The ETHics of NFTs and Crypto, Part 1: The Crypto Climate Crisis
Are Crypto and NFTs Sustainable for Our Planet? 🌎
Concerning Crypto and Carbon
Ongoing historical data supported by an overwhelming consensus in the scientific community make the strong case that climate change is a reality. The degree to which human activity impacts this is not the focus of this article, although I strongly believe that it is in our collective interest to take responsibility and address the unsustainable course we seem to be on. If the chances are as overwhelmingly high as they appear that we can prevent the extinction of countless species, including our own, I think it’s worth it.
That said, media outlets have long been critical of the high energy costs required to run an always-on decentralized blockchain like Ethereum or Bitcoin. However, will a few new vocal entrants to crypto boycotting the blockchain really change anything?
I feel that the crypto-art community in particular has demonstrated a strong ecological-conscience; using the spotlight on NFTs as a platform to raise greater awareness on this real issue. Instead of blaming and guilting artists for experimenting with NFTs, let’s instead embrace that we as a species are known for creating solutions, and acknowledge the hard work being done globally on projects to solve these issues (covered below).
I’d also like to acknowledge the Crypto Climate Accord: a new initiative to prioritize decarbonization for the industry, backed by major private sector companies in the crypto space.
Further reading:
Flash Art - Toward a New Ecology of Crypto Art: A Hybrid Manifesto, is a great debate of opposing views on the topic from various artists.
The Unreasonable Ecological Cost of Crypto-Art, by Memo Akten, which has gone viral, makes an intentionally one-sided argument against crypto/NFTs. Though I agree with the writer's notion that technology ought to be "built on the values that we hope to carry into the future" and the need for more transparency on numbers, I disagree with a few points he makes. These include: the broad/dated global metrics used for carbon emission per kWh calculations; a lack of acknowledgement that more transactions do not affect the quantity, load, or throughput of blocks mined (and misinformed facts on NFT "editions"); seemingly comparable demand from illiquid NFT markets to those of FT markets; and only a passing mention of Eth2.0's move to PoS (and no mention of side-chain/layer-2 solutions, which are already gaining rapid adoption). To help you make your own decision, please do your own research using the many helpful resources online, such as the U.S. Energy Information website, CarbonFootprint.com (2019 GHG report), Eth2.0, etc.Curbing Energy Consumption
Without energy, life itself wouldn’t exist. An abundance of energy for a society has historically been highly correlated to quality of life. The trend of increasing energy consumption shows no signs of slowing any time soon (EVs, 5G networks, etc.), but rather than shutting off the grid and forcing humanity back to the stone age, we can start by changing our own habits and try to live less wastefully (or we can wait for nature take care of that for us 💀). Thanks to phenomena such as Moore’s Law, our devices should also continue to use less power and gain efficiency over time.
As the exponential build-out of a worldwide electric grid continues, we are reminded that curbing our energy consumption is only part of the equation - the source of that energy must be considered. Thankfully, as pressure mounts for businesses to adopt ESG values, and as the advancement and adoption of clean energy continues to accelerate, a future in which energy is cheap, abundant, and clean is becoming a more realistic prospect. 🙂
Is Blockchain Part of the Problem?
Today, widely-used “Proof of Work” (PoW) networks, including Ethereum and Bitcoin, have warehouses and data centers dedicated to “mining” new blocks of data to keep the world of NFTs (along with the rest of the crypto space) running . The PoW consensus algorithm (the method used by network nodes to “agree” on what data is current and true) is synonymous with countless powerful computers (a.k.a. ASICs) that consume staggeringly high amounts of energy 24/7 to mine those precious digital tokens.
How Can We Solve This?
Sustainable Alternatives to Proof of Work
The most sustainable and widely adopted competitor for consensus on the blockchain is one called “Proof-Of-Stake” (PoS). Several popular blockchain networks, including Cardano, Polkadot, and Tezos, as well as Level-2 Ethereum scaling projects like Polygon (formerly Matic), are built on a form of PoS. Not to be left behind, Ethereum itself is adapting and evolving. The next major iteration, Eth2.0, has several improvements planned. A major upgrade coming - one being heavily prioritized which began its rollout in late 2020, is Ethereum’s transition from PoW to PoS. 👏
Let’s look at some of the properties and advantages of a Proof of Stake consensus network:
Instead of miners, nodes (called validators) lock their tokens (i.e. put their $ETH at “stake”) to secure the network, mint new blocks, and be compensated with additional tokens.
It significantly decreases the amount of energy required to function as a network node (test figures show a 99%+ cut in energy consumption in kWh), as it doesn’t require the intense computing calculation of PoW.
The barrier to who can be an Ethereum validator node is democratized, as expensive computer hardware is no longer necessary (there’s even a tutorial from the Ethereum foundation to set up a validator node on a Raspberry Pi 4).
It can be argued that it is more secure than PoW, as it incentivizes nodes by rewarding them for good behavior (by issuing tokens like $ETH), and punishes those that attempt to cheat the security of the network by "slashing" their stake (a.k.a. deducting/burning 🔥 a portion the offending node’s tokens).
Thankfully, the road to Eth2.0 is happening in stages (not all at once), so we can expect some features, such as this energy saving upgrade, to see a release sooner than others.
