The recent FTX collapse has caused the bitcoin price to plummet, making it the lowest it has been in two years. Cryptocurrencies are as volatile as stock markets amid recessions, nonetheless there is no doubt that bitcoin will recover in god knows when.
Switching gears — instead of discussing macroeconomics, let me talk about bitcoin as a means of achieving something greater than money.
As you know, environmental, social and governance (ESG) compliance has become one of the top priorities for many organizations. ESG investment is a term used to represent a corporate financial interests that focus mainly on sustainable and ethical impacts. Capital markets use ESG to assess organizations and predict future financial performance. Businesses now need to integrate ESG into their decision-making in addition to evaluating ESG performance in public companies.
Meanwhile, Bitcoin use the mining process to verify and add new blocks to the Bitcoin blockchain. Through the process of ‘proof of work,’ miners compete with each other to solve a cryptographic puzzle first in order to verify transactions. Adding new blocks to the blockchain makes mining so resource-intensive, which is anti-environmental and anti-ESG as hash rate goes up over the course of time. However, Bitcoin can actually positively contribute to ESG investments. How so?
Back in March, the Biden administration ordered an investigation into the relationship between distributed ledger technologies (DLT aka. Blockchain) and energy transitions, whether or not these technologies could impede or advance efforts to combat climate change at home and abroad, and the environmental impacts. these technologies have.
After 6 months, ‘Climate and Energy Implications of Crypto-Assets in the United States’ report came out with answers to these questions. This report states that Bitcoin has two edged swords. It’s bad for the environment, but it can also contribute to environmental problems.
When it comes to renewable energy such as solar, wind, or water related power plans, there are contracts. The term curtailment refers to a reduction in electricity generation below what a well-functioning system is capable of. As a result, economic and energy efficiency are significantly reduced.
To address curtailments, there are a few existing solutions such as buy/sell through Energy Imbalance Market (EIM), build more battery storage, or combining with other energy storage options as well as encouraging consumers’ time-of-use rates.
Using curtailed electricity can provide additional revenue to renewable developers and incentivize the construction of additional renewable energy capacity. Now Bitcoin mining can be included as an additional solution as well as a revenue stream.
Fun fact: Bitcoin mining is open to everyone, whether as a hobby using a computer or mobile device, or as a large mining operation from business entities. Basically, you can turn it on or off whenever you want. Picture a battery versus a mining device. Mining devices can be utilized with extra electricity just like batteries can store surplus juice of electricity.
Plus, renewable power can be generated at various scales and in various locations, making it more accessible and attractive to miners. Renewable electricity can be generated in places where there is a high concentration of mining, such as the Pacific Northwest, or in areas with low electricity costs, such as the Mediterranean.
As long as Bitcoin mining runs on clean energy and uses renewable electricity that would otherwise be curtailed by the grid, it can benefit the environment and be a good ESG investment.