Sustainable finance requires balancing crypto's carbon footprint and social utility
Global Digital Finance says digital assets' social utility outweighs their carbon footprint.
The crypto and digital asset sector's phenomenal expansion this year has garnered media attention, not all of it positive.
With the industry in the spotlight, our global community may discuss crypto-energy usage and the social utility of digital assets. Global Digital Finance members contributed to our publication, Digital Assets: Laying ESG Foundations, to help increase awareness of the role of digital assets in developing sustainable financial systems.
Cambridge Centre for Alternative Finance's comments on Bitcoin's carbon footprint were included. Michel Rauchs and Alexander Neumueller call for both sides to elevate the level of public dialogue. Neither the claim that Bitcoin is a climatic disaster nor that it has no environmental impact holds up to the existing data.
A crazy thought experiment indicates Bitcoin might emit 158 million metric tons of CO2 this year.
“A radical thought experiment shows that, in a hypothetical worst case, Bitcoin may emit as much as 158 million metric tons of carbon dioxide this year,” say Rauchs and Neumueller. Actual estimates will be significantly lower when renewable energy is accounted for. "While this is no small effort, it's hardly the climatic disaster opponents paint."
The seasonal shift between hydro-rich Sichuan and coal-rich Xinjiang disrupted Bitcoin mining in China. China's new crackdown on crypto mining will reduce the overall carbon footprint, but this shows that decarbonization is economically beneficial.
Usefulness
Insufficient data hinders the debate. BitMEX and Coinbase both urge on the community to share data to grasp the full scope of environmental damage and fix it accordingly, without sacrificing decentralization.
We must evaluate digital assets like we do legacy industries, considering social utility and environmental effect. Distributed ledger technology and tokenization offer answers for green and impact-linked bonds, say R3, DLA Piper, and Clifford Chance. KPI-linked bonds lack automation and traceability, like many financial components. Tokenization improves project monitoring, reporting, and verification.
Todd McDonald, R3 co-founder and CPO, says funding a sustainable future would be Herculean. Tokenization provides needed infrastructure and liquid markets to fund SMEs in emerging markets. NFTs make 'unbankable' conservation initiatives bankable through art.
Sustainable digital
Our group believes digital is the key to sustainable finance in today's digital environment. Z/Yen expressed industry discontent with anti-cryptoasset narratives in their piece Don't Throw The Digital Baby Out With The Climate Bathwater. They ask for industry executives and policy makers to not limit cryptoasset trading activity at the expense of financial market innovation.
Crypto may not be a climatic calamity, but the current environmental emergency says we must be part of the solution.
The GDF ESG report properly portrays a community dedicated to improvements: public discourse, the industry's carbon footprint, and legacy systems needed to achieve the SDGs (SDGs).
Better?
Whether pushing for the industry to share mining data, help bank the unbanked, enable access to funds in emerging countries, or finance "unbankable" biodiversity projects, this is a group motivated to support sustainable finance.
GDF will host a community summit to address achieving net zero in digital finance. The discussion will bring together crypto and digital assets industry actors to discuss each aspect of the value chain in the context of net zero and the broader sustainability agenda, as well as scopes 1, 2, and 3 emissions, science-based targets, and transition paths.