Spotlight Project: Palm 🌴
Palm is a very promising but yet-to-be-released project being built on Ethereum. Led by Joseph Lubin, one of the founders of both Ethereum and ConsenSys, the Palm platform is being designed from the ground up with a strong focus on NFTs, artists, and creators. It is aiming to create an enjoyable, sustainable blockchain ecosystem, with low-cost rapid transactions and greater energy efficiency (likely done using a Layer 2 scaling solution). The project still looks to be very early in development, and despite knowing only a few key details so far, the clout of the team and its investors are keeping me watching this project closely.
Profit as an Incentive
There is no denying the fact that where there is profit to be made, people and businesses will follow. As the price of cryptocurrency rises, so too does the number of users who enter the network, which further drives demand (see positive feedback loop and Metcalfe’s Law). In an effort to maximize profits, businesses will do all they can to lower expenses, and if planned strategically, will be key for long-term sustainability.
For blockchain node owners, investing in low-cost, energy-efficient machines is important. They are also more likely to operate in areas where the operation costs are lower, such as in locations with colder climates and cheap, abundant sources of energy (the current trend clearly favors sustainable, renewable sources). As more pro-environmental laws are adopted, costs associated with renewables ($/kWh for solar, wind, hydro, next-gen nuclear) continue to decrease, intermittency and storage issues are addressed (blockchain network demand could play a role in stabilizing baseload demand nicely), and infrastructure is built out, legacy sources of energy (i.e. coal and natural gas) will factor less on the toll that our energy consumption has on the environment.
For energy extraction and utility companies, surplus energy (that which is not consumed and unable to be stored) goes to waste, either naturally as with solar energy, or by necessity in the case of natural gas flaring by hydrocarbon companies. If the incentive for profit is there, businesses will convert that excess energy into profitable ventures onsite, such as securing blockchain networks. The blockchain nodes of tomorrow could very well make up the core businesses of the energy companies of today, and we’re already seeing services emerging to meet this new demand.
Further reading:
Though it focuses on Bitcoin, Square Inc. (digital payment processor) started the Bitcoin Clean Energy Initiative (BCEI) in 2020. This memo expands on the idea that blockchain could drive businesses to accelerate their transition to clean energy operations (note that Square has investments in, and product support for, Bitcoin; it is likely interested in its success).Carbon Offset NFTs
NFTs are finding a niche in one sector in particular that has seen massive growth in the past few years: Carbon Emission Pricing. Due to the unique pricing mechanisms and laws that differ region by region for the cost of carbon, it has been very challenging to agree on a price, let alone trade them efficiently. Creol verified carbon units (on Open Sea) and NFTree are examples of recent blockchain projects that are already seeing support from ESG-conscious businesses and users.
Supply Chain Transparency
This is another key area where I see NFTs and DLT (decentralized ledger technology) truly doing good for the world. We’re familiar with concepts such as green and ethical when it comes to energy and farming, but how much can really be proven? Can it also be applied to natural resource mining?
With NFTs, base metals (copper, nickel, etc.) could be properly valued by the market as semi-fungible assets depending on where and how they’re sourced (i.e. the market could be willing to pay a premium for copper mined with strict tailings regulations followed). We wouldn’t have to rely on a sticker at face value for the authenticity of our organic food products; instead, each package would be associated with a tamper-proof NFT that consumers could verify for themselves. Companies like IBM are already building B2B blockchain solutions to ensure that producers, suppliers, manufacturers, and distributors are beholden to clear safety, environmental, and labor standards of conduct.
Preventing Unseen Costs 👀
This ties in a bit to Part 2 of this topic (socio-economic), but by nature, smart contract networks like Ethereum govern themselves through code. Unlike paper contracts, smart contracts are preventative - rather than enforcing agreements through punitive measures after the fact, they prevent a breach of contract from even occurring. You can imagine the potential unburdening of the legal system this can create for human well-being, but also consider the costs of running such a system: electricity and fuel costs (and energy consumption) needed to power offices, transportation, bloated prison systems, and (if things get really contentious), military enforcement, all of which takes a huge toll on economies, people, and the environment. 😟
No Easy Answers to Hard Questions
“Computers are useless. They can only give you answers.”
-Pablo Picasso
Crypto/NFTs: It’s not the panacea solution to all our problems that Libertarian maximalists believe it to be, nor is it the emergent harbinger of planetary destruction that die-hard environmentalists fear. Blockchain, like any new technology, is just a nifty tool with a lot of potential. We must be critical, ask questions, address problems early, build, rebuild, and develop ourselves...I mean, this technology, to align with a sustainable future for the long-term.
In my best efforts to remain objective in this article, I apologize for any part that read as politically-driven or agenda-based. It was not my intent to come across as preachy or blindly pro-crypto/NFT. As the data changes, i.e. if Ethereum fails to follow through with its objectives and/or if crypto/NFTs prove to be unsustainable long-term, I hope we can all adjust our beliefs to the facts accordingly. For now, I’m still cautiously optimistic on the long-term sustainability of the crypto/NFT ecosystem, but I’d love to hear what you have to say. This is a subject ripe for debate, so please feel encouraged to tell me why I’m wrong! Leave a comment or reach out on Twitter. 😎
Fun Actionable: Carbon.fyi Plug in an ETH address to estimate its carbon footprint (based on best-guess calculations, so take it with a grain of salt)As always, thank you so much for taking time to share this journey together with me into the world of NFTs. I hope you found the content helpful, and maybe even fun to read! 😁
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⚠ Disclaimer ⚠
Cryptocurrencies and NFTs are a speculative asset class. Be aware of the risks involved and know that you could lose money. Everything I share references an opinion and is for information and entertainment purposes only. It is not intended to be investment advice. Please consult a licensed professional before making any investment decision.