Opinion: How does crypto fit within ESG? The answer is not simple

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Ethan Lou’s lat­est book is Once a Bit­coin Min­er: Scan­dal and Tur­moil in the Cryp­tocur­ren­cy Wild West

Author Ethan Lou’s lat­est book is Once a Bit­coin Min­er: Scan­dal and Tur­moil in the Cryp­tocur­ren­cy Wild West.K. Yan/Handout

On Mon­day, the World Eco­nom­ic Forum lent its sup­port to a rather hare-brained plan by a group includ­ing Green­peace: to change bitcoin’s code to make it, in their view, more envi­ron­men­tal­ly friendly.

The resis­tance of bitcoin’s peer-to-peer infra­struc­ture to such out­side con­trol is not only its entire val­ue propo­si­tion, it’s also a premise that has large­ly held true. Peo­ple more loved by the bit­coin world than the likes of the WEF have tried to make less­er changes to the code. They have all failed.

That does not mean this envi­ron­men­tal con­ver­sa­tion is not worth hav­ing, of course. The move­ment to pri­or­i­tize ESG (envi­ron­men­tal, social and gov­er­nance) fac­tors in invest­ing is so in vogue these days, it even dom­i­nates the new sea­son of the finance dra­ma Bil­lions.

It’s just that ESG met­rics by them­selves are already sub­jec­tive and incon­sis­tent. This isn’t an issue with a sim­ple answer.

Con­sid­er that this envi­ron­men­tal crit­i­cism of bit­coin and the wider cryp­tocur­ren­cy world is not real­ly because they sup­pos­ed­ly use a lot of electricity.

Elec­tric cars also use a lot of elec­tric­i­ty, and they are not only con­sid­ered not harm­ful to the envi­ron­ment, but even ben­e­fi­cial because they dis­place petrol-based cars. The real envi­ron­men­tal crit­i­cism of cryp­to is what all its elec­tric­i­ty is for: no good purpose.

But cryp­to advo­cates would respond that the industry’s elec­tric­i­ty use pales in com­par­i­son to the tra­di­tion­al finance world, and like elec­tric cars, it seeks to dis­place an indus­try with a big­ger car­bon foot­print. Or that cryp­to brings about greater finan­cial free­dom, and that its under­ly­ing tech­nol­o­gy can fos­ter a more demo­c­ra­t­ic Internet.

It’s like this new age of pri­vate space trav­el. What exact­ly are all those car­bon emis­sions for? In a recent episode of the Globe’s Deci­bel pod­cast, sci­ence writer Ivan Seme­niuk said of the pro­po­nents: “They just have a feel­ing that the long game for human­i­ty some­how involves invest­ment in space.”

Maybe you don’t buy any of that. But how one makes that judg­ment, deem­ing cer­tain indus­tries to be wor­thy of their elec­tric­i­ty use or car­bon foot­print and oth­ers not – that’s always a per­son­al, sub­jec­tive take.

Con­sid­er why com­put­er gamers have been par­tic­u­lar­ly hos­tile to cryp­to. Maybe they are try­ing to divert atten­tion from their own mas­sive use of elec­tric­i­ty for an activ­i­ty whose pur­pose is even more subjective.

This is not an argu­ment against gam­ing. A gamer might say the activ­i­ty alle­vi­ates stress, fos­ters com­mu­ni­ty and grants per­son­al grat­i­fi­ca­tion. Who am I to say that is not an appro­pri­ate use of elec­tric­i­ty? In that same vein, though, who is any­one to make that same val­ue judg­ment about crypto?

Of course, one might say that the entire point of ESG is to be sub­jec­tive – to invest in ways that align with one’s indi­vid­ual val­ues. And maybe you just want to reduce ener­gy con­sump­tion, peri­od, of the indus­tries whose pur­pose and val­ue you don’t per­son­al­ly get – because you want to see a low-car­bon future.

Well, maybe cryp­to can actu­al­ly help in that respect. Any­one who val­ues a low-car­bon future is sure­ly con­cerned about the envi­ron­men­tal impact of the oil indus­try. And, in the Unit­ed States, Exxon Mobil Corp. has said it would use cryp­to min­ing as a way to reduce its emis­sions.

Nat­ur­al gas is a byprod­uct of oil drilling, and com­pa­nies often sim­ply burn that gas because, in the mid­dle of nowhere, it’s too cost­ly do much else with it – result­ing in car­bon emis­sions. Exxon has found that, by using the oth­er­wise burned gas to mine bit­coin, it’s a self-fund­ing or self-sub­si­diz­ing way to reduce those emis­sions by 63 per cent.

The more strin­gent of the ESG adher­ents would say, “Piss on all of that!” – why reduce the oil industry’s emis­sion when the whole thing should be shut down com­plete­ly yesterday?

But the idea of the low-car­bon future is a tran­si­tion, not a switch that can be arbi­trar­i­ly flicked off. Even the Unit­ed Nations cli­mate envoy Mark Car­ney, the de fac­to ESG patron saint, said as much recently.

Ulti­mate­ly, that is how investors with a mind on ESG should be look­ing at the cryp­to. Like how ESG is in itself com­pli­cat­ed, how cryp­to fits with­in that frame­work is not a bina­ry issue.

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