Bitcoin has generated plenty of headlines owing to its volatile nature. Earlier this year, the cryptocurrency gained increased attention thanks to Tesla’s purchase of $1.5 billion worth of the stock. But then the focus turned to its significant energy use – the Guardian being one of many to report that Bitcoin mining consumes more energy than entire countries. Now Tesla has generated fresh headlines about the currency, with Elon Musk declaring the company has suspended the use of Bitcoin to purchase its vehicles owing to the currency’s fossil fuel use. So we consider…for those who wish to invest responsibly with environmental, social and governance (ESG) considerations at the forefront, is this technology is suitable?
Before we get into it, let’s define what Bitcoin actually is. It is a digital currency (or ‘cryptocurrency’) that offers lower transaction fees than traditional online payment methods. Unlike government-issued currencies (the British pound, US dollar etc), it is operated through a decentralised system with no central authority, where trading is directly peer-to-peer. Learn more here.
Bitcoin’s potentially positive ESG factors…
On the surface, the proposition from Bitcoin to democratise financial markets by removing intermediaries certainly does have its social advantages. For example, reducing the cost of remittance corridors between richer and poorer countries, through which migrant workers send funds home to their families, feature within the UN’s Sustainable Development Goals (SDGs). In addition, the anonymity that Bitcoin and other cryptocurrencies provides can give security to those under oppressive regimes or provide a level of privacy to users that is being eroded in these digital times.
…versus its negative ESG factors
This decentralised monetary model reliant upon advanced cryptography comes at a significant environmental cost. As widely reported, Bitcoin’s estimated annual power consumption matches that of various countries around the world; recent analysis from Digiconomist puts Bitcoin’s annual energy consumption similar to that of Netherlands, and its carbon footprint comparable to Singapore. More significantly, with two-thirds of mining taking place in coal-heavy regions like China where energy costs are subsidised, the resultant carbon footprint is huge. Over the long term, it is difficult to see how this is consistent with a transition to a low carbon economy.
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David Sneyd, Vice President, Responsible Investment
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