Cryptocurrencies and ESG or the environmental, social, and corporate governance problems appear to be two buzzwords in the business and financial worlds today, but are they related? Are cryptocurrencies eco-friendly or a global threat to fulfilling climate targets as defined at the recent UN Conference of the Parties (COP26)?
What does crypto-mining mean?
Mining cryptocurrency is traditionally driven by a race between processors to address a math equation first, with the winner being able to add a cluster of payments to the blockchain.
CPU processing speed — which you can feel as your computer warms up — indicates that the processor is creating energy to accomplish anything. Mining is the process of rewarding the very first computer, or server, to solve a mathematical challenge using the cryptocurrency’s native token.
The Negative Impact of Crypto-Mining on Climate Change
Yes, crypto-mining may have had a harmful contribution to climate change over time if proof of work was continued with Ethereum, the most widely used blockchain in the world. The update to Ethereum 2.0 (ETH2), which uses a proof-of-stake model, will significantly alter this.
Of course, matching energy usage and environmental consequences with the advantage that cryptocurrency has produced via a massive new economy is an intangible effect. Because technology can make a network of assets that we will always benefit from, there is also a cost-benefit.