The impact of ESG on cryptocurrencies

Initially, any user could mine bitcoins using an ordinary home computer. This became possible thanks to the consensus mechanism embedded in the Bitcoin protocol — Proof-of-Work (PoW). The essence of this mechanism is that network participants (miners) solve complex mathematical problems, confirming transactions and ensuring network security.

However, the PoW algorithm is designed so that as the total amount of computing power in the network increases, the complexity of the tasks required to mine new blocks automatically increases. This is done to maintain a stable emission rate — on average, one block every 10 minutes.

Over time, this has meant that mining is no longer affordable for regular users. To be competitive, specialized equipment (ASIC miners) is now required, which is highly productive but consumes vast amounts of electricity. As a result, mining has become a full-fledged industry comparable in scale to gold mining, requiring significant investment in infrastructure and power supply.

According to the Cambridge Bitcoin Electricity Consumption Index (CBECI) provided by the University of Cambridge, in March 2025, the entire Bitcoin network consumed almost 170 TWh of electricity — that's more than Poland or Egypt consume.

Because of this scale of electricity consumption, many users are worried about the environmental impact of bitcoin mining. Tesla founder Elon Musk even raised this topic in 2021, criticizing mining for not being environmentally friendly. According to the entrepreneur, it was for this reason that Tesla eventually refused to accept bitcoins for payment.

What is ESG, and how is the crypto market moving towards environmental compliance?

ESG stands for Environmental, Social, and Governance, and in ecology, the term represents the concept of responsible environmental stewardship. As the name implies, ESG encompasses three areas:

1. E — Environmental — ecology, the impact of companies' activities on the environment, including climate and air;
2. S — Social — social responsibility, reflecting care for society, including customers and employees;
3. G — Governance — the quality of company management characterized by business transparency.

ESG initiatives are so relevant that they often become almost the main agenda at Davos's World Economic Forum (WEF). Energy-consuming PoW mining, which is used to mine cryptocurrency, has become a stumbling block for the development of the blockchain industry and has been criticized by eco-activists.

Many developers have transitioned to the more energy-efficient and, as a result, more environmentally friendly Proof-of-Stake (PoS) mechanism and similar mechanisms, which has become the first step towards "greening" the crypto market.

Proof-of-Stake does not require a large amount of energy consumption, as the nodes participating in the consensus of a decentralized network are run on ordinary servers, the requirements for which are usually low.

Most next-generation blockchains are being developed based on eco-friendly consensus mechanisms that require the blockchain's assets instead of powerful computational hardware. Such consensus mechanisms, in addition to PoS, include:

• Proof-of-Authority (PoA) — a proof-of-work mechanism based on the identity of blockchain network nodes;
• Delegated Proof-of-Stake (DPoS) — a type of PoS mechanism that allows network participants (delegates) to vote for selected validators;
• Byzantine Fault Tolerance (BFT) and its modifications, such as PBFT and VBFT — an algorithm used in creating fault-tolerant systems;
• Directed Acyclic Graph (DAG) or "directed acyclic graph" — an algorithm in which transactions are added to the network in parallel and without creating blocks;
• Other less common algorithms include Leased Proof-of-Stake (LPoS), Proof-of-Liquidity (PoL), Proof-of-Burn (PoB), and Proof-of-Identity (PoI).

How does blockchain help ESG initiatives?

The criticism of mining is exaggerated to some extent. First, according to Bitcoin ESG data, the share of so-called "green energy" derived from renewable sources in Bitcoin mining accounts for more than half of the network hash rate. Experts predict that this figure will grow by about 6% every year.

Secondly, mining stimulates the development of green energy. For example, some mining companies use methane emissions as an energy source for cryptocurrency mining, thus reducing the negative impact on the environment.

In terms of supporting ESG initiatives, the transition of many blockchains to PoS is already helping to address environmental concerns by reducing energy consumption. For example, with the release of The Merge update, the Ethereum network consumed more than 65,000 times less energy than Bitcoin and 100 times less than the popular PayPal payment system. The Merge update has reduced the Ethereum network's energy consumption by 99.95%.

In addition to reducing power consumption, the Ethereum community supports another initiative known as regenerative finance (ReFi), a concept and one of the trends in the decentralized finance (DeFi) marketplace focused on creating complex economic models developed with ESG initiatives in mind.

ReFi projects focus not only on business models but also on social responsibility, taking into account global environmental trends. In addition to traditional DeFi market protocols such as decentralized exchanges and marketplaces, ReFi projects may include specialized platforms for trading and investing in green assets and decentralized tools to combat pollution.

Conclusion

ReFi and the use of ESG-compliant consensus mechanisms have become integral parts of the crypto market, and this trend is actively gaining momentum.

ReFi, for example, introduces new concepts into the crypto industry, such as the "carbon market", which aims to financially support crypto projects that have a positive impact on carbon emissions.