How should Crypto Assets embrace ESG?

In recent years, more and more financial institutions have begun to incorporate crypto assets into their portfolios. At the same time, long-term investors have also incorporated ESG (environmental, social issues, and corporate governance) into their investment strategies. Therefore, investors who value ESG and crypto assets hope to see more intersections in these two topics, allowing crypto assets to embrace the concept of ESG step by step.

It is not easy to do this. The main environmental impact of crypto assets is the electricity consumption in the mining process and the carbon emissions generated by the use of non-renewable fossil energy sources (such as coal and oil) to generate electricity. Therefore, the mining of crypto assets has been criticized on the interface of environmental protection. However, we believe that crypto assets can and are gradually releasing their value for environmental protection, social progress and corporate governance.

Paying attention to ESG is a higher standard measure for investors in crypto assets, and the nature of crypto assets will drive them to move closer to ESG. Let’s look at the three aspects of ESG, how to invest in crypto assets and the concept of ESG to coexist and embark on a longer-term development path.

The first way for crypto assets to embrace the environment is that investors can turn their attention to crypto assets that do not require mining.

These cryptocurrencies do not rely on the PoW mechanism (Proof of work, proof of work mechanism) that requires energy consumption, but rely on the PoS mechanism (Proof of Stake, proof of equity mechanism). The PoS mechanism allows the owner of the cryptocurrency to verify the transaction block, and only randomly select a processor to process the transaction, instead of millions of processors doing the same work at the same time.

Therefore, the security of the PoS mechanism cryptocurrency is directly related to the user, and the transformation of this application mechanism is an opportunity to solve the problem that crypto assets consume a large amount of ecological resources. For example, Ethernet Square last year with a new way to verify the transaction, the transition from dependence PoW mechanism version 1.0 to version 2.0 PoS mechanisms. Adopting the PoS consensus mechanism can not only increase the security of the Ethereum blockchain, but also improve energy efficiency, reducing the energy consumption of each transaction by 99.95%. As of March 2021, the energy consumption of Ethereum mining is close to 14GW. If PoS is adopted, the energy consumption during the same period is only 0.003GW.

On the other hand, mining in the PoW mechanism can also use natural energy more efficiently. Hydropower is the most famous example.

Many cryptocurrency mines are located in places with abundant hydropower, such as BC, Quebec, and Upstate, New York. In some areas with sufficient water energy, a large amount of renewable water energy is wasted during the rainy season each year. The production capacity of these places has greatly exceeded the local demand. It is not cost-effective to store and transport the energy of this type of rural areas to the city center, so they have become desert islands on the earth with a lot of energy flowing away. Matching clean energy with the energy consumption required for mining is also a way for crypto assets and the environment to coexist.

In addition to hydropower, solar and wind power are now the cheapest and most scalable energy sources in the world. In May of this year, ARK and Square released a joint research report that intermittent power supply and grid congestion caused by solar and wind power make these two clean energy sources less people use, and certain crypto asset miners are a kind of The flexible grid load carrying system can help solve the problems of solar and wind power generation and move towards a new era of integration of wind, solar, storage and mining.

Finally, crypto assets can also increase environmental friendliness through carbon offset and energy efficiency/sustainability programs. For example, Energy Web Chain is an underlying network protocol similar to Ethereum, which is used to build renewable energy applications on the blockchain. Energy Web Chain has also recently cooperated with the Crypto Climate Accord (CCA). CCA is an initiative inspired by the “Paris Agreement”, which was just launched on April 8 this year. The focus is on promoting the decarbonization of the crypto asset industry.

People who oppose crypto assets often think that the huge fluctuations in the price of various crypto assets are just a speculative act. In fact, the crypto asset system, as a main body, has a set of benefits distribution plan inside, which is the internal community governance. More importantly, crypto technology is used as a tool for external empowerment, and crypto technology is used to build some rules and implementation of social practices, because its fair, efficient, and traceable characteristics are very suitable for large-scale collaborative management.

The core of crypto assets is to allow anyone to transfer value directly to other people anywhere in the world without relying on trusted third parties to facilitate transactions, which can improve issues in payment, legal, security, business processes and other fields .

Many crypto asset service providers are also ahead of regulation and have adopted strict compliance safeguards earlier, such as anti-money laundering (AML) and combating the financing of terrorism (CFT) framework. With the maturity of the crypto industry and the cooperation of regulatory agencies and international organizations (such as the Financial Action Task Force, Financial Action Task Force), market standards in the field of crypto assets can be gradually improved.

Finally, social governance is a worthy application of crypto and blockchain technology. For example, in terms of government affairs, it can promote the improvement of administrative integrity and management efficiency; in terms of charity, it can increase the transparency of fund flow, and so on. These social governance application scenarios are also the space for future crypto technology to be used.

Healthier internal corporate governance is a solid infrastructure for crypto assets. In order to achieve this, you can think about these six questions:

(1) Does the institution that manages crypto assets consider sustainability issues?

(2) Does the operating structure conform to the long-term ideal of achieving sustainable development?

(3) Is the tax transparency of company operations sufficient?

(4) Has the risk of financial crime been adequately controlled?

(5) Is there a proper system to prevent cyber attacks that may cause investor losses and infringe privacy?

(6) Is executive compensation linked to sustainable development goals?

These issues may be a challenge for high-growth crypto asset management institutions whose corporate governance system is not yet mature. Crypto asset companies will also gradually go public (whether through IPO, direct listing, SPAC or other means), and have formal governance and disclosure models like other listed companies. At this time, crypto assets and corporate governance concepts in ESG also need to be better integrated.

On the other hand, ESG impact should be considered when choosing crypto assets as a corporate governance tool. For example, when considering investing in crypto assets or accepting crypto currency as a means of payment, it is necessary to measure from a long-term perspective whether this is in line with the company’s value system and green development strategy. Taking Tesla as an example, Musk considered that the fossil energy consumption in the Bitcoin mining process deviated from Tesla’s core value of “accelerating the development of sustainable energy,” and therefore suspended the acceptance of Bitcoin as a means of payment.

Furthermore, we use crypto assets and blockchain technology as a tool to optimize the processing capabilities of “data” in corporate governance, thereby improving corporate governance capabilities, such as improving the quality of business decision information and improving the availability of supply chains. Retrospective. These will be important areas for crypto assets to create quantitative value.

Like any other emerging things, crypto assets will inevitably be accompanied by doubts and barbaric growth in the early stages of development. We may as well look at various forms of crypto assets and crypto technologies from a more open and long-term perspective, whichever is better, and maximize their society. Value.

Unlike traditional financial assets, crypto assets already have the concept of ESG in the early stages. For investors who take a serious and long-term attitude towards crypto assets, adding ESG requirements into investment considerations, although it is a constraint to a certain extent, is to build a continuous flow for the long-term future of crypto assets. Canal.

Therefore, crypto asset companies are worth considering how to make crypto assets truly embrace ESG, so that the natural environment and resources can survive and regenerate, so that chronic problems and development obstacles in society can be solved, and their companies can achieve success in a well-functioning system. A long-term career. Not only the crypto industry itself, this is also the underlying thinking for mature investment institutions to continue to grow.


Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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