Institutions want bitcoin, but they want it their way. 

In a recent CoinDesk TV appearance, famed investor and television host Kevin O’Leary said that only 10% of financial institutions that may want to invest in BTC have done so, largely due to environmental, sustainability and governance (ESG) concerns. 

"It needs to be compliant," O'Leary later said about bitcoin at a Cboe conference. Meaning, the bitcoin community needs to address the staggering externalities involved in minting a new monetary form: its environmental footprint and its role in helping criminals and despots avoid sanction.

The "Shark Tank" host went on: "That's going to be a problem going forward." 

Bitcoin is a slowly progressing though adaptable system inching towards mainstream acceptance. Institutions, individuals and crypto-incumbents alike run the software or partake in the ecosystem and may have differing visions of what BTC is and ought to be.

Referred to as hard money, due to a key set of near-immutable attributes, bitcoin’s next phase of evolution might see it adapt to the will of old-monied institutions.

O’Leary’s critiques are hardly new. Many bitcoiners may want to write them off altogether.  After all, the chairman of O'Leary Fund Management criticized crypto publicly until this year (though he now says he’s owned crypto since 2017). And many of the substantive attacks on bitcoin’s environmental footprint have an answer. 

But the "Shark Tank" host does not swim alone. EY Blockchain Lead Paul Brody says he’s been having this same conversation about cryptocurrency’s energy consumption for the past four years.

“We have so many enterprise clients that care about this topic,” Brody told CoinDesk. “Quite a few enterprise clients have held off on doing stuff in blockchain over their concerns about the carbon footprint.”

See also: ‘Shark Tank’ Star: Wall Street Investors Need to Know How Their BTC Is Mined

While the MicroStrategys and BlackRocks of the world may be cutthroat enough to accept bitcoin as it is, environmental impact and all, there are a growing number of potentially interested parties that want a different type of bitcoin – a cleaner, more ethical coin.

Take two recent examples: Square, the payments startup, is investing in environmentally sustainable bitcoin practices while recently founded Seetee, an investment arm of Norwegian conglomerate Aker ASA, will mine BTC using “strand­ed or in­ter­mit­tent elec­tric­i­ty.”

Other firms might demand more. So what happens when those institutions get their way? 

First, it might be worthwhile to consider why firms may demand net-neutral or cleaner forms of BTC. According to Brody, there are two primary causes behind the trend. First, firms may be trying to anticipate future regulatory changes.

“You don't have to be particularly woke to believe that it's very likely that industries will have a price on carbon and that we will need to decarbonize our infrastructure,” he said. 

Indeed, U.S. President Joe Biden has made tackling climate change a key administrative concern. As part of a forthcoming infrastructure bill, he pledges to “achieve a carbon pollution-free power sector by 2035.” 

“You could do worse things and then assign a price to carbon in your own organization and start changing people's behavior in advance,” Brody said. While he admits that a blanket ban on cryptocurrency mining is unlikely in most countries – “that’s a sledgehammer approach” – industry can see which way the wind is blowing.

Second, customers (and other important stakeholders, like ESG investors) are demanding businesses adopt eco-friendly practices. From banking to energy, companies are at least feigning support for a sustainable future. It may be relevant to note the “green new deal” legislation in Congress has received as much public support as legalizing cannabis. Environmental justice remains popular.

See also: J.P. Koning – We Don’t Need the OCC’s ‘Political Discrimination’ Rule

Brannin McBee, co-founder of CoreWeave, says he has never been approached by a client concerned about the environmental impact of his cloud computing business. It’s the sort of double standard that exists for crypto, but not for general computing. 

The firm mines various GPU-based cryptocurrencies when its main business line (cloud infrastructure) isn’t used. Due to the recent market tear, crypto now accounts for approximately 70% of CoreWeave’s revenue, McBee said. 

When gaming out what might happen if "green energy" mandates are enacted around bitcoin, many think the market could become divided. O’Leary suggested there could be a white and black market, for coins that meet corporate compliance requirements and those that don’t. 

A similar scenario was discussed last year, when the Financial Action Task Force’s (FATF) “Travel Rule” was being discussed. “We are going to see a bifurcation in the crypto space,” Bakkt President Adam White said at the time. “We are going to see white crypto; we are going to see gray crypto. And those different forms of crypto will most likely trade at different prices.”

McBee thinks this framing around the “dirty coin question” doesn’t exactly make sense. For one, there’s no reliable way to determine how a particular coin was minted. He argues that most BTC is produced through mining pools that draw computing power from locations across the world. 

