Bitcoin Gets ESG’d

The promise of a decentralized financial system is worth a moderate increase in energy consumption.

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The Environmental, Social, Governance (ESG) movement is coming for Bitcoin and a host of other cryptocurrencies. This latest iteration of the corporate-responsibility movement has successfully captured public companies and forced a shift of priorities away from shareholder value toward a set of amorphous standards that too often serve as mere proxies for progressive policy goals. If crypto falls to ESG pressure, that will crush much of its global benefit to individuals worldwide.

The main ESG complaint about Bitcoin is its energy consumption. Wall Street and other ESGers see Bitcoin’s energy consumption as wasteful and dirty. Bitcoin currently consumes energy equivalent to the Netherlands, whose residents account for 0.22 percent of the global population, according to estimates.

So nonprofits and the trade press want to “solve” the crypto industry’s alleged “social” and “governance” issues by imposing top-down control via an ESG bureaucracy the way they have with public companies.

Leading crypto publication Coindesk recently explored Bitcoin angst in “How the Bitcoin Industry Is Responding to Wall Street’s ESG Concerns.” The “Bitcoin industry” response has been to placate. Ark Financial and Jack Dorsey’s Square published a white paper with promises of “clean” Bitcoins through renewable energy. Elon Musk joined in. Others are pushing carbon neutrality, carbon credits, and so on.

It would be interesting to know what Bitcoin creator Satoshi Nakamoto would think (if he is still alive). The opening sentence of Bitcoin’s white-paper abstract discusses enabling people to circumvent financial institutions — to cut out the middleman in financial transactions.  Bitcoin’s genesis block famously references bank failures and bailouts, so it seems unlikely Nakamoto would have cared much for Wall Street’s concerns.

In fact, Nakamoto might have offered a vigorous defense of Bitcoin’s energy-intensive consensus mechanism (a set of rules that verifies new transaction blocks and maintains blockchain integrity) as a necessary design tradeoff for a decentralized currency. Instead of a central authority, many people and entities maintain the blockchain through various nodes in a trustless system. These nodes validate transactions and maintain the network. To maintain an accurate ledger history and link new transaction blocks, powerful computers compete to solve mathematical puzzles, a system called mining. The mining node that wins receives newly minted Bitcoins, other nodes verify the winner, and then the process restarts. Bitcoin’s mining system enables its consensus mechanism called “Proof of Work.” And it consumes lots of energy.

The consensus mechanism forces decentralization as dispersed nodes interact. The blockchain has no single point of attack, and thus is essentially hack proof. Computer scientists tried to make decentralized, hack-resistant, irreplicable internet money for decades. Nakamoto did it and spurred an emerging new internet known loosely as Web 3.0 that is changing the world.

The benefits of Nakamoto’s decentralized vision of people transacting outside centralized institutions are everywhere. Even the worst tyrannical regimes cannot stop Bitcoin transactions as they can cash or credit-card transactions. As such, Bitcoin provides lifelines to dissidents fighting persecution from Hong Kong, Russia, Belarus, Nigeria, and Iran, among others. It provides a store of value in grossly mismanaged countries such as Venezuela. More mundanely, it facilitates cross-border payments, bypassing the current bureaucratic quagmire. Nakamoto would likely take the tradeoff of the inordinate energy consumption equivalent to 0.22 percent of the world’s population in exchange for the potential liberation of the 53 percent of people controlled by oppressive regimes.

Read the full article at National Review.