Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH) and the wider world of cryptos have been put under the microscope by Morgan Stanley's Cryptocurrency and Sustainability Research team.
Specifically, the team delved into the various facets investors placing a premium on environmental, social and governance (ESG) issues should consider before investing in cryptos.
The social and governance angles
By and large, the social and governance aspects of cryptos shouldn't be of much concern for ESG-focused investors.
With Bitcoin run under a decentralised blockchain system, the governance falls on its supporters and users.
Socially ESG investors shouldn't have any major roadblocks with cryptos either.
While there are various estimates as to how much crypto is used in illegal transactions, the same issues are also in play for cash.
Investors should be aware that there are still scams in the crypto markets, but they do open the door for people to transact outside of traditional financial institutions.
According to Jessica Alsford, global head of sustainability research at Morgan Stanley:
Cryptocurrencies could be one way to increase access to financial systems for the unbanked. Anyone with a smartphone or laptop and internet connection can access cryptocurrencies, which arguably is a lower requirement than that of traditional bank accounts.
The environmental concerns for investing in cryptos like Bitcoin
It really boils down to the environmental part that ESG investors will need to consider before investing in cryptos like Bitcoin, the world's first digital token and largest by market cap.
"Every $1 of Bitcoin mined is materially more carbon-intensive than every $1 of gold mined," says Alsford.
She estimates that Bitcoin's carbon footprint is some 14.2 million times more than Visa Credit Card transactions. In fact, Bitcoin uses as much energy every year as all of the Netherlands, a nation of 17 million people.
Bitcoin relies on something called proof of work (PoW). That requires a massive network of computers to verify transactions, sucking up a heck of a lot of energy.
Ethereum has also been operating on a PoW system, but the world's number 2 crypto is planning to transition to proof of stake (PoS) later this year. That's meant not only to speed up transactions but to greatly reduce its energy use and carbon emissions.
Some analysts are also predicting the switch to PoS will see the Ethereum price head skyward.
Can't crypto miners just use renewables?
There are a growing number of miners tapping into hydro and solar to run their Bitcoin networks.
But according to Alsford, the sheer quantity of energy required simply isn't available via renewable sources like solar.
"We estimate that powering Bitcoin's yearly energy requirement via green energy would require the equivalent infrastructure of the entire US solar fleet," she said.
