Virtual currencies were again in the headlines this month. This time, thanks to Mi-if-not Elon Musk, CEO of Tesla, who criticized Bitcoin as environmentally harmful and unsustainable. In a Twitter tweet, Musk expressed concern about the heavy use of coal and other carbon energies to generate electricity, which is used to mine virtual currencies. Tesla “suspended the possibility of purchasing one of its cars using Bitcoin, and the value of Bitcoin fell by more than 10%.
Musk is considered one of the biggest supporters of virtual currencies, and is one of the supporters and early efforts of another virtual currency, which indeed began as a joke on a meme on the Internet, namely the Dogecoin. At the same time, Musk announced that he was working with Dogecoin developers on “improvements in system transfer efficiency” to reduce the pollution associated with the process. All of this is happening after Musk announced in February this year that Tesla had acquired $ 1.5 billion worth of bitcoin, a move that was claimed at the time to be one of the reasons why bitcoin’s value was strengthening.
With the current criticism of Bitcoin, Musk has finished moving the virtual currency market through one of the most serious upheavals he has known, but also touching on one of its painful and unspoken problems – its negative contribution to the climate crisis, and its negative impact on climate and environmental risks facing the business sector.
On the face of it, virtual assets in general and bitcoin in particular, sound like a green and sustainable solution; After all, all the activity in Bitcoin takes place on the computer and the Internet, and you don’t even have to print paper bills. However, in the bitcoin mining process, electricity is used extensively – intentionally, and so that network users (the “miners”) will have a cost invested during the coin mining process. Not only that – but also most mining companies are based in countries where electricity is based on coal, such as China. So even if there was hope that renewable energies would be used for the mining process – in practice this is not happening.
A special study on the subject also found that if one compares the Bitcoin network to a country – then it will be ranked number 33 in the world in its electricity consumption (above countries like the Netherlands and the Philippines), with its carbon footprint equal to that of the city of London.
Of course there are those who claim that the various Fiat currencies (currencies that receive their value as a result of being defined by the state as the official currency, and due to the state’s promise to preserve their value – such as the shekel and the dollar) funded, and still fund, the largest polluting companies and traditional financial system She is responsible for the climate crisis.
But it is impossible to ignore the fact that Bitcoin and other virtual assets have a very negative environmental impact, and the cryptocurrency market has so far been run in isolation from recent global developments among countries and financial entities. In most countries of the world, governments and regulators are mobilizing public companies and financial institutions to fight the climate crisis and reduce greenhouse gas emissions, in order to meet the goals of the Paris Agreement. One of the main ways to do this is to oblige them to manage and report on the climate risks they face and their impact on the climate, in order to provide them and investors with information that will enable action on the issue.
Significant developments have taken place in recent days in the United States, for example, when President Biden issued a special order directing all federal authorities and regulators to assess, manage and mitigate climate crisis risks, and include climate and environmental considerations in their policies. Harris will reduce all greenhouse gas emissions in the US by half by 2030, bringing them to zero emissions by 2050. It can be assumed that this move will lead to a reporting obligation imposed by the authorities on public companies and financial institutions – a move already being considered by the Authority U.S. Securities, SEC. The SEC initiative was bolstered by Apple, Salesforce and Uber, who themselves called for a climate reporting obligation and supported the initiative. It seems, then, that the “trend” of moving to a green economy has long been not just a trend but an established trend, in which the business sector, apart from Elon Musk and Tesla, is a partner and seeks it itself.
In Israel, too, the Supervisor of Banks is leading steps to implement climate and environmental risk management, and the Securities Authority published a document of recommendations in January to implement disclosure and reporting of ESG risks (environment, company and corporate governance) to companies traded on the stock exchange.
The planned climate risk management obligations will probably also apply to many players in the crypto market. For example, companies that mine or issue virtual currencies, that are traded or interested in trading on the stock exchange. It can also be assumed that the growing regulation of the crypto market (in which currency service providers are beginning to be monitored and approved by regulators) will inevitably also include regulation dealing with climate and ESG risks, similar to the emerging regulation of other players in the financial system.
If that does happen, making bitcoin and virtual assets an integral part of the financial system will force the crypto market to adapt to green trends, think of alternative ways and take part in the battle for the future of the financial system in particular, and the planet in general.
Adv. Yinon Barzani is a risk management consultant at EBA & Co, and runs the blog “Climate and Environmental Risks”.