Our Only Cryptocurrency Episode | MSCI

Featuring:
Yu Ishihara, ESG Researcher, MSCI
Aura Toader, ESG Researcher, MSCI
Harlan Tufford, ESG Researcher, MSCI
Mike Disabato:
What's up everyone, and welcome to the weekly edition of ESG Now, where we cover how the 
environment, our society, and corporate governance effects and are effected by our economy. I'm your 
host, Mike Disabato, and this week we wanted to give you a break from Facebook news coverage, and 
discussions about the Fat Bear Week Winner, Otis, and take you through the ESG of cryptocurrency. 
This will be our first episode on cryptocurrency, maybe our last, a subject that is exhausting and 
fascinating in its scope. Hopefully, this won't be the latter. Thanks as always for joining us, stay tuned.
Mike Disabato:
There's a disconnect at the moment of what cryptocurrency adherence purport the speculative 
investment to be, an equalizing monetary system that removes the central bureaucracy, and what it 
currently is. Still, the Internet's favorite currency has been around for more than a decade, and it has 
gone through some substantial changes in that time. For example, Ukraine is making Bitcoin easier to 
use in its country. And in late September of this year, regulatory authorities in China, one of the 
cryptocurrencies hubs, declared all cryptocurrency transactions illegal.
Mike Disabato:
Today, we are going to talk about the ESG tenants of cryptocurrencies. And before you rush to shut off 
this podcast in attempt to avoid the revolution, let me get one of my guests of today's episode, my 
colleague, Harlan Tufford, to tell you why the exploration of the topic BIOS is important. And I promise 
it's not just because he and the other colleagues of mine just wrote a paper on the subject.
Harlan Tufford:
What we're seeing here is what we call in the paper this creeping exposure to cryptocurrency. And 
what we really mean by that is new crypto exposed companies being added to the index is driving 
client investments or established companies, in which an investor already has a position, finding new 
ways to bring cryptocurrency into their existing businesses, or just coming up with a whole new 
business on the side that's about crypto currency.
Mike Disabato:
Equity investors, even those with significant reservations about the highly volatile asset class, may be 
faced with what Harlan just called creeping cryptocurrency exposure. In our coverage at the moment, 
there are at least 52 companies that have some sort of exposure to cryptocurrency. They represent 
about 7.1 trillion US dollars in market capitalization, or around 6.6% of the market capitalization we 
covered, just for context. The companies range from the pure play companies like Coinbase and 
Online Coin Exchange to component manufacturers like Nvidia, a PC gaming company that offers a

dedicated graphics processing unit or GPU for professional cryptocurrency miners. There's also 
companies like Facebook that have no revenue from coins, but are exploring ways to monetize the 
system.
Mike Disabato:
Okay. So for today, I'm going to kind of flip the acronym of ESG, and I'm going to start with the 
governance part, and end with the more well-known environmental impacts of the coin. So just a quick 
note to cryptocurrency enthusiasts listening, our research has focused on identifying the ESG risks of 
the asset class. We don't discount the asset classes possible ESG opportunities, but we kind of 
wanted to start off with the risks, because that's what we're seeing right now. There may be 
opportunities in the future.
Mike Disabato:
So what we're going to do with governance is we're going to treat crypto as any other industry, and a 
successful form of corporate governance can be seen in what sort of systems are set up to manage a 
company, the board of directors and the systems to ensure appropriate decisions are being made at 
the high level. So for this episode, we're mainly going to focus on Bitcoin, the most established of 
cryptocurrency coins. So who makes the decision on how the Bitcoin system operates?
Harlan Tufford:
The fact that a decentralized cryptocurrency like Bitcoin that doesn't have any central authority, that 
doesn't mean there's not governance, decisions still have to be made. And so if you really break it 
down, there's two players that can really influence the strategic direction of Bitcoin at that 
foundational level of software. You've got developers, and you've got miners.
Mike Disabato:
Developers are volunteers who contribute to the software underlying Bitcoin. This generally means 
Bitcoin Core, the cryptocurrency's most widely used software implementation, and miners are people 
who expend computer processing power and electricity to validate transactions on the Bitcoin 
network, and in doing so mine new Bitcoins. There's also this other thing. So validation of Bitcoins, 
that's proof of work Bitcoins. There's also something called proof of stake Bitcoins and 
cryptocurrencies. We're not going to get into the distinction there, but know that proof of work is a bit 
more environmentally destructive than proof of stake. And I encourage you to read the report if 
possible to see why.
Harlan Tufford:
Between them is this elite group of developers that we call the maintainers. This is more of an 
administrative role than anything, but these guys are... And they're all men. They are the closest thing 
Bitcoin has to a board. It's arguably the greatest point of centralization of the whole system. These 
guys control any changes to the software of Bitcoin, the software on which Bitcoin runs, and those 
changes are endorsed by the miners.
Mike Disabato:

Our Only Cryptocurrency Episode | MSCI