Shifting commerce from in-person, cash closings to blockchain-enabled online exchanges sounds like it ought to clear up the highways and save the trees…
But the reality is that our new fascination with digital dealings may be even more detrimental to the environment than our previous low-tech practices.
When bitcoin hit the scene a little over a decade okay, few considered the ethical impact on the environment. Mostly, published concerns were about the decentralization of finances, the safety of their money, and whether or not the cryptocurrency trend had legs as a potential store of value.
With some distance from the craze, now more stable than in its famously volatile past, it seems we should have been worrying about more than its impact on traditional banking.
Eco advocates say cryptocurrency is a nightmare for the planet.
How? Why? What does that even mean?
It takes an unbelievable amount of electricity to power the blockchain (the network of recorded transactions – or blocks – where cryptocurrency events are stored).
That means that it’s possible, and some would say necessarily responsible, to calculate blockchain transactions’ carbon footprint.
Even if you don’t follow the Bitcoin blockchain saga, you may have heard about its most recent record-breaking charge…
Or its offspring in the digital art world: non-fungible tokens, or NFTs.
First, let’s talk about what NFTs and cryptocurrency are.
Then we’ll get into how they’ve managed to become a relevant threat to greenhouse gas pollution.
A Decentralized Center of Commerce
People don’t trust banks. People don’t trust their governments. People don’t trust the stock market.
Thus was cryptocurrency born – if those institutions are all the watchdogs for each other, then who watches the watchmen?
So the blockchain became the answer: No one watches the watchmen. By publishing and permanently storing all transactions ever made on the blockchain, a regulatory body’s need was eliminated.
NFTs take possible blockchain use cases a step further – what if we could use the blockchain to own digital items (like artwork, GIFs, historic tweets, songs, things in video games, etc.) and store the record of purchase?
Things like the “Deal With It” Nyan Cat GIF and Jack Dorsey’s first-ever tweet have been purchased for millions.
If you find all of this confusing, you are not alone. What you need to grasp is this: NFTs are the vessel that contains a digital item.
The purchase and proof of ownership for that digital item live in a digital marketplace space that’s stored on the Ethereum blockchain.
At this point, you’re probably wondering – why is this bad for the environment?
What makes cryptocurrency and NFT so tantalizing to the wary consumer is how hard it is to fudge the records… and here’s why.
Compare the Electricity Usage to Ours
The blockchain Etherum has been shown to use slightly less energy per year than Nigeria’s entire country. One transaction on the Ethereum blockchain uses as much energy as one EU resident’s total power consumption over four days.
That’s quite a lot of energy.
That’s because the process of “mining” coins – litecoin, bitcoin, dogecoin, or any other kind of cryptocurrency – is really energy efficient. It’s designed that way on purpose.
The more time a person would spend trying to change the record of a transaction, the more electricity they’d use and the more expensive that venture would be for them.
Using NFTs (making, buying, or selling a digital item to be stored in an NFT) means that miners have to spend more time “unlocking” – or increasing the available store of – cryptocurrencies to create the record and complete the transaction.
The result is that this digital enterprise ends up using so much electricity we have to calculate its environmental impact now.
And it doesn’t look great.
Are Carbon Offsets a Real Solution?
NFTs aren’t the problem. They’re just another facet of the problem.
The problem is the computational load of the contracts and proof-of-work-or-purchase that mining blockchains have to bear.
It takes a whole lot of work to make any event on the blockchain secure. That means time online, storage space, and individuals using energy.
Because cryptocurrency is elbowing its way into mainstream usage, and now NFTs are too, the companies that use them often promise to offset their carbon – but again, who watches the watchmen?
Oftentimes, carbon trading can be an insular business with dealings that don’t result in the same amount of carbon being captured as was used in the first place.
It’s intense. And it’s the same problem we run into when we talk about how to replace our electricity grid with renewable energy sources.
There’s no such thing as a free lunch, and carbon offsets aren’t always doing as much as we think they are.
At least, not until we legislate away oil and gas subsidies, safely transition the energy workers of the past into the energy work of the future, and fund clean energy research so that cryptocurrency and NFTs can do what they’re meant to do without doing drastically changing the landscape of our environment.