By Brett Munster
If you have any traditional finance background, you know about ESG investing. ESG, which stands for environmental, social, and governance, refers to a set of standards used by socially conscious investors to screen potential investments. Typically, people who invest in ESGs are equally concerned about gains as they are about their investments having a positive impact on the world. When you consider all these factors, it stands to reason that bitcoin could be one of the greatest ESG investments of all time. Not only has bitcoin generated outsized returns for investors (at the time of writing this, BTC is up 71% year to date, 342% over the past 3 years, and a whopping 44,404% over the past 10 years), it is having enormous positive impacts globally.
Let’s break it down:
Environmental
More bitcoin, less fossil fuels
The Bitcoin network appears to be one of the few industries, both in the US and globally, that does not have coal as its primary energy source. A recent report found that because much of bitcoin mining relies so heavily on off-grid power sources, 52.2% of the bitcoin network is currently powered by zero-emission energy. An increasing number of mining companies are turning to renewable sources such as geothermal energy or solar energy to power their operations. It’s possible that in the next decade or so, the bitcoin network might become carbon negative and actively reduce the number of global carbon emissions.
Increased energy efficiency
In addition to relying mostly on clean energy, the bitcoin network is far more energy efficient than legacy financial systems. Bitcoin mining accounts for less than 0.2% of global energy usage and only 0.09% of the world’s CO2 emissions. Bitcoin, often compared to gold as a store of value, uses less energy than gold to mine and has none of the heavy metal pollutants caused by gold mining. Simply replacing gold or the legacy financial system with a bitcoin standard would be a huge net positive for the environment.
Incentivizing innovation
Bitcoin’s potentially biggest environmental impact is that it incentivizes innovation and adoption of clean energy sources. Methane gas is about 25x worse for the environment than CO2, and according to the Climate and Clean Air Coalition, “cutting methane is the strongest lever we have to slow climate change over the next 25 years.” It turns out that two of the largest methane producers are oil fields and landfills which bitcoin mining is helping to address. Instead of venting or flaring the excess gas, the oil field operators are now funneling that Methane and using it to generate electricity to power bitcoin mining servers. Bitcoin mining company Vespene has developed a method for converting the methane emitted from landfills into electricity to power bitcoin mining rigs in an environmentally friendly way, thus eliminating those methane emissions. And if that wasn’t enough, bitcoin mining using methane-vented power is far more effective at reducing carbon emissions than any other renewable energy source we have. In fact, mining bitcoin from vented methane removes 13x more emissions out of the environment than coal puts into it. It’s possible that in a few years, bitcoin mining might prevent more carbon from entering the atmosphere than the carbon emitted from creating the electricity it takes to power the network.
Social
Bitcoin is the only form of money that is seizure-resistant, borderless, permissionless, peer-to-peer, and has a predictable monetary policy outside the control of any government. Because of these properties, bitcoin has numerous social implications for cross-border payments, citizens living under oppressive regimes, economies experiencing hyperinflation, and social equality.
Better cross-border payments when they’re needed most
Researchers found that, when it comes to humanitarian aid, 15% of all donations never make it to their intended destination. For this reason, most aid comes in the form of cash, which is difficult to move around, especially in disaster areas or war zones. Bitcoin solves this because it can be sent directly to anyone in the world that has a smartphone, regardless of whether they have a bank account, without any middlemen taking a cut, and with all transactions tracked on the blockchain to ensure money gets to the right people.
For example, when Russia invaded Ukraine, bitcoin quickly became a lifeboat for Ukrainian citizens who lost access to the traditional banking system. More than 14 million Ukrainians have been forced from their homes in what the United Nations has described as “the fastest, largest displacement in decades.” In an interview with Bitcoin Magazine, a Ukrainian refugee tells the story of how he was able to escape the country with his savings stored in a bitcoin hardware wallet. “With Bitcoin, he was able to flee to a foreign country with the wealth that he was able to save from his job, with multiple options to be able to convert that to the local currency, if necessary, as opposed to fleeing with nothing but the clothes on his back.” But it was not just individuals, the Ukrainian government listed bitcoin and Ethereum wallet addresses on Twitter to collect donations and has received more than $70 million since the start of the Russian conflict. Most of the funds raised have already been spent on basic necessities and military supplies.
