EUR140 billion asset manager CANDRIAM has released a new paper looking at the incompatibility of bitcoin and ESG, authored by Lucia Meloni, Lead ESG Analyst, ESG Investments & Research and Vincent Compiègne, Deputy Global Head, ESG Investments & Research.
The report’s authors write that cryptocurrency is a digital asset in which transactions are verified and recorded using a decentralised system, rather than by a centralised authority, such as banks.
“Crypto is a non-financial speculative asset comparable to art. The value of contemporary art is not objective or intrinsic, it is not based on fundamentals, such as corporate profitability or capital.
“New coins are created through a process called mining, an important part of the functioning of the blockchain ledger. To help ensure the integrity of issuance of new units, bitcoin uses a system of puzzles. These complicated puzzles are solved in the process of mining by using powerful computers, which validate new blockchain blocks created in the process of mining. This type of validation of data blocks is called ‘proof-of-work’. Since ‘miners’ are rewarded with some bitcoin when solving the complex algorithm, the higher the bitcoin price, the higher incentive to run the calculations, which consumes more energy. Bitcoin mining uses about 0.4 per cent of global energy consumption. The University of Cambridge Bitcoin Electricity Consumption Index ranked bitcoin’s annual electricity consumption above that of Argentina and the Netherlands. Worthy of notice, 75 per cent of global bitcoin mining occurs in China, which makes things worse because in the areas where Bitcoin mining farms are situated, electricity is produced from burning thermal coal.
“Cryptocurrencies are unregulated and can be traded for profit, and can also become a target of speculators, who at times sent the prices skyrocketing. CipherTrace’s 2020 Cryptocurrency Crime and Anti-Money Laundering Report reveals that in 2020, major crypto thefts, hacks, and frauds totalled USD1.9 billion.
“As things stand today, we believe cryptocurrencies have a long way to go to satisfy ESG criteria,” the authors write.