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Bitcoin: The Dilemma of "The More the Merrier"

Updated: Jul 30, 2021

Ansh Raj, Rishabh Airi, and Shakir Othaman


From stock market rallies to growing talks of Central Bank Digital Currencies (CBCD’s), digital currencies like bitcoin continue to draw interests from financial professionals, economists and regulators alike. Amidst this, its role in the expanding world of green investment also makes way for novel research ideas. In this article, we will inspect Bitcoin from the lens of ESG and regulations, while also exploring the pricing of the asset and its demand and supply.


“I would like to get rid of the Federal Reserve too! I would like to have the money controlled by a computer.”

Milton Friedman

Elon Musk is a champion of two things- clean energy and finance market disruptions. That Bitcoin, the market’s most hotly contested asset today, had its value jump by 20% after the billionaire changed his Twitter bio to “#bitcoin” bears testimony to his frenzy-rousing abilities. Musk’s electric vehicle and “clean energy” company Tesla also invested $1.5 billion in cryptocurrency; the investment has been subject to its dramatic profit and loss-making fluctuations. The focus here, however, is on the significant departure that Musk makes from his commitment to carbon emission reduction with his investment and overall faith in Bitcoin. For beyond the realms of disruptive investment patterns, bitcoin is also responsible for heavy damages to the environment. Bitcoin’s dynamic with social and corporate governance - the other two determinants of investment sustainability and societal impact - is less easily identifiable. But a deeper analysis into these fields as well brings out mixed results at best and a low-rated judgement at worst.

Will an ESG-based verdict bear any significance for investors interested in Bitcoin? Literature continues to pour over the cryptocurrency’s even more cryptic performance, because of which it is. ESGs may have grown in importance over the recent years, with impetuses from ambitious announcements of firms like BlackRock - but their ability to offset the sheer mania surrounding Bitcoin appears tenuous.


Bitcoin’s digital nature may lead one to believe in its clean energy motives. Like most other cryptocurrencies, Bitcoin is also founded on the notion of an immutable ledger known as the blockchain, consisting of transfers of values from one party to another. Bitcoin’s transactions are validated by a process called mining, which is done by solving complex mathematical equations on supercomputers. On average, every ten minutes a server finds an acceptable solution and the miner gets a reward from the bitcoin system. This incentivization feature in Bitcoin’s model that promises the miners of being rewarded in some bitcoin if they manage to solve the complex hashing algorithm is called the proof-of-work mechanism. (The Economist, 2018). Therefore, “the more successful bitcoin gets, the higher the price goes; the higher the price goes, the more competition for bitcoin; and thus the more energy is expended to mine.” (CNBC, 2021).

Source: Coinmetrics and Cambridge Bitcoin Electricity Consumption Index

This by nature is an energy-intensive initiative, with the gravity of their carbon footprint being left unnoticed, leading to some concern within the sector of the imminent need for broad international regulation in a bid to stall such exponential growth in energy usage. According to Digiconomist’s Bitcoin Energy Consumption Index, Bitcoin’s annual consumption is estimated at around 77.8 terawatt-hours, up from 9.6 terawatt-hours in 2017 along with producing 36.95 megatons annually, thereby having a carbon footprint comparable to that of New Zealand. An alternate index, compiled by the Cambridge Center for Alternative Finances, estimates a much larger figure of 108.4 terawatt-hours— more than the entire annual energy consumption of the Netherlands. (Bloomberg, 2021).

Source: Digiconomist


As one of the fastest-growing asset classes, ESG investments are expected to reach a total of $35 trillion by 2025, almost half of all investor portfolios. This is partially resultant of investors recognizing ESG-friendly assets as an effective hedge against volatility and downside risk. This newfound interest in ESG investments is good for society at large considering that the world is facing a widening socioeconomic gap and unemployment, especially due to the pandemic. Under these circumstances, impact investment has the ability to play a prominent role in mitigating these challenges and play a vital role in shaping the recovery and future of the global economy. (Coindesk, 2021).