Humanitarian aid isn’t the only form of cross-border payments bitcoin is having an impact on. A report by the World Bank stated that, on average, global remittances cost the sender 6.01%, and it’s often much worse than that. Depending on how much is being sent and to where, Western Union and MoneyGram can charge upwards of 15-20%. Unlike these for-profit companies that have enormous infrastructure costs to maintain, bitcoin allows for the transfer of money to anyone in the world instantly and for nearly free. This has huge ramifications for countries such as El Salvador where remittances account for 23% of the country’s GDP. Since adopting bitcoin as legal tender, the number of El Salvadoran citizens that use bitcoin is greater than the number who have a bank account. This is one reason the country has seen double digit growth in GDP.
Blockchain as a lifeline
Alex Gladstein is the Chief Strategy Officer at the Human Rights Foundation and vice president of the Oslo Freedom Forum. Working with refugees and humanitarian groups throughout the world, Gladstein is uniquely positioned to comment on the impact bitcoin is having across the globe. In Check Your Financial Privilege, Alex chronicled numerous real-life examples of bitcoin improving the lives of citizens living under the harshest of conditions. Here are just a few examples taken directly from Alex’s book.
- Only 13% of the world’s population is born in geographies that operate on the most stable currencies such as the dollar, euro, yen, pound, Australian dollar, Canadian dollar, or Swiss Franc.1 The other 87% are born into considerably less trustworthy financial systems and 55% of the world’s population (4.3 billion people) live under authoritarianism.1 It’s precisely this group that bitcoin is having the biggest impact on.
- In Nigeria, there is massive corruption, inequality, and an inflation rate of 15% with food inflation even higher.1 Only the elite are allowed to keep their money in dollars, send it abroad, or buy real estate. Now, every Nigerian with internet access has “an escape from their unreliable, unequal, exploitative national monetary system.” Bitcoin is providing jobs through entrepreneurial activities, helping people convert their naira to other currencies and enabling commerce where it was not previously possible.
- Sudan has been in a vicious cycle of military coups and authoritarian rule for decades, with bloodshed peaking in Darfur in the early 2000s. As a result, the US and European Union increased sanctions against Sudan, cutting its citizens off more deeply from the outside world. Bitcoin is rebuilding those ties and providing greater financial access to Sudanese citizens. Bitcoin users in Sudan can now easily send money back and forth to family throughout the world, and the Lightning Network is enabling local commerce that has never before been possible.1
- More than 70% of Ethiopians do not have access to a bank account. However, bitcoin and the Lightning Network not only allow Ethiopians to store their value but transact without the government stealing a cut through artificial exchange rates. Kal Kassa, an Ethiopian citizen that uses bitcoin to run his business, does not have to worry about anyone debasing or confiscating his earnings. “This” Kassa said, “is a revolution.”
- Thousands of refugees in Afghanistan have fled the country to escape the Taliban. Dishonest middlemen and thieves often steal everything these refugees take with them by the time they end up in their final destination. But such was not the case for Laleh Farzan who was able to hide a tiny piece of paper with her bitcoin wallet seed phrase on it. Once Farzan got to Germany, she was able to sell some of her bitcoin and start a new life. In a country where only 15% of the population has a bank account, and most are losing access to the outside world, bitcoin is quickly becoming an economic lifeline.
Mitigating hyperinflation
There are approximately 1.6 billion people that currently live in regions that have official inflation rates in the double or triple digits.1 In these economies, bitcoin is providing an alternative to broken financial systems that debase local currency.
The World Bank described Lebanon’s economic crisis as one of the worst in more than a century. Lebanon’s annual inflation rate increased to 123.5% in January 2023, its currency has lost 95% of its value since August 2019, and due to cash shortages, banks have imposed informal limits on withdrawals. In just the last year, millions of Lebanese citizens were locked out of their bank accounts indefinitely for trying to pull their funds out of their banks to protect themselves from the currency’s collapse. As a result, many Lebanese citizens turned to bitcoin as their sole financial liferaft to escape a failing economy. To make ends meet in a financial system that no longer makes sense, local citizens are mining bitcoin and using it to store whatever wealth they have. Research from blockchain data firm Chainalysis shows that Lebanon’s crypto transaction volume is up 120% year-over-year.
Argentina’s situation isn’t much better. As of a month ago, the country’s annual inflation rate was just shy of 100%. The South American country, which has battled spiraling prices for years, saw monthly inflation speed up in recent months to the highest levels since the 1990s. It should be no surprise that the region also has a relatively high bitcoin adoption rate, ranking 13th in Chainalysis’s 2022 crypto adoption index, despite the nation’s central bank clamping down on crypto-related services. Even when bitcoin was down 64% in 2022, many Argentines still viewed bitcoin as less risky compared to their own currency. Jerónimo Ferrer, an Argentinian citizen that saves in bitcoin said in an interview with the BBC, “When you have restrictions, you need tools for freedom. I trust mathematics and software more than I trust politicians.”
