Environmental Issues With Bitcoin?
By Lindsey Simek, Financial Advisor
It appears we cannot make it through a day without hearing about Bitcoin or cryptocurrency. Its popularity is exploding, and curiosity cannot help but be sparked. Bitcoin is a type of digital currency in which a record of transactions is maintained across all computers and serves in the Bitcoin sphere. So, judging by this definition and the fact that
Bitcoin is digital, one should conclude that its environmental impact is minimal and therefore, why are companies such as Tesla no longer accepting Bitcoin as payment stating environmental concerns?
Bitcoin is not an ESG friendly investment. In fact, Bitcoin generates huge amounts of carbon emissions. Why is this the case? Because Bitcoin is cryptocurrency, it bypasses a centralized bank and can be sent from user to user via a cryptocurrency network. The transactions are documented on a ledger and this is what you call Blockchain Technology. To obtain a
Bitcoin, the coin must be “mined.” This is done by using computers to solve increasingly complex mathematical algorithms (Taylor-Smith, Kerry). So far 18.5 million of the 21 million coins have already been mined which means that process is just getting more and more complicated, and an abundant amount of energy is required to power and cool the computers solving these algorithms to unlock Bitcoin.
To put it into perspective, when the mining of Bitcoin first began, an average computer could easily solve the algorithm and mine coins. However, as popularity grew and values increased, so did the complexity of the mining process. In fact, about 121 terawatts of energy is used yearly to mine Bitcoin which is equivalent to the annual carbon footprint of Argentina!!! (Taylor-Smith, Kerry).
So as Bitcoin and other cryptocurrencies gain popularity, their environmental impact needs to be considered. Today we are taking multiple steps to provide quality ESG investments and to find companies that are actively taking a role in improving ESG (Environment, Social, and Governance) performance. As investors and financial institutions find themselves adding Bitcoin and other cryptocurrencies to their portfolios and balance sheets, they must take, heavily, into consideration the possible
negative impacts on their ESG credentials and what this means for them and their clients. (ESG and Cryptocurrency: Considerations for Market Participants).
Works Cited:
“ESG and Cryptocurrency: Considerations for Market Participants.” JD Supra, www.jdsupra.com/legalnews/esg-and-cryptocurrency-considerations-1024093/.
Taylor-Smith, Kerry. “What Are the Environmental Effects of Bitcoin and NFTs?” AZoCleantech.com, 10 May 2021, www.azocleantech.com/article.aspx?ArticleID=1231#:~:text=The%20Emission%20Problem,bingeing%20YouTube%20for%2051%2C210%20hours.
