Updated: Oct 19
Blockchain technology has evolved from its roots in cryptocurrency, becoming a transformative force in multiple industries.
It was in 2009 when the first and most common cryptocurrency was released as open-source software: Bitcoin. Presently, more than 25,000 other cryptocurrencies are in the marketplace, with more than 40 having a market capitalization exceeding $1 billion. It is unusual to discuss blockchain technology without the inclusion of cryptocurrency.
Nevertheless, a fear-mongering evolution within today’s market is the integration of blockchain with ESG (environmental, social, governance) principles.
As the world confronts pressing sustainability challenges, VC firms have recognized the immense potential of blockchain technology to address ESG concerns. In reality, these are two distinct but interconnected businesses, but when they come together, demand booms. Further, with the emphasis from VC firms on the importance of the intersection between these two sectors, startups are listening, and investors are waking up.
Challenges and Opportunities
During the first half of 2023, or H1’23, fintech funding was incredibly subdued as many investors pulled back from making any significant funding due to a myriad of market challenges. Looking at the equity capital markets of H1’23, we can notably observe high-interest rates, which fundamentally challenge existing business models aggravated by other macroeconomic challenges, geopolitical tensions, and depressed valuations. Further, uncertainty is expected to be the status quo in the near term – although the long-term outlook for the transformation of financial services remains very positive.
Digging deeper into the outlook of blockchain technology, interest will increase in the ESG space. While crypto relies on blockchain technology, crypto’s funding is expected to remain soft, while other blockchain-solutions are booming. Because regulators continue to tighten controls and jurisdictions jockey for positions as hubs for responsible crypto funding, other blockchain-based solutions will gain more attention from investors – particularly solutions aligned with ESG and sustainability.
Blockchain's Role in ESG Transformation
Blockchain, with its inherent characteristics of transparency, immutability, and decentralized record-keeping, presents a natural fit for addressing ESG challenges. A few things that blockchain revolutionizes within the rising importance of ESG include:
Creating transparent supply chains, enabling consumers to trace the environmental footprint of products.
Revolutionizing identity verification, ensuring secure and accessible digital identities for marginalized populations.
Transparent and secure shareholder voting, proxy systems, and compliance with regulatory requirements.
Fintech's Growing Appetite for Blockchain
The fintech community has decided to further explore block-chain technology, far away from cryptocurrency. Further, VCs have been actively investing in startups and projects that focus on other blockchain-solutions. Non-crypto-focused blockchain-based technologies continued to attract interest, as presented by the $320 million acquisition of remittance-focused technology company GammaRey by fintech data analytics company GoLogiq. Moreover, a few examples include:
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To conclude, while crypto funding is expected to remain soft heading into H2’23, blockchain-based solutions will gain more attention from investors, especially those aligned with ESG and sustainability. There is a clear shift towards sustainable and responsible investing, and as technology evolves and regulatory support increases, the impact of blockchain in advancing ESG principles will expand.