Cuba’s inflation rate increased to 42% in January 2023. As a result, Cuban citizens have lost nearly two-thirds of their purchasing power since the end of 2020, as the price of $1 has gone from the official rate of 24 pesos to costing as much as 70 pesos on the black market. Erich García Cruz, a popular Cuban media personality who has lived in Havana his whole life, says “The system isn’t working, so people are turning to Bitcoin to escape.”
Creating more racial and gender equality
The beauty of bitcoin is everyone plays by the same set of rules. Bitcoin doesn’t care if you are rich or poor, what race or gender you are, or where you live. Bitcoin doesn’t discriminate.
In a recent article, Maia Naor and Itai Averneri argue that digital finance tools have the potential to increase financial inclusion for women across the globe, who are often excluded from traditional financial systems. According to a report by the World Bank, women are nearly 10% less likely than men to have a bank account, and in some regions, the gender gap is even wider. Bitcoin can facilitate cross-border transactions and the ability to invest without the need for traditional banking systems giving more women financial autonomy.
And it’s not just gender equality bitcoin is having an impact on, its racial equality too. In his book Bitcoin and Black America, author Isaiah Jackson argues that bitcoin is a way for African Americans to opt out of a financial system that has systematically discriminated against the black community. In the book, Jackson tells stories of how bitcoin has had a life-changing impact on people of color. One of Jackson’s stories is about a “15-year-old kid, who came to one of Jackson’s presentations in 2016 with his mom. The kid ended up buying bitcoin after working small jobs and by the time he was 17, he had made enough money through bitcoin to pay for college. Now he is 22 and runs his own web development company.”
Though much of the media coverage centers around price in the US, the truth is that bitcoin is increasingly becoming a tool for protecting human rights.
Governance
Cathie Wood, founder of ARK Invest, calls bitcoin the first global, private, rules based digital monetary system in the history of the world. The fact that bitcoin operates by a set of known rules, that those rules apply to everyone who uses bitcoin, and those rules cannot be changed by a single party means bitcoin creates the most inclusive, fair, and trustworthy financial governance system that has ever existed.
Playing on the same field
Because bitcoin is peer-to-peer, transactions don’t go through banks or financial intermediaries meaning there is no approval process required, as is the case with opening a bank account. You don’t need to reveal your name, address, or telephone number to send money. No single authority holds financial power over any other entity, ensuring that everyone that holds or uses bitcoin is on a level playing field. Bitcoin, when self-custodied properly, cannot be confiscated, enshrining property rights to individuals regardless of what jurisdiction they may live in. Transactions are verified by a decentralized global software network as opposed to regulated entities that have the power to void transactions, delay payments, or freeze accounts. And Bitcoin has no CEO or board of directors; changes and updates are made democratically, and any changes to the rules have to be agreed upon by the majority of the network rather than instituted top-down. All of these factors make it potentially the fairest financial system ever created.
Not easily swayed
Bitcoin is also far less susceptible to political whims because the rules by which it operates are not controlled by any central party. The interest rate or inflation rate of bitcoin is not determined by a small, unelected group making decisions behind closed doors that have ramifications for the entire global financial system. There is no guessing required with bitcoin. There is only one asset globally that has not changed its monetary policy over the last two years, let alone for the last ten. There is only one asset that we can verify the exact number in existence today and know for certain what the supply issuance rate will be for the next 100+ years. Only one with a monetary policy that is independent, predictable, and reliable. That programmatic predictability creates a level of trust that the traditional financial system can’t match.
Perhaps Alex Gladstein has the best description of bitcoin’s governance system. “Bitcoin is the instantiation of a revolutionary idea: a system that cannot discriminate; that does not wield violence; that does not have special rules for the rich; that does not require identification or a particular status or level of wealth or race or creed to use; and whose rules cannot be manipulated by governments. Satoshi arguably took the best ideas from Thomas Jefferson, John Adams and their colleagues and gifted them to people around the world.”
The takeaway
Aside from being the best-performing asset over the past decade, bitcoin resoundingly aligns with all three goals of the ESG initiative. To be pro-ESG, investors have to acknowledge the foundations that bitcoin is building for a fairer, more energy-efficient, and more socially-equitable future. You would be hard-pressed to find another asset that simultaneously delivers financial returns, economic empowerment, and property rights to 8 billion people throughout the world. Because of that, bitcoin has to be considered one of the greatest ESG investments of all time.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely my own and do not express the views or opinions of Blockforce Capital or Onramp Invest.