A few years ago, cryptocurrency was merely a topic of fascination for tech geeks. However, today, it has managed to stoke tremendous interest among big institutional investors and corporations like Tesla and Microsoft. And crypto exchanges like
have made crypto trading for the common man a seamless affair. Despite the popularity, the journey has been nothing but rickety.
Periodical FUD (Fear, Uncertainty, and Doubt) thrown around cryptocurrency’s future has hindered progress. And the latest concern raised by countries like China (which recently banned cryptocurrency mining) is on its ESG (Environmental, Social, and Governance) impact. But, are these concerns genuine? We’ll walk you through the real impact of cryptocurrency, primarily Bitcoin, on our environment and society.
Bitcoin, errr, is it sustainable?
By one estimation from the Cambridge Bitcoin Electricity Consumption Index, the annual power consumption by Bitcoin miners in 2019 was close to that of a small country like the Netherlands. It’s almost certain you’ve come across this fact on the internet as a criticism of Bitcoin. But this does not paint the complete picture.
Yes, bitcoin consumes a fair amount of energy. However, what’s not being said is that bitcoin is as green as its energy source. Just like Electric vehicles, bitcoin too can be mined using 100% non-fossil fuel-based energy. A recent study from the Bitcoin Mining Council shows that 56% of the energy used in global bitcoin mining is from renewable sources.
Besides, for a technology that is at the forefront of revolutionizing the entire global financial system, the energy is well spent. According to Cathie Wood, CEO of Ark Invest, “Bitcoin is much more environmentally friendly than the traditional gold mining or financial services sector it seeks to replace.”
Moreover, Bitcoin helps solve a major problem in the energy industry – seasonal overproduction of renewable energy that goes unused due to storage issues. Mining farms, unlike traditional consumers, are mobile and can be moved to the source of energy production. For instance, the abundant solar and wind energy produced in Texas makes it an ideal destination for miners.
Though shocking, Bitcoin can also help reduce emissions by absorbing 400 metric tons of carbon dioxide produced annually while extracting oil. Dry natural gas, an undesired by-product of oil production that was hitherto burnt on the spot, is consumed by bitcoin mining farms set up alongside the oil plants. Recognising the potential, the Governor for the state of Wyoming recently
a bill exempting the use of natural gas flares for cryptocurrency mining from taxation.
And of course, little is spoken of ‘proof of stake’ cryptocurrencies that are not based on an energy-intensive mining process. Cardano (ADA), Ripple (XRP), Nano (NANO), and Solana (SOL) among
others are some popular greener alternatives to Bitcoin.
Social and Governance consequences of cryptocurrency
Much of Bitcoin’s ESG concerns in the mainstream media have been overshadowed by its environmental impact. However, there are two other important components – Social and Governance – that often go ignored.
The decentralized nature of cryptocurrencies that requires no single authority to oversee transactions is fundamental to the social-economic changes brought forth. Global transactions between people no longer require the interference of governments or financial institutions.
Liberating people from middlemen in transactions eliminates the burden of commission, transaction costs, and other hidden charges. As noted by former RBI Governor Raghuram Rajan, cross-border payments or remittances is a key area where cryptocurrencies can play a definite role.
Cryptocurrency also helps resolve the issue of banking the unbanked. Traditional financial services like borrowing, money transfer, remittance, and subsidy transfer have remained inaccessible to over 1.7 billion unbanked people around the world, as reported by the UN. Today, anyone with a mobile phone and an internet connection can send and receive money using cryptocurrencies like Bitcoin, Litecoin and Ripple.
Perhaps the biggest contribution of Bitcoin to the world stems from its borderless, permissionless, non-seizure, and censorship-resistant characteristics. For people under authoritarian regimes, Bitcoin has served as a financial tool that can earn them freedom. And in the face of monetary hardships due to a mismanaged economy, as seen in Maduro’s Venezuela where annual inflation rates touched 6500%, Bitcoin acts as a means to preserve people’s lifetime savings.
Is Bitcoin for criminals and money launderers?
An article on Governance and Cryptocurrency cannot be complete without answering the most common question – Bitcoin is used for illegal activities and is therefore bad.
According to Elliptic, a blockchain analytics firm, illicit activity (eg. dark markets, ransomware, frauds) constituted less than 1% of all the bitcoin transactions. Bitcoin’s transparent nature allows for traceability of all transactions including illegal activity.
Bitcoin, like the internet, is neutral with properties that are valuable to both good and bad actors. However, as the technology evolves and the adoption increases, the share of illicit transactions will become negligible. And in any case, the volume of illicit activity via traditional financial services is no match to the minuscule proportions on the blockchain.
Whether cryptocurrency is an ESG compliant investment or not is a matter well-settled. According to Chainalysis, global cryptocurrency adoption has surged by a whopping 2300% since the third quarter of 2019 with emerging countries like India and Vietnam leading the way.
, India’s largest crypto exchange, alone is home to over 1 crore registered users in the country.
Cryptocurrency is a once-in-a-lifetime investment opportunity based on a revolutionizing technology and looking away on account of half-truths is akin to missing the forest for the trees.
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