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The environmental impact of Bitcoin is only getting larger, but how does it hold up in terms of social benefits and governance? Do the benefits outweigh the dangers?
By Dave Morton - FAMEEX Operations
ESG policies get a bad rap from Bitcoin enthusiasts but the environment is important to life on this planet, with Bitcoin using enough electricity to power a country, how can we square the circle?
ESG or Environmental, Social and Governance, is a set of measures used by investors to evaluate the impact of businesses and investments on the environment and society. With most of the large investment funds basing their allocation decisions on these metrics, can the cryptocurrency industry afford to ignore it any longer?
Mining is the process that Bitcoin and several other cryptocurrencies use to generate new coins and verify new transactions. It involves vast, decentralized networks of computers around the world that verify and secure blockchains – the virtual ledgers that document cryptocurrency transactions. In return for contributing their processing power, computers on the network are rewarded with new coins.
This process is called proof of work (POW). Anonymous miners, who could be in any geography, compete to add a set of proposed transactions as a new block to the network by solving a mathematical challenge whose complexity is adjusted with respect to the computational power available.
The POW model consumes increasingly large amounts of energy, especially if the cost of energy is lower than the profits made from mining.
Hut 8 Mining facility in Medicine Hat
Until recently, most Bitcoin mining was done in China, either using cheap coal power in northern China or the plentiful hydro-electricity in China’s western provinces, after Chinese regulators banned bitcoin mining, Bitcoin miners moved to places like the US, Russia and Kazakhstan. These 3 countries currently account for more than 50% of the hashing power behind bitcoin.
As of 2022, the Cambridge Centre for Alternative Finance (CCAF) estimates that Bitcoin consumes 131 TWh of electricity annually, representing 0.59% of the world's electricity production, ranking Bitcoin mining between Ukraine and Egypt in terms of electricity consumption.
Even though Bitcoin miners are increasingly using renewable sources of power (Up to 75% renewables in some estimates) There is no doubt that viewed in isolation, mining Bitcoin is energy intensive and has a serious environmental impact.
Social Impact of Bitcoin
More than 1 billion people worldwide do not have access to banking and financial services. Cryptocurrencies have, for the first time in history, allowed the unbanked to pay for services or send money to each other online, removing barriers created by poverty or poor governance.
In many societies around the world, women, displaced persons and stateless people are excluded from the financial system. Cryptocurrency is open to all and does not discriminate on the basis of nationality, class or sex. Smart contracts, enabled by blockchains, have for the first time allowed humans to build democratic organizations known as DAOs which allow anonymous participation in economic activity for any individual on an equal footing globally.
Bitcoin and other cryptocurrencies have enabled an increased pace of social innovation that is progressive and inclusive to a much greater degree than anything previously imagined. There are even plans now for Network States, originally proposed by Balaji Srinivasan, which are decentralized and distributed organizations based around a shared crypto economy, which function as nation states.
Bitcoin, and the innovations surrounding it, have increased the pace of impactful social innovation; Ideas about how society could change for the better, can not only be imagined but put into practise on a large scale.
Governance Impact of Bitcoin
Bitcoin itself is governed simply by the code within the bitcoin client software. Anyone participating in the system does so voluntarily, if they do not like the code, they are free to fork the code and if the fork is better than the original, people will begin to mine it and use it. Bitcoin is simply a shared idea of what Bitcoin should be.
Governments and central banks have had to come to terms with what Bitcoin is and what it represents. It acts as a safety valve and a check and balance to some governments’ impulses towards financial exclusion and control. To other governments, it represents a way to uplift their economic prospects.
Bitcoin in el Salvador
Several countries now recognise Bitcoin or other cryptocurrencies as legal tender, El Salvador and Central African Republic both hope to use cryptocurrency to boost their economies and make their nations more connected to the global economy.
What’s the Overall Score?
There’s no denying that Bitcoin is an energy intensive system, but the social and governance benefits that the innovation of blockchain has created are wide ranging, from fairer and more efficient forms of organization, to including the world's most disadvantaged within the global economy.
Blockchain technology is simply another tool that humans use. The code itself is neutral and open to all, How we choose to use it determines its impact. If more can be done to reduce polluting forms of energy generation, and increase investment into renewable sources of energy then POW mining would have a much reduced environmental impact.
● Environment 5/10
● Social 9/10
● Governance 8/10
● Overall Score 7.3/10
On the whole, we feel that cryptocurrency is a net benefit for humans and the planet we live on, but more needs to be done to find renewable energy sources for Bitcoin mining.
FAMEEX ESG Policy
At FAMEEX we hold ourselves to the highest environmental, social and governance standards. We work to reduce our exchange’s environmental impact through a paperless and efficient internal organization, and as most internet based businesses do, we aim to cut waste and energy usage wherever we can. We also expect the same for our infrastructure providers.
The FAMEEX team is distributed all over the world and reflects a diverse range of backgrounds. We invest in our employees and provide them with the benefits and training they need in order to succeed, our employees are the ‘FAM’ in ‘FAMEEX’ so to speak. Whether they are employed in Australia or elsewhere, we adhere to a strict code of ethics to provide everyone who works for us with the support they are entitled to. If you would like to join our team, you can find us on Linkedin.
Our exchange implements the philosophy of “community co-governance” through our partner program and referral program. In the near future, we will be adding more features to our platform that give every user a say in how the platform progresses.
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