Every industry has its regulations and standards, but the emerging crypto world is currently an exception. Since it’s a relatively recent addition to the financial space, it lacks the same level of industry standards and regulations that traditional services adhere to. However, as crypto becomes more popular, it’s even more pressing to create and follow standards to help evaluate the feasibility of an investment.
The Environmental, Social, and Governance (ESG) guidelines that apply to traditional financial investing could also be applied to cryptocurrencies, providing a basic framework to evaluate the maturing crypto marketplace. What is ESG in crypto? Read on to learn how socially conscious investors are using ESG standards to evaluate and assess opportunities in crypto.
What is ESG?
Environmental, Social, and Governance (ESG) factors are criteria that investors use to consider the impacts an investment, such as bitcoin, has in these three areas. Investors typically use ESG criteria to form a perspective that looks beyond an investment’s immediate financial impact. The best investments are ones that have a high ESG returns and high financial returns.
The three areas include:
- Environmental. This factor assesses environmental sustainability. Energy efficiency, waste management, and deforestation effects are among the many environmental factors taken into account.
- Social. This factor analyzes the effects a company or investment has on individuals and society as a whole. These standards include diversity, anti-discrimination policies, work environment quality, and community impact.
- Governance. This factor focuses on the way a company or process is governed. This assessment includes transparency in business operations, reporting tax contributions, and prioritizing shareholder interests.
What does ESG have to do with crypto?
In the world of crypto, ESG factors can help determine the impact of a digital currency on the environment, society, and government. While many companies have used ESG assessments on many other investment types, using the criteria for evaluating crypto is a fairly new venture.
The less ESG-considerate a currency, the more limited its possibilities. ESG factors can dissuade big investors from contributing their funds due to economic concerns and fear of social backlash.
How ESG affects the crypto world
It’s important to note that every industry has some ESG impact, no matter how small or large. In the world of crypto, assessing ESG means looking at a currency’s mining and transactional processes to determine their overall ESG impacts. ESG assessments are useful for comparing cryptocurrencies to other cryptocurrencies, to traditional investments, and to have a benchmark to measure non-financial return performance.
This is how to breakdown ESG within the crypto space:
The environmental factor of ESG looks at a cryptocurrency’s commitment to environmental responsibility. It takes into account how mining and network operations utilize and consume resources.
Concerns have risen about the environmental impacts that come from mining some of the biggest cryptocurrencies, including bitcoin, litecoin, and ethereum. These currencies operate on blockchain technology that requires extensive computing power, which in turn requires extensive energy use. But, in the case of cryptocurrencies, energy use does not always create a greater number of carbon emissions.
Crypto miners across the world have taken efforts to make bitcoin and other cryptocurrencies environmentally sustainable. In many cases, bitcoin is mined in areas with plentiful renewable energy sources. Additionally, the use of sustainable hydropower to generate electricity is growing across the world. In fact, electricity providers in areas such as New York and Canada generate more electricity through hydropower than residents use. Many crypto miners are migrating to these areas to take advantage of this surplus energy.
Other researchers have suggested making changes to the core process of mining crypto. These adjustments would make validating transactions far less energy-intensive. The result would be a lower environmental impact for crypto.
Crypto is revolutionizing longtime purchasing processes. Because these changes are fairly new in the grand scheme of currency, their societal impacts could change drastically in the years to come.
Much of the societal impacts of financial inequity are not priced into the economic systems. But, socially, bitcoin and other decentralized currencies, products, and services, can have an enormous societal impact by making finance as easy, open, and accessible as the internet itself.
Crypto can also lower barriers for small business owners and help them expand their market reach. With crypto, businesses working in different countries don’t have to worry about international currency exchanges and fees. Using crypto also accelerates the buying process by eliminating banks from the equation.
Because cryptocurrency is decentralized, there’s no one body of governance dictating its operations. This core standard makes crypto’s processes open. There are no individual requirements to be eligible to start mining crypto, making the world of crypto an open market.
In some regards, the technology underpinning cryptocurrencies and decentralized finance might actually improve the organization and efficiency of traditional power structures such as corporations and governments. Once decentralized technologies can operate efficiently at scale, older, closed-door, and highly centralized models will seem antiquated.
Is bitcoin an ESG investment?
There are a number of different kinds of investing opportunities within the bitcoin space. Some (like mining companies that operate on renewable energy) are probably ESG compliant. Others, that still rely on fossil fuels or that operate in parts of the world with non-existent labor laws, probably score lower.
One thing is for sure: Bitcoin and cryptocurrencies are super new and innovative technologies. As the market starts to demand more ESG compliance, the technology will adapt quickly to those demands. Already some currencies are updating their underlying architectures to move away from energy-intensive computation and have more community participation. Moves like that will greatly raise ESG scores. However, it remains to be true that the most secure and decentralized networks are the most energy-intensive, and this energy use is not necessarily a bad thing.
Participate in bitcoin’s growth
Where does Coinme fit in? A large part of Coinme’s mission is to open up more access to the power and freedom enabled by bitcoin and cryptocurrencies.
This opening of access will be done over time, but in the end, simple and secure access to bitcoin and cryptocurrencies will enable a better future for all.
As crypto increases in popularity and becomes more trusted, it’s important to examine its governance structures and reckon with its environmental and social effects.
Right now, Coinme’s efforts are focused on enabling thousands of conveniently located bitcoin kiosks nationwide where you can buy bitcoin and start your crypto journey hassle-free. Get started today: Find a Coinme kiosk near you and convert your dollars into bitcoin in minutes.
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