ESG and Crypto: Weighing The Pros and Cons | Morgan Stanley

There is almost no escaping the fact that crypto requires a lot of energy-consuming computing power to create and verify new transactions on the blockchain—a process known as “mining.” The annual energy consumption of Bitcoin, for example, is equivalent to the total electricity produced in the Netherlands.

“Every $1 of Bitcoin mined is materially more carbon intensive than every $1 of gold mined,” says Jessica Alsford, Global Head of Sustainability Research. Put another way, her team estimates that Bitcoin’s carbon intensity was 14.2 million times that of a Visa Credit Card transactions

Of course, many variables affect the carbon intensity of maintaining the cryptocurrency network, including how new transactions are validated. For example, the “proof of work” process used in Bitcoin requires significantly more energy than the “proof of stake” that the world’s second most prominent cryptocurrency, Ethereum, is hoping to adopt later this year.

And many crypto mining companies are using renewable sources of power and have committed to carbon offsetting. Still, it’s a tall order. “We estimate that powering Bitcoin’s yearly energy requirement via green energy would require the equivalent infrastructure of the entire U.S. solar fleet,” says Alsford. As long as Bitcoin and other crypto mining is profitable, the energy requirements will continue to increase over time but may use energy from increasingly greener sources.  

What may be more critical: Concerns about crypto’s environmental impact are more than a matter of social responsibility. “We see continued risk of governments restricting energy use for crypto mining,” says Sheena Shah, Morgan Stanley’s lead Cryptocurrency analyst. She notes that many countries, including China, have banned crypto mining, while others have restricted it.

“Mining bans are unlikely in developed markets, but the U.S. government has debated the climate impact and some EU representatives have proposed prohibiting energy-intensive crypto mining,” she adds.