Cryptocurrencies as part of responsible investing – Is it possible?

Responsible investing has emerged as one of the most important trends in today's financial markets. More and more investors are looking to allocate their funds to assets that support environmental, social and governance goals. The acronym ESG (Environmental, Social, Governance) refers to these three areas of responsibility. But can cryptocurrencies, known for their high energy consumption and lack of regulation, really be included in responsible investing? This text examines the role of cryptocurrencies from a responsibility perspective and considers how they could be part of a responsible investment strategy.

              
What is responsible investing?
Responsible investing refers to an investment strategy that, in addition to financial returns, also considers the impact of investments on the environment, social and governance. This approach has grown in popularity as investors, companies and communities have recognized the need to respond to global challenges such as climate change, the promotion of human rights and good governance. ESG factors (Environmental, Social, Governance) are at the heart of responsible investing and serve as a metric for evaluating investment targets:
Environmental: How does the investment target contribute to climate change, the sustainable use of natural resources and environmental protection?
Social responsibility: Refers to social and ethical issues such as workers' rights, equality and impacts on local communities.
Governance: Refers to the management, transparency and accountability of a company or project.
Responsible investing seeks to combine financial success with sustainable development. Traditional ESG investment targets may include renewable energy projects, ethical companies or green bonds. In addition, responsible investing encourages investors to take an active role: to challenge companies that have room for improvement on ESG issues and to vote for change. Increasingly, investing is seen as a way to influence broader social and environmental goals, where financial returns are not the only measure of success.
Environmental Responsibility: The Environmental Impact of Cryptocurrencies
The environmental impact of Cryptocurrencies has been one of the biggest sticking points in their acceptance as a responsible investment. In particular, the energy consumption of Bitcoin and other cryptocurrencies that use the Proof of Work (PoW) consensus algorithm has received a lot of criticism. On the other hand, the environmental responsibility of cryptocurrencies can also be viewed from a positive perspective, as many industry players are actively striving to reduce emissions and use sustainable energy sources.
Many cryptocurrencies, such as Ethereum, have adopted more energy-efficient technologies. Ethereum Ethereum,to the Proof of Stake (PoS) algorithm in 2022, which reduced the network's energy consumption by up to 99.95%. This shows that technological developments can significantly improve the environmental responsibility of cryptocurrencies.
In Proof of Stake systems, energy consumption is minimal, as securing the blockchain is not based on computing power but on the funds invested by investors. This makes the PoS algorithm a promising option for reducing environmental impact.
Social Responsibility: The Impact of Cryptocurrencies on Society
Cryptocurrencies offer opportunities, especially in emerging markets where traditional banking services are often lacking. For example, Bitcoin and other digital currencies enable fast and low-cost remittances, which can be a significant advantage for many families and businesses.
In addition, decentralized finance (DeFi) projects aim to provide financial services, such as loans and savings opportunities, without intermediaries. This decentralized approach can improve financial inclusion and provide alternatives to traditional financial systems, which are not always accessible to everyone.
At the same time, cryptocurrencies can promote economic independence, especially in countries where the value of the currency is unstable or where citizens do not have access to reliable banking services. This makes them an excellent tool for increasing financial inclusion and helping to build a global financial system that is more open and accessible to everyone.
Good Governance: Cryptocurrency Transparency
Blockchain technology itself enables unprecedented transparency, as all transactions are public and permanent. This can improve project accountability and reduce corruption.
On the other hand, many crypto projects suffer from unclear governance. Project developers can remain anonymous, and the lack of regulation can lead to investors being left unprotected. However, responsible crypto investors can aim to support projects that prioritize transparency and community-based decision-making.
Transparency and responsible governance can become a key competitive advantage for crypto projects as investors and users increasingly seek reliability and security. This puts projects that invest in openness and responsible practices in a better position in the long term.
Bitcoin and Responsible Investing
