An Interview With KPMG’s Brian Consolvo

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Tuesday, August 29th @ 11:36 AM

The next is an interview with Brian Consolvo, Principal–Expertise Danger at KPMG. He’s a co-author of KPMG’s new report “Bitcoin’s position within the ESG crucial” alongside KPMG’s Director of ESG and Local weather Advisory Kirk-Patrick Caron. The report is a big milestone in mainstream Bitcoin discourse, notably on environmental grounds, and represents a degree of convergence between pro-Bitcoin environmental advocates and a wider swath of the skilled world concerned within the ESG panorama.

For a few years, Bitcoiners have taken subject with the narratives put forth by these with an unfavorable view of the expertise, and have been pissed off with unfounded and hysterical claims from Bitcoin detractors on its environmental and social deserves.

This interview covers the current KPMG report and has been edited for concision and readability. The views of co-author Brian Consolvo are his personal and don’t essentially signify the angle of KPMG.

Nichols: To kick issues off, what was the impetus behind scripting this report? Why did you resolve to take a look at Bitcoin by an ESG lens, and was there something particularly that prompted that?

Consolvo: If I simply assume again to the period of time I’ve been on this house and seeing what among the critics put forth about Bitcoin, after which going by my very own journey with KPMG, who is clearly very huge on ESG, you begin going by every of the classes and are available throughout numerous the advantages that Bitcoin supplies — each the asset and the expertise. It’s attention-grabbing as a result of lots of people assault the vitality consumption, which once more is just one a part of the ESG framework, however I believe I’d by no means actually seen anybody take a full try at explaining all the advantages that it supplies throughout all three pillars.

The massive impetus was the article that got here out again in January-February by the New York Occasions that attacked Bitcoin’s vitality consumption. I believed, “Hey it is a actually good time for me to make use of my platform to doc all the advantages, all the general public good that Bitcoin does”. I form of had a elementary thought about what I used to be going to place within the paper, however as I began researching, I began coming throughout all these different issues I had by no means even considered. I believe the paper did a reasonably good job of displaying how a lot good it does versus simply the identical type of FUD we hear day in and time out.

Nichols: Why do you assume there may be a lot FUD on the market? The place and why does this FUD emanate, and what can we do to resolve it?

Consolvo: For me, it comes right down to training. Bitcoin is simply such a posh subject. It’s not one thing that most individuals perceive very effectively. Once I return to once I first began to analysis Bitcoin and do my very own homework on it, it took me some time. It was type of irritating since you’re like: “What am I lacking right here? Why don’t I get this?”, as a result of it’s simply not foundational ideas that we’re all used to. It requires you to be open-minded to not simply how Bitcoin works, however to grasp what issues it’s really fixing. So you then begin to perceive how Bitcoin works, however earlier than you possibly can even go any additional, you begin having to analysis economics and it’s important to begin being an professional in vitality consumption and issues like that. It’s only a very broad vary of subjects that Bitcoin begins to the touch.

I believe the report does a reasonably good job of claiming “Sure, Bitcoin does use numerous vitality, however I don’t assume vitality consumption is actually the difficulty right here”, and we have to actually deal with the emissions behind that vitality manufacturing. I might flip it round and ask any person who’s a staunch Bitcoin critic: “In case you’re involved in regards to the quantity of vitality that it’s utilizing, if the world may snap its fingers and transfer to a completely sustainable vitality combine, would you continue to assault the vitality consumption?” I don’t assume they might. In order that’s why it’s important to actually convey it again to the emissions, however then additionally take a look at the ways in which it’s really serving to with the transition to extra sustainable vitality and the way in which it’s capable of assist monetize a few of these initiatives.

Nichols: You delineate between Scope One and Scope Two emissions as they relate to Bitcoin. Are you able to stroll us by that? What’s Bitcoin’s emissions profile and the way do you contextualize the emissions Bitcoin is related to?

Consolvo: Folks hear about all of the environmental impacts of Bitcoin and we tried to make it clear within the paper: Scope One emissions are nearly zero for Bitcoin, it’s simply utilizing electrical energy.

It’s humorous as a result of, I suppose society sees electrical autos as zero-emission autos which for essentially the most half, that’s comparatively true — they’re not utilizing combustion and gasoline and many others., they’re operating on electrical energy. Bitcoin is not any totally different. Bitcoin runs off electrical energy. However, the place the Scope Two emissions come from is: The place is that vitality coming from? Is it coming from an influence plant burning fossil fuels, or is it coming from a photo voltaic or wind farm? That’s the place we attempt to make that distinction within the paper.

One of many issues my ESG counterpart Kirk-Patrick Caron really identified to me within the paper is that some bitcoin mining really does have Scope One emissions. If you concentrate on utilizing flared gasoline, you’re utilizing one thing that enters into the ambiance not less than to a point. So I believe behind the meter, mining does have some Scope One emissions, however by and enormous, the business is primarily zero emissions because it pertains to Scope One.

Nichols: I wish to dig down a bit bit extra into the pure gasoline part of this. Your report mentions Crusoe Vitality in addition to Vespene. Are you able to describe what persons are utilizing this vented methane for and type of what the potential of this is perhaps when it comes to decreasing GHG emissions from a market-based mechanism? There’s pure incentive right here, which I discover pretty novel.

