What About the S and G in ESG?

Bitcoin has endured a barrage of attacks since its inception in 2009. Today, the idea of the digital currency supplanting traditional payment systems doesn’t sound too crazy. Starting from $0, we have witnessed the rise of Bitcoin as a legitimate alternative to the existing monetary system.

With rising income inequality, hyperinflation, and authoritarian governments worldwide, more people are choosing Bitcoin’s programmatic monetary policy over opaque central banks. Bitcoin has become a force to be reckoned with, so it shouldn’t come as a surprise that it has to deal with mainstream problems such as ESG.

ESG critics are right to challenge Bitcoin’s energy consumption. There’s no denying that mining, which expends electricity for new bitcoins to enter circulation and to maintain the blockchain ledger, is harmful to the environment. While the Bitcoin and ESG mob’s cherry pick statistics to fit their narrative, each side has to come to a concession. Widescale adoption of Bitcoin would increase its energy demand, and that will not be sustainable for our planet. Conversely, Bitcoin cynics must concede that if we want a more inclusive and transparent financial system, digital currencies will release carbon into the atmosphere — but its societal value will outweigh its carbon footprint.

On Bitcoin’s impact on the environment, we lose sight of the positive effects it has on social and governance issues. Blockchain, the technology underpinning Bitcoin, is going to transform the global economy, and will disrupt the third-party system. In the not too distant future, governments and banks will shrink as we shift towards open, trustless, and permissionless networks that are built by communities of software developers, all in full view of the world. This level of transparency and connectivity is unprecedented, and will enable a digital asset such as Bitcoin to bring financial services to the roughly 1.7 billion people (majority women) in the world who still don’t have access to banking infrastructure. Financial exclusion hinders national economies and undermines the quality of life for these people, and Bitcoin offers them hope.

Whether it’s a response to negligent quantitative easing, protection from inflation as a store of value, or its censorship resistance, Bitcoin solves different problems for people around the world. ESG critics questioning Bitcoin’s viability on our warming planet, are right to demand better. Likewise, it is essential they recognize why Bitcoin is essential to people as well.

Junaid Lughmani

*I wrote this in response to a recent editorial in Pension & Investments titled “Cryptocurrencies present dilemma for ESG investors.” I’m not sure if the editorial board will have interest in publishing, but I’m putting on the blog nonetheless.

GP at NxtBlock Capital | BerkeleyHaas ’23 | Past life: US Army + Operation Enduring Freedom-Afghanistan