Are Cryptocurrencies the Future of Impact Investing?
By: Joseph Green
Tags: Fintech, Blockchain, Impact Investing, Bitcoin, Altcoins

Courtesy of Wikimedia

Impact Investing is a branch of investing that also contemplates positive social and/or environmental impacts. It’s typically done by placing money in stocks of companies that meet certain criteria, bonds with specific purposes or social enterprises, or the sponsorship of initiatives that have similar functions. In recent years, cryptocurrencies have begun to offer new ways to invest altruistically.

Cryptocurrencies are money & tokens based in the blockchain, which is a technology that distributes transactions in chains of autonomous and encrypted blocks. This technology is esteemed for its decentralization, security, anonymity, transparency, accessibility, and the way in which it facilitates direct transactions between peers (P2P). A currency that operates by way of this technology doesn’t depend on any bank or government, but rather flows independently between users.

Various entrepreneurs utilize blockchain to create new currencies to back their projects, through which the purchase and use of the currency is a de facto investment in their proposal. At this moment there are cryptocurrencies offering solutions for financial inclusion, microloans, remittances, gender equality, the fight against poverty, universal basic income, and clean water, among other things — in addition to presenting an alternative way to crowdfund an infinite number of other initiatives.

There is a flip side to the Coin. Cryptocurrencies have all the potential to be truly revolutionary (something their proponents cite continually); however, the benefits for Impact Investing and other uses continue to be mostly theoretical due to how impractical they are right now. Up to now leaving the monopoly of the international financial system has essentially been a question of trading one group of gatekeepers for another. Even Bitcoin still has relatively little acceptance as a form of payment — and for the others it is much lower — which means going through virtual money changers with high spreads or commissions, and at times, sketchy owners, if the cryptocurrency holder needs to use their money in the short term.

The novelty of these currencies and the inexperience of many who wish to invest in them cause quite a bit of price movement and have made some cryptocurrencies a target for speculators. The high volatility is also a product of the absence of regulation in crypto exchanges. There are other concerns about the inefficiency, both in energy and in time, of mining (the process by which transactions are documented and coins are issued) and the explosion in new coin launches almost guarantees that a decent number of them will fail.

That being said, blockchain is an early-stage technology and the assumption is that its problems will be resolved. The majority of said problems arise from the fact that processes and best practices are still being established midstream. Cryptocurrencies open new platforms and possibilities, including ones that we can’t imagine or comprehend yet. Without a doubt they present more direct, transparent, and therefore more effective ways to invest with impact. For those that have the option to Impact Invest in the medium and long term, cryptocurrencies that are birthed from the same Impact principles are an interesting option that merit research and consideration.