Last Updated on March 2, 2022 by Stephan Lindburg
In a recent report, investment banking firm Morgan Stanley has cast doubt on the idea that Bitcoin will be able to successfully navigate through its ongoing energy requirement controversy. As Bitcoin has continued to grow, significant concern has arisen about the substantial energy use required to support the network.
Because Bitcoin relies on a method called proof-of-work to verify transactions, the increased use of the cryptocurrency has seen a corresponding increase in electricity use. This means that Bitcoin now uses over 80 terawatt-hours each year, more than the entire country of Austria.
ESG Outlook Poor for Bitcoin Mining Companies
Many companies have arisen in the past few years whose sole activity is mining Bitcoins. This is an energy-intensive activity that requires countless high-power computers running 24/7. Morgan Stanley has evaluated these companies to have a poor ESG outlook despite the implementation of carbon credits and other sustainability goals.
ESG criteria evaluate companies and other investment opportunities based on their environmental, social, and governance criteria. Morgan Stanley sees the continued increase in electricity use as a major hurdle for Bitcoin and related ventures that they might not be able to overcome.
ESG evaluations also focus on how vulnerable investment opportunities are to political and governmental changes. Given the extent to which changes in policy can affect Bitcoin, the outlook in this area is also poor. The most notable example here is China’s September 2021 banning of cryptocurrency transactions in the country and the subsequent exodus of all Chinese cryptocurrency businesses.
Its worth pointing out that there are some services such as “Immediate Edge” that try to market themselves as profitable mining systems, but this is contentious and requires extensive research.
Cryptocurrencies Still Have Potential Paths Forward
The governance issue is currently a major hurdle for cryptocurrency applications, but many countries are moving towards more stable and accepting regulations that could provide a solution. While Bitcoin in particular still faces the energy issue, many cryptocurrencies are embracing alternative proof-of-stake systems that are much more energy-efficient and could be the future of crypto as we know it.