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Cryptocurrencies and ESG? Mission impossible

Picture from Iceland, geo-thermal energy

Cryptocurrencies are booming; many of them are based on extremely energy-intensive mining processes. At the same time, we are under pressure to drastically reduce global emissions consumption. Can the balancing act between the crypto boom and sustainability succeed? I was interviewed on this issue by Céline Meier from ElleXX. You find the whole article in German here.

Here are my key points from our conversation plus an additional observation:

1. We  live in a time when all energy consumption is being questioned. Most cryptocurrencies do not create any real added value because they are not linked to real assets. In this respect, even with the proof-of-stake concept, one has to ask whether energy should be consumed for a speculative product.

2. The shift to more sustainable consensus mechanisms could lead to a kind of rebound effect (if energy savings are partly cancelled out by even more investors).

3. The fact that 40% of crypto mining is done from renewable energy sources does not justify the energy consumption by cryptocurrencies. The sustainable energy used for mining is missing when switching from other, emission-intensive activities to renewable energy.

4. The majority of banks see no contradiction between offering cryptocurrencies and their ESG goals. This is absurd in terms of E, but also problematic regarding S and G. Cryptocurrencies are problematic in terms of all ESG dimensions.

5. In terms of governance, for example, cryptocurrencies are judged by a very different standard than traditional financial instruments, especially in terms of transparency. Indeed, with most cryptocurrencies, one does not know which miner one is enabling to earn income through transactions.

6. From a social perspective, the question arises whether it is ethical to offer products that are purely speculative and operate according to the Greater Fool theory. This theory states that investors can make money by buying an overvalued asset because someone else will buy it at a higher price.

7. Last but not least, I didn’t mention this in the article, but: We have a USD 2.5 trillion annual SDG financing gap. Seeing how many ultra high net worth  individuals (e.g. celebs) are pushing crypto, it’s fair to wonder what would happen if they pushed ESG investments instead.

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