Consolvo: If you concentrate on Crusoe Vitality and their partnership with Exxon to co-locate round what they’re doing across the oil and gasoline wells — an organization like Crusoe can co-locate subsequent to them and quite than letting that methane enter the ambiance straight, they convert it to vitality use. So now you have got an organization like Exxon who not solely is ready to scale back the greenhouse gasses that they’re answerable for, however they’re capable of monetize it.

So the query that I’m asking is: Why the hell isn’t each single oil and gasoline producer reaching out and partnering with bitcoin miners to do precisely that?

A few of it’s only a matter of notion with a few of these firms. However once more, I believe it goes again to training. Think about being an enormous government at some oil and gasoline producer and somebody’s telling you, “Hey we have to associate with these bitcoin miners and right here’s why”. You’re most likely pondering, “Wait a minute. That sounds type of loopy”, proper? Particularly given preconceived notions you might need about Bitcoin. However I believe that’s one thing that may probably change over time given the profit that every get together has.

Nichols: So far as how a lot landfill pure gasoline is on the market, are you able to communicate to that so far as the potential of Bitcoin to seize this? You do point out Vespene within the report, I might be curious for a bit extra shade there.

Consolvo: They have been most likely one of many actually distinctive use instances that I got here throughout earlier than doing the paper. They’re principally co-locating at landfills to make use of the methane that seeps out of these areas — I believe landfills are one of many greatest contributors of greenhouse gases, in order that’s one other instance that you possibly can begin to see much more adoption simply given the advantages to each events and what it could assist do to your greenhouse gasoline emission profile.

Nichols: The final piece on the vitality topic I’d prefer to go over is the grid administration side of Bitcoin so far as demand response. You point out winter storm Uri in Texas for instance. Are you able to communicate to the significance of balancing load on the grid and what position Bitcoin can play in that? Why is demand response essential for the grid as we convey extra renewable vitality technology on-line?

Consolvo: I’m not an vitality professional, however I believe the lengthy and wanting it’s when you have got a public utility that’s producing energy, they need to generate extra energy than they’re really going to make use of, given the totally different fluctuations in demand all through the day. It’s known as a duck curve, the place the quantity of energy that we use fluctuates all through the day and it type of appears to be like like a duck while you map it out on a chart: Most energy consumption takes place across the early night when everybody’s getting residence from work. Let’s say we get residence from work at 6 p.m. Nicely, at 6 o’clock in December, the solar’s not shining, so that you’re not likely capable of faucet into photo voltaic vitality. Wind provide is usually a little bit extra problematic, simply given the shortage of enough predictability.

However what demand response does is, when sure occasions happen on this instance, winter storm Uri — granted, there have been some main points that occurred with the precise infrastructure that triggered a few of these issues to occur. However miners are incentivized to close off as a result of the ability begins to change into too costly. In order that they get past their breakeven level in the event that they weren’t capable of shut down or they didn’t shut down.

Nicely, now everybody’s paying a big value for vitality. There are some rules on that so I’ll watch out with how far I am going with this, however they’re principally capable of steadiness the worth and the economics of all of it, as a result of they’ll shut down at a second’s discover, just about. And so they’ll do this the minute the worth to mine turns into too costly. They’re capable of give numerous that energy again to the grid when it really wants it.

Nichols: What would your response be to somebody who says “bitcoin mining is a waste of vitality”? I believe you’ve completed an excellent job of displaying the utility of bitcoin mining so far as grid administration, emissions reductions and monetizing wasted renewable vitality, however that would function a pleasant segway into the S and G components of the ESG dialogue.

Consolvo: The very first thing I’d say these days is, “Hey, to every their very own”. There are most likely issues I’d really feel which are a waste of vitality for individuals too. How a lot time do individuals spend video gaming, proper? I don’t have any subject with that, however that’s wonderful if you happen to assume it’s a waste of vitality. The place I begin to assume there’s an issue is that if coverage is influenced based mostly on whether or not or not you assume your use of electrical energy is any extra helpful than mine.

If I wish to mine bitcoin in my home, if I wish to mine bitcoin at scale, like a big bitcoin miner, I’m paying for that vitality identical to you’re. There shouldn’t be any stipulations or further guidelines like this tax that’s been talked about on miners. To me, that doesn’t appear to be that’s a good remedy. You’re entitled to your opinion, and I respect anybody’s opinion on whether or not or not they assume it’s helpful or not. However, I believe to me, that’s in the end what it comes right down to.

Now to reply your second query when it comes to the social side, I believe we in Western society most likely don’t have as a lot of a necessity for bitcoin as different international locations, and I believe that’s a extremely essential half that we attempt to cowl through the social side. Right here in america, ladies can open financial institution accounts, ladies receives a commission, ladies have jobs. That doesn’t apply to each different nation. The instance we put within the paper was this was a method for them to have a job and have their worth that they’ve created not stolen from them.

In case you take a look at El Salvador, they’re very depending on worldwide remittances. In case you’re in El Salvador, numerous these people which may migrate to america ship a reimbursement residence.

