Sunday, November 12, 2017

Hey Mister Environmental, Social, Governance Investor: What the Hell Are You Doing In Bitcoin?

In which the Financial Times' Izabella Kaminska arrives at the same conclusion regarding bitcoin and energy that the Electrical Engineers at the IEEE did.
And via a more direct route.

From the Financial Times, Nov. 6:

The environmental costs of bitcoin are not worth the candle
To make the cryptocurrency more sustainable, vested interests would have to be confronted
The recent spike in the price of bitcoin to more than $7,600 has delighted cryptocurrency speculators and early investors the world over. Many consider the windfalls as vindication of their belief that bitcoin is not just an experimental currency but a viable asset class in its own right. Adding credence to that view was the decision last week by one of the world’s top derivatives exchanges, CME Group, to launch bitcoin futures in the fourth quarter of 2017. Yet there is an irony here. The further bitcoin mutates into a price-defying asset class, the less useful it becomes as a medium of exchange and, worse still, the more expensive and energy intensive it becomes to maintain. This is an awkward situation for investors who are supposedly becoming more aware of the implications for environmental, social and corporate governance (ESG) when making allocation decisions. When I recently asked a room of approximately 50 students how many had heard of bitcoin, almost all raised their hands. Asked how many had bought bitcoin, about a third of them raised their hands. But when I asked how many had used bitcoin actually to buy something, only one raised a hand. 
We could end up in a situation within a few years where the electricity consumption of bitcoin mining would be equivalent to a country like the Netherlands or Switzerland 
—Remy Briand, MSCI
That people would prefer to hang on to their bitcoin than spend it is not surprising given its soaring value. This clingy behaviour is an instance of Gresham’s law, which states that bad money always drives out the good, and that if there are two forms of commodity money in circulation, the more valuable one will disappear as it is hoarded. But these days there are other reasons to hang on to your bitcoin. The era of costless bitcoin transactions is long gone. For some time, fees have ranged from $3 to $6 per transaction, depending on the network’s available capacity. The situation makes small, day-to-day payments, from coffee purchases to bus ticket sales, increasingly impractical. In energy terms, meanwhile, a recent analysis by the Motherboard site estimated that a single bitcoin transaction requires 215 kilowatt-hours of electricity to process. That is the equivalent of what an average American household consumes in one week. Add this energy wastage to the reputation bitcoin already has for opaque governance, cyber crime and dark market trade, and you can see how, from an ESG perspective, bitcoin proves an even more controversial investment than a holding in a developing-world, commodity-extracting company. In that light, CME’s plans to list bitcoin futures might not be enough to dissuade responsible investment managers from shunning the asset class in ESG-friendly indices in the long term. Remy Briand, head of ESG for index creator MSCI, says....MORE..
The comments from the rabble are interesting from the get-go. The first one was channeling the MadTV bit where Iranian news, weather and sports all began with a compulsory "Death to America": As in "Good morning, Death to America, today in weather..."
22 hours ago
Let me start with the obligatory comments: 1) You just don't understand how cybercurrencies will change EVERYTHING! 2) Just got your quarterly check from the banks to say bad things about BC? 3) I'll be a Hodler until the bitter end! (Good article! Keep them coming.)