WorthWhile

It’s 2008 and an unknown person/group of individuals under the pseudonymous name of Satoshi Nakamoto decided to invent a decentralized public ledger. The idea is to keep transactions as open and transparent as possible. This system is called the blockchain. 

A blockchain is essentially a digital ledger of online transactions that are distributed across the entire network of computer systems. Anyone and everyone can have access to this ledger and view the transactions on the system.

Bitcoin is a digital currency that offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies. The money value that is attached to the system processing of blockchain is known as Bitcoin. 

How can one get bitcoin?

  • One way of procuring this currency is by buying it over exchanges as against dollar, rupees, euros. Just like how we buy stocks, gold or other commodities.
  • The other method is to become a miner. Since bitcoin helps in transactions and maintaining a digital ledger, some people verify these transactions. They’re known as miners. Every transaction that is successfully verified on the blockchain via the miner is rewarded with this currency.

Can Bitcoin and Other Cryptocurrencies
be considered green?

For bitcoin to hold value, miners need to solve various equations to verify transactions. This is where the aspect of power and carbon footprint enters the picture.

These equations are not simple math calculations that softwares can do but need massive powerhouse computers that work in tandem to solve the equations as fast as possible to earn more and more bitcoin.
These mining hubs have large processing units and computers that are solving mathematical equations at lightning speed, requiring power in abundance. And by abundance, we mean almost equivalent to the electricity consumption of certain nations!

Sustainability, Climate Change and Cryptocurrency

The mining of cryptocurrency, i.e. the validation of transactions by solving equations is an extremely energy-consuming activity. According to research, the carbon footprint of mining Bitcoin sits anywhere between the energy consumption produced by the nations of Jordan, Sri Lanka and Norway. When we talk about financial comparison, the GDP of Norway is $400 billion, while the market cap of Bitcoin is $1 trillion. A direct comparison cannot be made. But we need to understand the fact that EVERYTHING consumes Energy. The justification of energy consumption can be brought down to the source of the energy.
Let’s talk about the carbon footprint of bitcoin, national currency and financial institutions in the same context.

While much of the data is based on estimates, one of the surveys conducted in 2019 suggested that 39% of bitcoin is mined via renewable energy.  Bitcoins climate impact is global, the majority of its solutions can be local. One, for instance, is a mining company in Iceland that is completely functioning on renewable energy to mine coins. Another example is a mining hub in Norway, where most energy production is almost 100% renewable, via hydroelectricity and geothermal energy

Renewable energies, particularly hydro, are powering a growing share of Bitcoin and other proof-of-work mined crypto assets. The plan with digital currencies is to switch their mining hubs to regions that have local renewable energy such as wind, hydro and solar at their disposal.

Etherum, another cryptocurrency, aims to turn 90% green by the end of 2021 with its proof of stake system, while Cardano (ADA) is designed from the bottom up with sustainability in mind. 

Cryptocurrency is not the final answer in Sustainable Finance, but it is better than investing in negative impact instruments. It is far from being carbon negative, yet can be considered an investment option, both in terms of return and environmental impact. 

Investing in cryptocurrency

ESG warriors and the crypto community share some similarities to an extent.

Being an investment and currency of the new age, the adaptation to renewable sources of energy is very much achievable.

In the context of whether an individual should own any bitcoin, this is not financial advice and should be taken with a pinch of salt. Having exposure to cryptocurrency in your investment portfolio can also diversify your portfolio.

You may or may not understand/believe in the technology, but the max that can happen is you lose your investment. The same risk that comes with investing in stocks. Yes, the volatility that accompanies Bitcoin faces massive swings, unlike stocks, but higher risks~higher returns. In terms of legality in India, as of 2018, the supreme court has lifted any kind of bans on bitcoin and cryptocurrency and one can legally own digital currencies.

To delve further into bitcoin and it’s not being as green read here. To read more into bitcoin and its intentions to being green, read some resources here and here.

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