What Does Bitcoin Have to Do with Environmental Sustainability?

In recent years, two themes have drawn the attention of the consumer market at large: bitcoin and sustainability. Yet they had not been considered together — or in any systemic way — in the business world.

As is well known, bitcoin entered the mainstream when large corporates began accepting it as a means of payment for goods. Until then, the discussion in the media about the use of bitcoin centred on its traceability, reliability, the absence of a central controlling authority and the lack of a regulatory framework capable of providing legal certainty for the transactions involved.

The sustainability agenda — and ESG in particular — has gained particular prominence in recent years during the pandemic, as investors and companies felt the impact of the economic vulnerability arising from health, environmental and social issues, and the materialisation of previously non-economic risks. I believe that the cover of The Economist for its 21 March 2020 edition, which showed an image of the Earth with the caption "Closed", captures the historic moment we lived through.

Some companies were already aligned with an economic market in search of goods and services consistent with a low-carbon economy and contributing to greenhouse-gas emission targets. As that phase advanced, the use of cryptocurrency technology as a means of payment for companies aligned with this new market began to be questioned in light of the energy demands involved.

The process by which cryptocurrency is generated — known as mining — and the transactions themselves rely on a vast number of calculations carried out by high-power computers. The process therefore consumes intensive amounts of energy, which is generally drawn from fossil fuels, principally coal.

The reliance on non-renewable sources and the high energy consumption associated with bitcoin clearly conflict with the sustainable models adopted for many consumer products. Sustainability, in turn, has played an increasingly important role in market decisions — driving meaningful debate and influencing the buying decisions of consumers who today are more demanding on the socio-environmental performance of the products they purchase.

That reality was made plain over the past month, when Tesla's CEO, Elon Musk, announced that the electric-vehicle maker would no longer accept bitcoin, citing its climate consequences. Following the announcement, bitcoin's price fell sharply — a clear demonstration of how ESG-related decisions can influence financial markets and corporate valuations.

The Environmental & Sustainability team at Finocchio & Ustra Sociedade de Advogados is available to provide any further clarification.

LUCIANA CAMPONEZ PEREIRA MORALLES

luciana.moralles@fius.com.br