These pools “muddy the water” and make it impossible to determine if a particular mining subsidy was won by a sustainable mining operation. 

Further, EY’s Brody says, the way bitcoin is typically used and stored further damps the ability for analytics firms to trace “green bitcoin.” 

See also: Ben Schiller – ‘Green’ Bitcoin Is the Price of Mass Adoption

“I can know who mined a bitcoin [or make an educated guess]. But let's say I take two BTC that I got as a mining reward and I put them in a custodial account at some exchange. They don't keep all the liquidity on-chain,but move it to cold storage,” he said. “No one knows what happens to them at that point … All bets are off with inputs and outputs.”

The idea that demand for green bitcoin would therefore “fracture bitcoin’s fungibility” – or create a scenario where some BTC are more expensive because they’re more desirable virgin or ethical coins – is false. “It’s technically difficult to do, but also not really desirable,” Brody said.

One BTC will likely always be worth one BTC, because that is how the system is designed. Otherwise, what happens to the 18 million BTC that have already been mined?

In a recent op-ed, Bloomberg columnist Noah Smith argues the Bitcoin blockchain should be switched to a less energy-intensive security mechanism. The current consensus model, proof-of-work, operates by expending energy to distribute trust across the system. 

By having an open system to which anyone could contribute hash power and earn incentives for that effort, PoW prevents collusion and ensures trustworthy transactions with settlement finality. There’s no reversing the work of mining a BTC block. The large carbon footprint attached is an “unintended consequence” of the network’s success, Brody said.

See also: James Cooper – The US Can Make Bitcoin Mining Greener

Proof-of-stake has emerged as an experimental model to secure blockchains, by having large crypto holders stake their wealth to protect the network. 

Several blockchains like Tezos, Cosmos and Polkadot have all seen success with the model, and Ethereum is in the process of transitioning to PoS. But that doesn’t mean it’s realistic for Bitcoin to adopt the novel standard, as Smith urges. 

“The ideology is very conservative in terms of not messing around with Bitcoin,” Brody said. In fact, that’s part of its appeal in attracting institutions. “It's just this strong system that works.”

Speaking of working at a “conservative” institution – EY is one of the world’s oldest and largest professional services firms – Brody says there’s often a reluctance to switch to the hottest software or adopt trendy business practices if what they have is reliable. 

This conservative approach to development is all the more relevant considering the lingering questions around PoS’ settlement assurances. 

It’s possible that institutions have done the calculus and determined there’s no way to guarantee a green bitcoin. “In practice, firms either get comfortable with the ESG hit of bitcoin and allocate, or they don't and stay away. I don't see a lot of in between,” CoinDesk columnist Nic Carter said over Telegram. (Carter has written widely on Bitcoin's environmental responsibilities.) But those that stay away – the 90% of interested firms O’Leary mentioned – might allocate elsewhere in crypto. 

The most obvious choice is the second-largest crypto by market cap, ether (ETH), the native currency of Ethereum. While environmental concerns also surround Ethereum, especially amid the ongoing non-fungible token (NFT) boom, at current capacity the blockchain draws about seven times less energy than Bitcoin. 

Plus, as mentioned above, Ethereum is set to transition to PoS eventually. 

“There are really compelling reasons for institutions to put some Ethereum on their balance sheet,” Brody said. “If they’re planning to utilize Ethereum for business operations [more than you think already do], you're going to be exposed to the price of gas" or the cost of running an ether application.

Meitu, a Chinese software developer, has stocked up on ETH in anticipation of developing and utilizing existing Ethereum apps. Under this arrangement, crypto isn’t a hedge against inflation – the reason Square, MicroStrategy and MassMututal bought bitcoin recently – but a way to hedge against future liabilities (e.g., the price of ETH).

So is that appealing enough for other institutions to skip BTC for an altcoin? Probably not, according to Brody. Bitcoin’s sell is that it can be a counter-cyclical asset for use in corporate portfolios. While bitcoin has yet to decouple from other speculative assets and is correlated with all assets affected by macroeconomic forces, there’s an overriding belief that bitcoin could remove itself from “political manipulation.”

O’Leary didn’t respond to a request for comment. But he’s right to be concerned about bitcoin’s massive energy bill – as much as Finland consumes annually, by one measure – though there are certain facts that occlude the story he tells. 

See also: Mining Bitcoin for Heat, Strawberries and Chickens

There’s no such thing as a “sustainable BTC,” nor are there easy alternatives. Institutions will judge for themselves whether to buy in, but until the global grid goes green we’ll have to put the idea of compliant bitcoin to bed. 

After all, bitcoin is open to all but bends to none.