Nicely, the cash they ship again residence might be going by a Western Union-type firm that takes their lower. Once more, I’ll level again to the paper however the quantity of effort that they need to undergo to get that cash, I don’t see how one can’t assume that bitcoin doesn’t resolve a elementary downside with the way in which these financial rails are arrange.

Nichols: To maneuver on to the governance piece, you guys discuss in regards to the decentralization of Bitcoin, the incentives of miners, and the shortage of single factors of failure within the community. What worth for society do you assume that sort of decentralization may supply?

Consolvo: The worth that it solves is that there’s nobody that may are available and abuse their energy. In case you simply look world wide on the varied governments which have actually abused their energy over time, that’s a elementary subject. The way in which the governance is constructed into the protocol — within the asset class generally — I believe inherently solves for that subject. I don’t ever have to fret if somebody’s gonna are available and freeze or seize my property or in the event that they’re gonna change the principles — say, to extend the 21-million provide — as a result of it helps their goals. They don’t have the power to do this and I believe that’s fairly highly effective and it’s not one thing that we’ve ever seen earlier than previous to Bitcoin.

Nichols: For the final a part of this, I wish to set the stage for what the Bitcoin neighborhood must be doing in terms of ESG — what’s the significance of participating with people who find themselves ESG-minded for Bitcoin and Bitcoin firms? That additionally leads into why KPMG is taking a look at Bitcoin by the ESG lens.

Consolvo: That is a particularly essential subject for lots of firms, one in every of which is KPMG as effectively. When you concentrate on these ESG proponents or ESG-minded individuals, it comes right down to training. Many of those ESG proponents simply assume “oh, Bitcoin’s utilizing method an excessive amount of vitality, that’s an issue, that’s not gonna match into my portfolio” or no matter else they is perhaps utilizing bitcoin for. So I believe it comes again to training once more.

Nichols: What do you assume integrating Bitcoin into the ESG dialog may yield? There’s clearly numerous ESG funds investing in publicly traded firms. So what can bitcoin miners particularly do? I believe that’s most likely one of many largest sticking factors right here — what they’ll do to interact with that neighborhood to get them to see the significance of Bitcoin, for the explanations you simply mentioned.

Consolvo: I simply actually assume it comes right down to training. I believe numerous Bitcoin firms are doing it, but it surely’s making individuals conscious of what worth Bitcoin really supplies. It’s dispelling among the myths and misconceptions about Bitcoin which are nonetheless on the market at this time. However I do assume that the physique of people that type of view Bitcoin as dangerous for the atmosphere, utilized by criminals and many others., is beginning to dwindle. I believe it’s by no means going to completely dwindle for most likely so long as I’m right here, however what they’ll do is simply proceed to make it recognized what goal the miners resolve different than simply making a safe protocol for a speculative asset. I believe lots of people view it that method. It’s much more than that.

Nichols: One factor that I believe is just not mentioned sufficient within the environmental dialog round bitcoin is its finite provide. There’s an enormous dialog round local weather change and the way we low cost the longer term prices of local weather change again to the current. I’m questioning in case you have any ideas on the distinction in a reduction fee on a bitcoin customary versus a fiat customary.

Consolvo: What I view that may be very helpful to Bitcoin is it actually promotes saving and never consuming. I believe we at the moment dwell in a consumption-based society and if you concentrate on being a consumption-based society and the amount of cash that we are going to print at varied occasions as a way to jumpstart the financial system, that’s simply creating consumption. In case you’re an ESG proponent, I don’t see how one can have these two issues relate to one another — they’re contradictory. In case you’re going to be in a consumption-based financial system, you’re going to make use of assets and also you’re gonna have a huge effect on the atmosphere, whereas bitcoin promotes saving, and if you happen to’re saving, you’re not consuming. Subsequently that to me looks as if only a pure optimistic influence on the atmosphere over an extended time frame.

Nichols: Additionally, needing to exponentially develop GDP at a given proportion per 12 months in an open-ended method, that’s merely not a chance on a long-term time scale. So I believe that’s one thing that has gone beneath the radar so far as the environmental and social penalties.

Consolvo: That’s spot on. You’re inherently going to be having a big environmental influence based mostly on consuming that a lot and by assembly these GDP targets or inflation targets, and many others.

Nichols: Lastly, what has the response to your report been?

Consolvo: The response has been fairly overwhelmingly optimistic. I couldn’t have imagined the quantity of outreach that I used to be going to get from this paper previous to doing it. I figured the Bitcoin neighborhood could be more than happy with it, and I even underestimated that. What I’m actually interested in is, what in regards to the naysayers? Did I current something to them the place they mentioned to themselves, “You recognize what, I used to be unsuitable about this. I by no means realized that bitcoin can do that or do this. I by no means realized that there’s individuals in Afghanistan which have an enormous want for it, or individuals in any of those international locations with huge hyperinflation”.

So I imply, these are the individuals I’m curious to listen to from.

Click on here to obtain a PDF of this text.

This text is featured in Bitcoin Journal’s “The Major Difficulty”. Click on here to get your Annual Bitcoin Journal Subscription.

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