When discussing the responsibility of cryptocurrencies, it is essential to look separately at how responsibility is implemented in the case of the world's largest and most well-known cryptocurrency, Bitcoin. In particular, the energy consumption and environmental impacts associated with Bitcoin mining have been widely reported in the media - often in a negative light. Although the criticism is partly justified, Bitcoin mining also has the potential to promote environmentally sustainable solutions and the introduction of renewable energy sources.
Bitcoin mining with renewable energy sources
Bitcoin’s high energy consumption raises questions from a sustainability perspective. At the time of writing, the annual electricity consumption of Bitcoin mining is around 180 TWh of electricity, which is slightly more than the total annual energy consumption of Poland. However, this consumption is only part of the picture – Bitcoin mining also has positive impacts on the energy industry and the environment.
In recent years, the Bitcoin mining industry has taken significant steps to move towards a more environmentally friendly direction. According to the Bitcoin Mining Council, around 55% of the electricity used to mine Bitcoin is generated from environmentally sustainable energy sources, such as solar and wind power. This share is significantly higher than in most other industries:
The banking sector generates around 39% of its electricity from renewable sources.
The corresponding figure for gold mining is only 13%.
Bitcoin mining companies have demonstrated their ability to operate in an environmentally friendly manner and even promote the use of sustainable energy. For example, many mining units utilize excess electricity generated from renewable energy that would otherwise not be available due to the instability of the electricity grid.
The Bitcoin mining industry is constantly evolving, and its role as a more environmentally friendly industry is becoming stronger. Many experts predict that Bitcoin mining emissions will continue to decline, even as Bitcoin usage and the network hashrate grow. This can be achieved by increasing the use of renewable energy, improving energy efficiency, and making more use of by-products of the mining process, such as heat.
Is responsible investment in Bitcoin possible?
The criticism of Bitcoin mining is not unfounded, but it only gives a partial picture of the phenomenon. Mining has significant potential to promote environmentally sustainable energy solutions and improve the resilience of energy grids.
Responsible investment in Bitcoin is possible when investors understand the benefits of mining and support actors who invest in renewable energy and environmentally sustainable development. In the future, the Bitcoin mining industry can play an important role in global climate goals and energy industry reform.
How to invest responsibly in cryptocurrencies?
If you want to include cryptocurrencies in your responsible investment strategy, it is important to carefully evaluate the impact of your investments and make informed choices. Here are some tips for responsible crypto investing:
Choose environmentally friendly projects: Favor cryptocurrencies that utilize energy-efficient consensus algorithms, such as Proof of Stake (PoS), or that are committed to the use of renewable energy.
Assess the social impact of the project: Pay attention to projects that promote economic inclusion, provide solutions to emerging market challenges, or support other socially beneficial goals.
Check the governance: Make sure that the project developers are transparent and committed to good governance principles. Anonymous or unclear development teams can increase risks.
Diversify your investments: Don’t focus solely on cryptocurrencies, but combine them with traditional ESG investments for a balanced and responsible investment strategy.
Stay informed: The cryptocurrency market is changing rapidly, so keep up with industry developments and new innovations. The range of responsible options is constantly expanding, offering new opportunities for sustainable investments.
Responsible crypto investing requires diligence, but when done correctly, it can be an important part of a sustainable and modern investment strategy.
Summary
Cryptocurrencies, especially Bitcoin, have faced a lot of criticism from a responsible investment perspective. In particular, high energy consumption and lack of regulation can be seen as key challenges for cryptocurrencies. However, technological innovations such as Ethereum’s transition to the Proof of Stake algorithm, as well as the more environmentally friendly orientation of Bitcoin mining, show that cryptocurrencies can have a place in a sustainable investment strategy.
In addition, the social benefits of cryptocurrencies, such as increasing financial inclusion and democratizing financial systems, make them interesting investment targets. From a responsible investment perspective, it is important to choose projects that promote environmental friendliness, social equality and transparency.
Although cryptocurrencies are not yet a complete part of ESG investing, their potential is considerable. In the future, the role of cryptocurrencies in responsible investing may grow significantly if industry players continue to develop sustainable solutions and the regulatory environment stabilizes to support transparency and accountability.

Mikko Soon
Head of Northcrypto Private