Allocations
Allocation methodologies describe how the overall network's electricity consumption and GHG emissions are distributed between holdings and transactions, highlighting the individual responsibility of stakeholders of the network.
📈 Holding-based
This approach distributes the total GHG emissions based on the share of the single investment holding to the overall market capitalization. The assumption for this approach is that block validation is the driver for electricity consumption and corresponding GHG emissions. For instance, if a person has invested in a specific cryptocurrency, then their share of the GHG emissions will be proportional to their investment.
💳 Transaction-based
This method distributes the total GHG emissions based on the share of the number of transactions performed. Alternatively, the share of the transaction fee or the share of transaction size can also be used. The assumption here is that transactions are the main driver for electricity consumption and corresponding GHG emissions. If no transactions are performed, the electricity consumption should be zero.
🤝 Hybrid
The hybrid approach combines the holding-based and transaction-based method. For PoW networks, the split of block reward vs. transaction fees is used, as miners are incentivized by both parts — the share of the total GHG emissions arising from block rewards are allocated according to the investment-based approach, while the share incentivized by transactions is allocated based on rewards due to transaction fees. In PoS networks, we use the split between idle consumption and marginal electricity consumption of transactions: idle consumption is attributed to holders, and marginal electricity consumption is attributed to entities that transact. This approach provides the most accurate distribution of GHG emissions.
All three methodologies are available in the API, however we strongly advise you to only use the hybrid-based allocation.
Exemplary Values
To give an indication of the methodologies, the table below shows the electricity consumption for holding one bitcoin and executing one transaction. All values are averages for one day in 2021.
| One Bitcoin transaction | Holding one bitcoin | |
|---|---|---|
| 📈 Holding-based | - | 15.16 kWh |
| 💳 Transaction-based | 1,077.83 kWh | - |
| 🤝 Hybrid-based | 63.33 kWh | 14.21 kWh |
Want to deep-dive into this topic? CCRI and South Pole, in consultation with PayPal, have published a framework titled "Accounting for Cryptocurrency Climate Impacts". More technical details can be found in CCRI's "Accounting for carbon emissions caused by cryptocurrency and token systems".