ESG in Crypto World

Have you ever thought of going green with crypto? This is undoubtedly a good idea if you care about our planet. Now it’s become possible with the development of modern technologies, and, of course, a grown human responsibility level.   

Lately, the trend of sustainability has actively extended to the field of investment. As a result, the concept of ESG emerged. Today we will discover what that abbreviation means, why it is so important and how it has influenced crypto and business worldwide. 

What is ESG?

Now let’s dive into the topic. To get the gist of ESG, we need to disassemble every letter of the abbreviation as each one has its own important meaning.    

E for Environment

Both fiat and crypto may be utilized to buy products and services, however, they differ a lot by the material they’re made of. Whilst usual fiat is produced of linen and cotton, cryptocurrencies require a PC, Internet connection and, of course, electricity. Both fiat and crypto spend different amounts of energy to be created. 

Bitcoin energy consumption is high, and it leaves a huge carbon footprint. Most mining facilities in the BTC network are powered by fossil fuels:

According to the Digiconomist, 1 BTC transaction takes 1,449 kWh to be done. It’s equal to about 50 days of power for the average U.S. household. This is one of the reasons some countries completely abandoned the idea of crypto adoption and restricted the usage and mining of it. However, we’ve talked about so many countries that allow cryptocurrencies and support technical progress: Germany, South Korea, Indonesia, India, Vietnam, Argentina, Portugal, Japan, Philippines, Iceland and much more. 

Of course, not all mining is an enemy of the Earth. Some crypto projects are created now considering the eco trends of the 21st century. One of the most popular crypto — Ethereum — has switched to PoS, which doesn’t need extensive hardware or power. 

S for Social

As long as crypto is decentralized, some doubt the security of investors and protection from the hacks. However, the decentralization is more loved than hated nowadays. People claim that it helps make the transactions fast, cheap and even free of censorship. 

A book called “Cryptocurrency Mining For Dummies” claims:

Is crypto social-friendly? There’s no definite answer yet as opinions have divided. The deep studies are required to understand if pros outweigh cons in terms of social.   

G for Governance

Today most countries have some regulations concerning crypto to manage the security, production and usage of it. But let’s not forget that the framework of cryptocurrency is initially decentralized. It could make two possible scenarios: the appearance of uniformed regulations for all crypto assets or special laws for every country. Right now we can see the second option more often than the first one.     

In short, there are three criteria of ESG: environmental — considering the sustainability and footprints of crypto, social — to show the positive effect on individuals and governance, which is connected to the crypto’s ability to extend the reach of capital markets via decentralized delivering products and services.     

ESG rating

When we talk about the usual ESG for business, there is one kind of rating, but when it comes to crypto, there’s another. Let’s take a look at both to compare. 

The ESG rating is shaped by independent research agencies — Bloomberg, S&P Dow Jones Indices, MSCI, Refinitiv and others. They rate companies on criteria we mentioned above - E, S and G - and score points on a 100-point scale.

MSCI puts firms into 3 categories: leaders; companies with average ratings; and laggards. There is no unified approach to rating formation. Everybody uses open data about companies to analyze it, but they count the points differently. This is why ESG ratings from various companies may differ a lot. 

Talking about crypto, the ESG rating is a little different. For example, Greencryptoresearch offers the following categories:

As we visit another website providing ESG ratings, Cobepal, we can see more defined and well-structured measurable points: Environmentally Sustainable Operations and Consensus Models, Scaling and Interoperability, Social Impact, Financial Inclusion. However they use almost the same letters, A (Leader), B (Aspirational), C (Average), D (Laggard) and E (Drag). 

Here’s a ESG rating for popular crypto assets:

Environmentally sustainable assets

Even though ESG is quite new to crypto, there are quite a few projects that fit the idea of sustainability. Here are some of them:

Hedera Hashgraph (HBAR)

This project is considered by its developers the most sustainable and used public network for the decentralized economy. It gives users a chance to launch powerful DApps. In an environmental impact study by UCL comparing other distributed ledger networks, Hedera is claimed to be the most sustainable network.

Ripple (XRP)

This project is well-known around the crypto community. It is an open-source decentralized blockchain. The speed of the transaction settlement is 3-5 seconds. According to their website, Ripple wants to become carbon net-zero by 2030. 

Signum (SIGNA)

Signum founders call it the 1st truly sustainable blockchain. Signum qualifies itself as the first fully sustainable blockchain. Like in Chia (XCH), transactions are verified through network users’ hard drive space — this means, via a PoC+ algorithm — with no mining needed.

Tron (TRX)

You have probably heard about TRX. This project was created in Singapore. Its goal is to make the web completely decentralized. Back in 2018, they bought BitTorrent for $140.000.000 giving it 100 mln active daily users on which to test scalability.  

Want more coins? Make sure to check out this article dedicated to green cryptocurrency. 

Conclusion

There exist no official guidelines on how to use ESG for cryptocurrency now. The most significant point is that it has to use renewable energy and PoS for mining. The rest is yet to be regulated. The ESG technology is a fresh phenomenon for the Crypto World — it’s critical for investors to keep up with the updates of it to detect the risks coming with the potential results of investment.  

If you are interested in the eco-movement and want to know more, you might try reading our articles about Eco-friendly Crypto and Regenerative Finance. Stay green and updated with SimpleSwap!