Bitcoin, Crypto, and ESG

Bitcoin, Crypto, and ESG

By 416Bitcoin | AAX Exchange | 4 May 2022


Bitcoin, Crypto, and ESG

 

Ever since it took on significant value, crypto has been criticized by those that have a deep-rooted hate for decentralized digital assets. Many of those arguments have remained in place despite being disproved: detractors still claim cryptocurrencies make the problem of money laundering worse, even though the in-depth reports of reliable firms like Chainalysis have long demonstrated that the on-chain movement of wealth is a lot easier to track as opposed to ill-obtained digital fiat holdings managed by banks such as HSBC.

An ESG perspective on crypto

The ESG (environmental, social, and corporate governance) angle is another source of criticism, and it too has been around for years now. But it seems that the narrative has made a comeback during the past year, most notably when Tesla announced it was buying Bitcoin. This was followed shortly by a suspension of BTC payments for the electric vehicles it produces. The reasoning was that the carbon footprint of the Bitcoin network simply didn’t jive well with Tesla shareholders who buy into the company’s mission to drive down emissions in the automobile industry. Once the Bitcoin network becomes greener, then Tesla will reconsider accepting BTC for Tesla vehicles. 

However, it must be said that the fiat industry has its own set of long-running ESG problems. The U.S. Federal Reserve estimates that the average lifespan of $5 and $10 bills is around five years. Producing new bills and coins requires not only energy but also water, wood pulp, cotton, various metals, linen, and other natural resources. A HackerNoon writer estimates the amount of energy used by banks to be at about 100 terawatts per year, making it almost double the amount of energy used by Bitcoin. Further, banks cannot relocate to areas where sustainable energy is cheap and abundant like Bitcoin miners can, so they are stuck with whatever type of energy is being used in their neighborhood, which is often coal.

But this leads us to a discussion filled with subjective claims. Whether or not the energy being consumed is too much, depends on how much you value the thing being created. Some value a decentralized financial and cultural network that provides true digital ownership more than others. Some think the massive amount of energy consumed by the videogames industry is waste, others value the entertainment it provides.

Either way, crypto has responded to the calls to make the industry greener. New and existing blockchain projects are exploring everything from migration to less energy-intensive validation systems to exploring renewable energy-based mining. Ethereum is perhaps one of the most prominent examples of a leading cryptocurrency project that is transitioning from PoW to a proof-of-stake (PoS) system, with an aim of reducing its overall energy consumption by 99.95%.

Many Layer 1 blockchains have repositioned themselves as ‘green’ alternatives to Bitcoin and Ethereum. Putting aside the moral question of what constitutes ‘too much’ energy consumption for an arguably better financial system that is equally accessible to everyone around the world, the move towards smaller carbon footprints is of course a win for everyone. 

Blockchain projects that focus on improving carbon footprint

Much of the energy consumed by a blockchain is determined by the consensus mechanism used to add new blocks to the chain in a way that preserves immutability and authenticity. Proof-of-work models used in chains such as Bitcoin and Ethereum use a lot more energy than proof-of-stake chains (Ethereum is still in the process of transitioning into proof-of-stake).

Algorand

Algorand was created to be the most efficient and greenest blockchain available. Sustainability has been a core component of Algorand since its inception. As the world’s first pure proof-of-stake blockchain, the Algorand network was designed from the ground up to minimally impact the environment. Because its consensus is not based on energy-intensive proof-of-work and requires minimal computational power or electricity, Algorand has been a leader in minimizing the environmental impact of blockchain technology. The energy required to run a node in the network is negligible and can be done on a device as simple as a Raspberry Pi. 

The Hedera Network

The Hedera Network’s underlying technology, the energy-efficient hashgraph algorithm, and proof-of-stake consensus mechanism have laid a solid foundation for relatively sustainable network operations. Hedera Hashgraph has adopted environmental sustainability as a core value and is officially committed to carbon-negative network operations by purchasing carbon offsets quarterly.

Ripple

Ripple has pledged to achieve carbon net-zero by 2030. They’ve also partnered with the XRP Ledger Foundation, Energy Web, and Rocky Mountain Institute to decarbonize public blockchains such as XRP Ledger through the use of the new open-source EW Zero tool. Additionally, Ripple is driving new research with leading universities that evaluates energy consumption across digital assets, credit card networks, and cash.  

Cardano

Cardano is a proof-of-stake cryptocurrency built on a peer-reviewed blockchain, developed by one of the co-founders of Ethereum. People buy units of Cardano to become members of the network instead of mining new coins, meaning it uses orders of magnitude and less energy than something like Bitcoin. This structure also lets Cardano scale up to meet increased demand without a stratospheric increase in power consumption.

Besides changing the amount of energy consumed by blockchains, innovation is also taking place to improve the way that energy is created in the first place – and how ‘waste energy’ is handled. Mining operations like Equinor and Crusoe Energy have repurposed unused conventional power plants or excess gas from drilling that usually gets burned off to power mining operations. Critics have pointed out, however, that this doesn’t eliminate harmful emissions – it just transfers them to a different industry and could incentivize further drilling.

The future of a greener crypto industry

Looking past the value judgements of energy consumption, it is upon every industry to minimize its carbon footprint and crypto is no exception. Whether it is at the blockchain technology level or at the energy production level, there are many ways for crypto to become a greener industry and those opportunities need to be captured.

Interestingly, besides the need to protect the environment, there is another huge reason for crypto to comply with ESG standards. Many large financial institutions like BlackRock and Morgan Stanley have recently adopted tighter guidelines around their investments, where holdings in their portfolios must meet certain ESG criteria. At the moment, that prevents a company like BlackRock for example from buying Ethereum at a large scale. Once crypto becomes ESG compliant, it could very well take up a large portion of the technology investments made by some of the largest financial institutions in the world.


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416Bitcoin
416Bitcoin

AAX Offical Telegram Community Admin, and AAB holder. AAX is the world's first crypto exchange powered by LSEG Technology's world-renowned matching engine, giving you a chance to trade crypto at the speed of light.


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As the official AAX Community Admin, I hope to bring you the last news for Atom Asset Exchange. AAX is the world's first crypto exchange powered by LSEG Technology's world-renowned matching engine, giving you a chance to trade crypto at the speed of light.

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