October 07, 2021 |James Messi
Humanity has always been beset by various social, economic, political, and/or environmental problems. Throughout history, these problems have come alongside humanity’s progress. From the practice of slavery and the racial discrimination it fostered, to the destruction of huge swaths of forested lands and poisoning of water resources, the advancements of man have often come at a terrible cost. Such scenarios may prompt one to think that this is just the price to pay for pushing human civilization forward.
However, this price is too high and man has paid dearly for not seeing it earlier. With the climate crisis front and center of the various forces that threaten the survival of our species, it has become even more imperative that whatever innovation we come up with in any field should not only be socially acceptable, but also environmentally sustainable.
For this reason, most companies, especially those that are well-known, seek to abide by and integrate certain environmental, social, and governance (ESG) factors in their marketing strategy. These factors play an important role in ascertaining the survival of companies, as ESG investing greatly helps in the identifying and quantifying risks that are often not seen by more traditional financial metrics.
Aside from spotting risks that can be easily overlooked, ESG reports also play a part in keeping tabs on companies’ treatment of their employees. This oversight on the treatment of employees also encompasses keeping an eye on possible workers’ rights violation, as well as lookout for violation of labor codes, such as the illegal employment of minors.
Upholding ESG standards also keeps the structure of governance of organizations. This may include subjecting the boards of companies to metrics that measure diversity, scrutinize company policies, salaries, benefits and compensations, and the overall ethical practices of companies.
Thus, the three pillars of ESG—environment, social, and governance—serve as a guideline for companies seeking sustainable growth.
Bitcoin, the world’s top cryptocurrency, pushes the subject of ESG into the limelight. As companies around the world make their march toward a sustainable future, the crypto sector is besieged by accusations of not being compliant to the standards of ESG.
However, these allegations are not entirely true.
Bitcoin’s Environmental Compliance
One of the arguments that Bitcoin’s detractors use the most against the cryptocurrency is its massive energy consumption. True enough, Bitcoin’s yearly energy consumption is so large that it beats the amount of energy used even by some countries.
In an online article by Statista, a German company specializing in market and consumer data, it was shown that Bitcoin uses an estimated 143 terawatt-hours (TWh) of electricity every year. In comparison, Norway uses about 124 TWh yearly, Bangladesh, 71 TWh, and Switzerland consumes 56 TWh.
Bitcoin’s massive energy requirement is due to its use of Proof of Work for mining, which requires an immense level of computing power done by a large number of computers built specifically for cryptocurrency mining. This takes a heavy toll on the environment as the huge volume of resources needed to keep Bitcoin’s mining machines powered further contributes to the climate crisis due to carbon emission, land and water use, and pollution of air and water.
In fact, such is the perceived negative impact of Bitcoin on the environment that Tesla CEO Elon Musk suspended the use of the cryptocurrency as payment in his company until it became “greener”. However, as of July 2021, Tesla has resumed acceptance of Bitcoin as payment, citing the digital currency’s “positive trend in energy usage”.
This reported positive trend in Bitcoin’s energy usage can be attributed to China’s recent regulatory crackdowns against the cryptocurrency industry. China’s action forced crypto miners to move out of the country, or scrap or sell their mining machines abroad. This led to decrease in the activity, and therefore Bitcoin’s carbon emissions.
However, Bitcoin is not entirely running on non-renewable energy sources. Miners worldwide have improvised and adapted their mining method to harness energy in a less environmentally-damaging fashion. For instance, miners in the Chinese provinces of Sichuan and Yunnan made use of the often-wasted excess energy produced in these provinces’ hydroelectric plants.
Other miners in oil-rich areas such as North Dakota and Siberia use the by-product of oil extraction processes to their advantage. Flared natural gas which is released during oil extraction is used as an energy source for mining. While this relies on a process that contributes to the build-up of man-made atmospheric carbon dioxide, it at least makes use of the by-product that would have otherwise been disregarded altogether.
Bitcoin’s Social Compliance
Since its launch in 2009, Bitcoin has gained traction and recognition as a store of value, akin to gold. Although not all, a large number of establishments and financial institutions have begun accepting Bitcoin as a mode of payment, including Tesla. In more recent developments, El Salvador, a small country in Central America, has even made Bitcoin a legal tender, the first country to do so.
El Salvador’s move, though criticized by the World Bank as rash and irresponsible, was done for the good of its people. With 70% of El Salvador’s citizens unbanked, making Bitcoin a legal tender whilst being provided with $30 worth of Bitcoin each and access to a Bitcoin wallet allows them more financial flexibility.
Owing to Bitcoin’s decentralized nature, national government mandates have no sway on the crypto’s value, effectively protecting people’s assets. Hence, the effect that Bitcoin could have on society is mostly seen as a positive one.
Bitcoin’s Governance Compliance
The decentralized nature of Bitcoin also plays a role in ensuring its compliance to ESG factors, specifically to governance.
By running a system that has no central authority and yet abides by a set of code and rules, Bitcoin guarantees users’ autonomy and equality. Without an existing decision maker, it is ensured that Bitcoin remains impartial and equal to all. The lack of a central authority also erases the possibility of discrimination and the granting of special favors to any particular group.
The benefits enjoyed by one Bitcoin user are the same as those enjoyed by another. This just goes to show that Bitcoin does not differentiate between a casual user and a company CEO; one only needs a mobile phone and an internet connection to have access to Bitcoin.