Crypto and ESG – how big is the contrast?

The current market commentary of Christian Henrik Knappestock exchange expert at Spectrum markets: Do crypto and ESG go together?

Some blockchain protocols have been criticized for their energy-intensive validation mechanisms. Although it is European Ban on the particularly energy-intensive work certificate process off the table, at least for now, upcoming sustainability regulations may pose the next challenge for these types of protocols.

At the same time Investor demand for ESG investments is higher than ever, while recent developments in the crypto market haven’t really hurt Bitcoin & Co’s popularity. But how do ESG and crypto investing fit together, and what should investors be prepared for?

First of all, proportionality should be examined with a view to the environmental compatibility of exploration processes. For example, there is already intense discussion about why investment funds labeled as sustainable are allowed to invest in airlines or even oil companies. In this context, the energy consumption of the PoW mechanism may not be at the forefront of sustainability from investors or regulators.

With 23 million tons of carbon dioxide emissions per year, that is That mining bitcoin is not an environmentally friendly affair, this fact cannot be denied. But in order not to compare apples with oranges, one had to do this compare with the production or processing of cotton, foil, thread, paper and ink for banknotes on a global scale or with the energy to print them, to manufacture coins, transport money, operate ATMs, disposal processes such as shredding and burning notes or invalidating coins. And as long as the taxonomy regulation classifies nuclear power and natural gas as green energy sources, Criticism of the PoW mechanism a bit hypocritical.

Nevertheless, there are certainly protocols that use fewer resources than the PoW consensus mechanism, which underlies Bitcoin, among others. In PoW, mathematical problems are solved to add new blocks to a blockchain. This mining requires a significant Amount of energy that increases as the blockchain grows and more miners become active in this consensus mechanism. Its high power consumption has put PoW on the radar of regulators worldwide. However, a PoW ban was not included in the draft MiCA regulation. It remains to be seen whether asset managers selling PoW-based products or their manufacturers will face new challenges in the form of tougher sustainability and disclosure requirements.

Alternatives to PoW

Of Proof of Stake (PoS) mechanismon the example Ethereum must be transformed generally referred to less polluting alternative to PoW Viewed. PoW uses a validator to verify each block, where the computationally competing validators for a chance to verify a block is the energy-intensive process. PoS offers the protocol existing coins for a certain period and by putting this stake is called the right to validate transactions. This randomly distributed block validation responsibility uses less power than the PoW process, and the validation itself also requires less computing power.

Tougher environmental regulation for crypto processes?

There is still great reluctance to alienate the developer community as different economic areas compete to attract designers of this promising new technology. to become a crypto hub, can mean technological leadership as well as becoming the recipient of consequenceswhich the winding up of an industry or service normally entails.

In addition, policy makers have recognized that the effectiveness of bans, restrictions or regulations may change proportional to their uniform implementation behave. When the Chinese government decided to ban Bitcoin transactions and mining, this had an impact on the sales market as Beijing was able to criminalize transactions locally.

that Hash rate However, it did not decrease as the mining capacity shut down in China was quickly compensated by other countries: the production market remained unaffected.

Christian-Hendrik Knappe

One thing is clear: if there is a process today that is too dependent on the consumption of fossil fuels, should this change regardless of which product or industry it is and also regardless of whether there are supply bottlenecks or not. A lot of things are already happening that will reduce the power consumption of the PoW mechanism.

This starts with mining hardware becoming more energy efficient and includes all initiatives aimed at using renewable energy – such as Payment provider Block’s project with Tesla and blockchain service provider Blockstream. According to their own statements, their planned off-grid mining center will[1] generate over 3.8 MW of renewable solar energy and have a battery storage capacity of 12 MWh.


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