliminating associated carbon emissions. We survey three solutions: regulation/taxation, carbon offsetting, and finally, state-directed or state-supported carbon-neutral mining, arguing for the advantages of the latter. We then compare two ways of executing this last approach: (1) the state must mine all its bitcoin holdings; (2) the state must mine the same percentage of mining as its percentage of all bitcoin holdings. We show that (2) is a superior method, and that a nation state can adopt bitcoin in a carbon-neutral manner with a relatively small investment in carbon-neutral mining. At present levels of bitcoin mining and bitcoin pricing, an annual allocation of around 1% of the state’s bitcoin holdings towards mining will suffice, and may generate a positive return. El Salvador is used throughout as a case study, and we make specific suggestions for how much El Salvador should mine to achieve carbon neutrality with respect to their bitcoin holdings.