Crypto and ESG – Can They Work Together?

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

A lot has been said about the use of traditional energy in mining Bitcoin (BTC) and how it’s not environmentally friendly. It helps to demystify the topic with a clear view of what is meant by environmental, social, and governance (ESG) and examine how much energy Bitcoin miners use compared to the total CO2 emissions generated from other industries. Additionally, the interplay of clean energy and Bitcoin mining might further co-exist to reduce dependency on harmful sources of energy and instead use the best renewable and alternative energy sources available.

An example of a company that states that it is committed to using clean energy to mine Bitcoin and Ethereum (ETH) is Bluesky Digital Assets BTCWF. The company recently announced an ESG policy to mine in jurisdictions that use non-fossil fuel sources of electricity whenever possible. Bluesky also says it has been recycling the offtake heat from mining operations and creating ambient heat for business offices nearby.

From a recent interview with Ben Gefland, the CEO of Bluesky, “We've made a commitment to only use renewable sources of energy wherever possible.  So, right now we are using 100% hydroelectric power whose supply is abundant and the infrastructure for which has been in place for 50-60 years. We create heat when we mine and it’s reused by a related business in our primary mining facility. The electricity is almost double used for one spend.”

Ultimately, companies like Bluesky could be the vanguard of a focus on ESG in the cryptocurrency industry.

What Is ESG? 

ESG is a framework for sustainable investing that considers three factors to judge an investment’s financial returns and its overall global impact. From the perspective of Bitcoin mining, carbon emissions and green energy form the major impacts of concern.

How Much Environmental Damage Does Bitcoin Mining Create?

Bitcoin’s biggest problem is perhaps not its massive energy consumption, but the fact most mining facilities in Bitcoin’s network had been located in regions primarily in China — before crypto was banned there — that relied heavily on coal-based power.

Determining the carbon impact of the Bitcoin network has been a challenge. Estimations depend not only on the energy output of the Bitcoin network but where the power comes from. Miner location determines in large part the level of pollution the power used could cause. In October 2021, renewable energy sources cannot completely power Bitcoin mining. Hydropower and natural gas contribute to Bitcoin mining’s energy needs, but less environmentally friendly methods dominate.

Basic math shows the facts. The average emission factor of the Chinese grid — around 700 grams of carbon dioxide equivalent per kilowatt-hour (kWh) — can be used for a rough approximation of the carbon intensity of the power used for Bitcoin mining. Assuming a 70/30 ratio in that 70% of Bitcoin mining was taking place in China using coal and 30% of mining is completely clean yields a weighted average carbon intensity of 490g CO2 kWh. The number can subsequently be applied to a power consumption estimate of the Bitcoin network to determine its carbon footprint. To put this in perspective, Bitcoin consumes as much energy as the 25th largest country on the planet.

The environmental inefficiencies are evident. However, when compared to other industries' use of energy, it’s another story. 

Perhaps the harsh criticism comes from the fact that as new technology — a new way to transact — Bitcoin should attempt to go as clean as possible rather than getting stuck in using a cheap and dirty source of energy right from the start. 

With China banning crypto altogether for the time being and increased access to environmentally friendly global energy sources around the world, Bitcoin can go clean. Hydropower and natural gas can lead the charge while solar and wind augment with additional sources of energy. Although natural gas does emit CO2, it does so in a much less damaging manner than coal and can also be controlled by using various forms of natural gas use. Another alternative source is the use of nuclear energy as it is a reliable and clean source of energy.

Although it’s understandable that coal is a major source of energy for miners given how cheap it is, major traditional energy companies have already shared ESG plans going forward to cut emissions. Future Bitcoin mining will be cleaner, but how clean and when is up for debate.

Publicly traded miners like Bluesky realize the importance of socially responsible mining. Studies show that 76% of Bitcoin miners use renewable energy as a part of the energy mix, with renewable energy accounting for about 40% of overall.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.