GCR Sustainability Rating: How does Binance Coin perform in ESG matters?

Updated: Apr 3


Binance Coin (BNB) is ranked third behind Bitcoin and Ethereum with a market capitalization of almost 85 billion USD. How does the cryptocurrency compare in terms of sustainability? We put it to the test.



Yes, we know. The deadline for annual reviews and New Year's greetings has already passed. But this is important, so we dare to defy all social norms to tell you this: Remember all the buzz about Bitcoin millionaires and Ethereum maxis in 2021? (Insert eye roll…) Little did we realize that both have been notably outperformed by none other than Binance Coin, which gained roughly 1300 percent in 2021. Come again, right?!


By comparison, market leader Bitcoin increased 65 percent while Ether rose 408 percent.



Well, with that it was clear which coin will kick off the current year in our blog. BNB it is! So, let’s get to it: We have analyzed the platform's utility token in terms of its sustainability based on the three ESG factors of environment, social, and governance. And here's how it performed.


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How environmentally friendly is BNB?

Binance Coin is used to facilitate crypto trading on the Binance exchange and was initially deployed on the Ethereum network. In 2019, it switched to Binance's own blockchain called the Binance Smart Chain. From an ecological point of view, this was a wise decision: With a score of A in the environmental category, BNB performs much better than Ethereum, which currently only manages a C.


"If the Bitcoin network consumes approximately 113.89 terawatts per hour per year (TWh/year) and the traditional banking systems consume 263.72 TWh/yr, Binance Smart Chain consumes less than 1% of it." [1] – Samy Karim, BSC Ecosystem Coordinator

This is due in particular to massively lower power consumption. While Ethereum is estimated to require 100 kWh per transaction, Binance is well below 1 kWh. This is yet another valuable illustration of the striking differences in environmental impact between a Proof of Work (PoW) and Proof of Stake (PoS) based blockchain.

How social is BNB?

Anyone exploring Binance in more detail cannot help but notice the social, and in parts even philanthropic, mindset: This is particularly evident in the organization's own charity, which aims to revolutionize global giving with crypto and promises to “unlock the power of blockchain to help alleviate poverty, fight inequality and ensure the health of people and our planet.” Noble goals, without a doubt.


"Binance Charity was created to solve the significant problem of the lack of means to trace exactly how your donations are used, as information about this gets lost right after you gave your money to charity." [2]

In our ESG rating, however, we look primarily at tangible aspects and find that BNB performs differently depending on the criteria. One of the things we evaluate is the cost per transaction. In order to be inclusive and give unbanked people access to a decentralized financial system, it is important to ensure that the costs are and remain low. BNB fully meets this requirement: in 2021, the daily gas price averaged around 7 Gwei over a 3-month period. In other words, one transaction amounted to about 30 cents (USD).


"We envision a world where blockchain technology can be used for philanthropy as a social contract to end all forms of poverty and inequality and advance sustainable development to ensure no one is left behind." [3]

Unfortunately, the uneven distribution of wealth throws a wrench in the works of a top social score. According to the Rich List, super large holders (addresses with a share of more than 10%) own around 18 % of the assets, and large holders (addresses with a share of more than 1%) more than 20%. This results in a deduction in the rating, resulting in an overall B rating in the social category.


How well is BNB managed?

In November 2021, Binance made headlines when it published “10 Fundamental Rights for Crypto Users” and called for global regulators to establish rules for crypto markets. It can therefore be assumed that Binance is serious about the governance of its own coin. After our assessment, we can confirm… but we’ve also noted potential for optimization.


"Crypto belongs to all of us. But there's still work to be done if we want this breakthrough innovation to become part of our daily lives. Like seat belts in a car, a more regulated crypto market provides greater protections for everyday users." [4]

Binance Smart Chain relies on a system of 21 validators with Proof of Staked Authority (PoSA) consensus that can support short block time and lower fees. They are responsible for securing the network by processing transactions and signing blocks.



To control the platform with an ownership of 50 or more percent, a total of 10 validators are required. The distribution of the validators can thus be described as satisfactory, even if this does not place BNB among the leaders in this regard.

We take a more critical stance on the interplay between the holding company and the coin. The entanglements are unclear, and dependencies are not disclosed. There is also a penalty in terms of security for the fact that the network does not follow an open-source approach. All in all, BNB is (in parts) a little too opaque for our liking and therefore ends up with a B rating in the governance category.


Bottom Line

Where does that leave us? At a well-deserved B for the overall GCR Sustainability Rating of Binance Coin, meaning low environmental impact with slight adjustments in the social and governing arena.


BNB is characterized by a remarkable awareness of its own impact and understands sustainability as a three-dimensional construct. Accordingly, the cryptocurrency is not only concerned with its own footprint, but also with other sustainable aspects that go beyond its own sphere of influence. We find this commendable and are curious about the further development of the coin.



[1] Binance pioneers ESG practices to provide users opportunities for sustainable trading. https://cointelegraph.com/news/binance-pioneers-esg-practices-to-provide-users-opportunities-for-sustainable-trading

[2] This is Where Your Satoshis Go: The Journey of Your Donation with Binance Charity. https://www.binance.com/en/blog/all/this-is-where-your-satoshis-go-the-journey-of-your-donation-with-binance-charity-421499824684900671

[3] Binance Charity Mission Statement. https://www.binance.charity/about

[4] 10 Fundamental Rights for Crypto Users. https://yourcryptorights.com/


Please note that we regularly review and update our ratings. It is therefore possible that the scores mentioned in the blog post no longer correspond to the current rating. You can find an up-to-date overview of all ratings at any time at greencryptoresearch.com/ratings.

 


What is the GCR Sustainability Rating?


The GCR Sustainability Rating is the first ESG rating tailored to cryptocurrencies and adjusted accordingly. It reflects the holistic assessment of a cryptocurrency and is composed of three individual scores:



The GCR Sustainable Rating is a relative ranking, meaning that the best cryptocurrency in each category receives an A rating, while the worst receives a D rating. The overall rating ("GCRS rating") is based on three individual ESG categories. An average score is calculated for each category. The overall rating corresponds to the worst ESG score so that failures in a single category cannot be compensated for by good scores in the other two. Thus, if a cryptocurrency is judged not to be environmentally sustainable, it cannot make up for the poor rating with adequate social standards or good governance.











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