As a result, this surge in the popularity of impact investments and ESG-friendly funds has provided the cryptocurrency community with an opportunity to capture this momentum through the usage of tokenization technology by leveraging the investor appetite for these asset classes, thereby increasing the probability of accelerating the maturation of the digital assets sector, along with the acceptance of asset-backed tokens and other digital assets in more traditional financial circles.

Apart from benefitting the ESG community, tokenization technology also has the ability to serve the purpose of bringing real, off-chain, substantive value to the digital assets market in the form of tokenized sustainable infrastructure, thereby becoming extremely appealing to traditional finance and serving as a vehicle for greater crypto adoption and digital assets’ acceptance in institutional and political circles. (Coindesk, 2021).

On the other hand, for the blockchains to develop an impactful ESG framework and demonstrate sustainable governance, a system is required to neutralize the carbon footprint generated by such significant energy consumption. The carbon credit market designed to tackle carbon emissions is presently geared towards nations, large industry players and institutional purchasers. (NASDAQ, 2018). For instance, most mining pools are situated in China, comprising a majority of the Bitcoin market, where the major fuel used by these networks is from coal-fired power plants, resulting in an extensive carbon footprint for each transaction. According to the University of Cambridge’s Centre for Alternative Finance, Chinese miners account for about 70% of Bitcoin production, tending to use renewable energy—mostly hydropower—during the rainy summer months, but fossil fuels—primarily coal—for the rest of the year. (Blandin et al., 2020).

Therefore, to introduce the core principles of sustainability into the blockchain, there have been a few projects announced that aim to incorporate the inclusion of REDD Carbon credits, allowing users to neutralize their energy consumption and carbon footprint by paying a small fee in addition to normal cryptocurrency transaction/gas fees. This would impact significant energy usage issues associated with blockchains, thereby acting as a substantial improvement over the current REDD carbon credit trading markets. (NASDAQ 2018).


Regulators and policy-makers are concerned about the misuse of cryptocurrency as a mean for money laundering and financial terrorism. The core of the problem lies around the framework of the transfer mechanism, i.e., anonymity and decentralized transactions (Houben et. al., 2018). In this section, the discussion would be based on the European regulatory framework for digital currencies including TITANIUM and AMLD5.

First, TITANIUM, an acronym for Tools for the Investigation of Transactions in Underground Market, is designed to conduct research using novel data-driven techniques and provide solutions to support Law Enforcement Agencies to undermine illicit transactions in the crypto-market and darknets. One of the key projects that the agency working on is to create a set of services and forensic tools to analyze the virtual distribution ledger to trace money laundering and financial terrorism activities. Moving forward, it is important to acknowledge whether the tools can work effectively for both pseudo-anonymous and fully anonymous coins and considering the cost and time involved in doing such analysis. The organization partners with research institutions and defence agencies including University College London, Interpol, and Trilateral Research (the UK and IE-based enterprise).

Next, the European Union legislation framework, known as Anti Money Laundering Directive 5 (AMLD5), designed to combat money laundering activities, synchronised action between the Member States, and regularly updated based on the international framework called Recommendation for the Financial Action Task Force (FATF). Enforced in 2018, the updated framework includes virtual currencies (where cryptocurrencies describe as their subset) and each Member State has to implement it within an 18-months period (Keatinge et. al., 2018).

Nevertheless, there are some precautions in which the regulations enforced should not curb the development and innovation of the technology as it can benefit economic growth. Governments need to clarify the boundaries to assist financial institutions to make informed decisions to manage their risks.


  1. The Economist. 2018. Why Bitcoin uses so much energy. Available at: <>.

  2. de Vries, A., 2020. Bitcoin’s energy consumption is underestimated: A market dynamics approach. Energy Research & Social Science, 70, p.101721. Available at: <>.

  3. Corbet, Shaen and Lucey, Brian M. and Yarovaya, Larisa, The Financial Market Effects of Cryptocurrency Energy Usage (June 29, 2019). Available at SSRN: or

  4. Browne, R., 2021. CNBC. Available at: <>.

  5. Laurent, L., 2021. Bloomberg - Are you a robot? Available at: <>.

  6. NASDAQ. 2018. The Rise of ESG & Sustainable Governance in Blockchain. Available at: <>.


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