In the know: Understand how cryptocurrencies and ESG go hand in hand in these times; Is Crypto ESG-friendly?; and how do you mind crypto with sustainability in mind?
This blog discusses the take on ESG and Cryptocurrencies, two recent booming concepts in the finance industry. Read below for an in-depth research about the topic.
READ: ABCrypto: The basics of digital assets
Understand how crypto and ESG go hand in hand in these times
Photo by Kanchanara on Unsplash
According to Statista, Etheruem’s value quadrupled in comparison with December 2021 vs. 2019 of the same month. Whilst Bitcoins value went around 6x than its value within the same time period. These numbers suggest that more and more experts and investors are putting their virtual currencies up than before. This is the reason why industry professionals are asking what are the possible effects of virtual investing, specially crypto, on ESG. Let’s discuss that further. First, let’s break down ESG and correlate them each with cryptocurrency.
READ: On ESG Compliance, and the matters that should matter.
Fiat money and digital currency can both be used to exchange goods or services but they are different with how they are made. We wrote a blog that explains that here.
While fiat money needs resources like cotton, fibre, and linen to be produced; crypto needs internet, computers, and electricity to be mined. Both are uniquely produced so when compared, they do have different energy consumption required for production.
According to research done by the University of Cambridge in 2019, Bitcoin mining requires less electricity than what common household appliances use in the US.
However, the US is not the highest contributor for Bitcoin mining according to the data from Cambridge research in June 2021. Said data shows that Mainland China has a 86% higher contribution than the US.
Several countries, including China, are also becoming aware of the energy that digital asset mining is consuming and are making regulations to lower it. As of January 2022, a total of 8 countries have banned crypto and its mining activities.
It’s also good to know that there are other ways to mine digital assets – Proof of Stake (PoS) vs Proof of Work (PoW). Here’s a video explainer from Simply Explained how they differ from each other.
This means that depending on where and how the digital asset is mined, it can be carbon-neutral or not at all. In the end, digital asset mining is energy friendly if it consumes renewable energy rather than coal and/or old forms of energy sources. And a unified regulation will also help to make crypto mining more sustainable.
S (Social) –
Since crypto is decentralized, there are questions about investor protection and security against illegal activities and transactions. This is the same concern raised by China. As China’s National Development and Reform Commission spokesperson Meng Wei said, crypto production and trade produces “prominent risks,” she also comments that the industry is “blind and disorderly.”
Photo by Kanchanara on Unsplash
However many argue that a decentralized system makes cryptosystem good as transactions are faster, cheaper, inclusive, and censorship-free. As a blog article about crypto published by For Dummies, said, “In general, more decentralized cryptocurrencies are likely to be more stable and likelier to survive (long enough for you to profit from mining) than more centralized and less distributed cryptocurrencies.”
In conclusion, there’s no specific answer as to whether or not crypto is social-friendly. And that further studies are needed to better understand if the positives outweigh the negatives in terms of social for crypto and vise versa.
G (Governance) –
When it comes to governance, more countries and legislations are creating regulations about crypto security, management, and production. But keep in mind that the framework of crypto is decentralized as it is made that way. And that in the future it could lead to either: 1) a uniformed rules and law that encompasses all crypto and digital asset systems; or 2) unique laws for each country or jurisdiction to protect its investors against crimes that can be committed with crypto.
Speaking of which, is Crypto ESG-friendly?
With the information and research listed above, we can say that crypto can be ESG friendly if looked at a certain angle, but not on the other and vise versa. This applies the same with how you approach crypto mining, as well as the social and governance aspect of running cryptocurrencies.
Now, how do you keep crypto with ESG in mind?
Since there is no specific handbook that tells exactly how, it’s best to use ESG best practices that can be applied for crypto. This includes using renewable energy as well as applying Proof of Stake when mining, and others.
As there are more studies that need to be done for both ESG and Crypto, more and more laws and regulations will eventually fall into place.
And as investors, it’s important to keep updated and knowledgeable of these trends to help you decide and calculate the risk factors that can come along with the potential results of crypto investment.
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