Bitcoin is the talk of the town right now, mostly because it’s value has risen almost 500% in 2017 alone. So no surprise, someone asked me the other day if at Goodments we see it as an ethical investment.
Now although we don’t pretend to be the authority on what is and isn’t ethical, as an app that matches you to shares based on your values, we take a lot of interest in the area.
Generally, when talking about a currency, people don’t consider ethics of the currency itself. They might have a view on the country and if it aligns to their values and morals. But rarely would they look so closely at the currency in isolation. In the case of Bitcoin though because it’s more than just a currency, we can consider it on its own. Not least because it crosses borders and is a disruptive technology that impacts the world we live.
What is Bitcoin really?
Simply put, Bitcoin is a digital currency which can be used for payments and as a store of value. It operates outside of existing financial systems and offers the ability to instantly transfer money and property at very low costs. Other digital currencies include Ethereum, Litecoin and Monero.
There are no physical bitcoins and as a result all balances are kept on a public ledger in the cloud. All Bitcoin transactions are verified by a massive amount of computing power. New ‘coins’ enter circulation using additional computing power, based on developing code to release new coins. Known as Bitcoin mining, this involves solving a computationally difficult puzzle to discover a new block, which is added to the blockchain, and receiving a reward in the form of few bitcoins. It’s supremely geeky stuff.
Is it an Ethical investment?
At Goodments, we know that ethics and sustainability are in the eye of the beholder. What one person thinks is ethical or sustainable may be different to someone else.
That said, sustainable investing can be assessed against 3 key criteria; Environment, Social and Governance (also termed as ethics or transparency). Ultimately, for investors looking to make an ethical investment, will this share have a positive (or neutral) benefit to the environment and/or society. So we’ve considered Bitcoin through that lens.
As we look at Bitcoin, right now there are some significant negative environmental impacts.
Wired recently reported that each bitcoin transaction requires the same amount of energy used to power nine homes in the US for one day. And miners are constantly installing more and faster computers. The total energy use of this web of hardware is huge—an estimated 31 terawatt-hours per year. More than 150 individual countries in the world consume less energy than this amount annually! 1
Some argue that although this is significant, it is less than the banking sector. However, at this stage Bitcoin is a counter currency, new to the market and should be starting out on a better footing with greater efficiency.
Assessing the social impacts of Bitcoin is challenging as there is little data available. What it is doing is helping to equalise wealth, making a great deal of new and young investors incredibly wealthy. According to Bitpay, Bitcoin is supporting less developed economies with Latin America showing the fastest growth in transactions. 2 Depending on which side of the fence you sit, there is an argument that the anonymity that Bitcoin transactions bring are a benefit to heavily surveillance societies. But at this stage it isn’t clear if Bitcoin is just creating a new wealth gap, present across a younger tech-savvy generation.
Governance is commonly understood to be a measure of transparency, control and accountability. Today, Bitcoin is inherently secretive and protective of providers and users, it’s unregulated and control sits with few secretive independent ‘miners’. There is also a lack of protection for people who get hacked or lose their money. In many ways, it operates on the black market (or dark web) which doesn’t help it rate well on the governance front.
On balance, Bitcoin today probably can’t be seen as an ethical or responsible investment. But what about in the future?
The future of Bitcoin
Today, we are not even truly sure if Bitcoin and cryptocurrencies as we know them will be around in 5 years, or if they will be replaced by something completely different and as yet unknown.
Brian Forde, former White House Senior Advisor and current Director of Digital Currency at the MIT Media Lab compares the infancy of bitcoin and cryptocurrency to the early days of the internet and the introduction of email. Which we now know was the tip of the iceberg.
There is much commentary about the opportunity for Bitcoin to be a game-changer when it comes to wealth distribution. If Governments were to embrace it, as secondary to their national currency, and experiment with its use to distribute wealth (e.g. as a source of universal income or benefits) it could be used and regulated to lift huge portions of society out of poverty. Its digital nature brings with it the possibility of regulating and monitoring it. Allowing Governments to keep it in the hands that need it and on the goods they need without risks of it being corrupted – in the way an untraceable physical currency can.
Goodments doesn’t yet enable our investors to invest in Bitcoin on our platform. Today, it’s draining on our environment and lack of regulation make it an unlikely candidate for Ethical Investment of the Year. But if as Bitcoin could be used in a more positive way in the future, it is something we look forward to seeing unfold.