Crypto Carbon – Don’t Shoot the Messenger

It has been a common refrain of late. Crypto currency, particularly as it relates to NFT processing, is a massive consumer of carbon-based energy production. While this is true, unwinding the accusation is important.

First off, this perception requires the light of truth to pass through a number of refracting lenses for the claim to hold up. NFT transactions are besmirched by the outrage fomented around animated gifs trading for what are seen as astronomical sums. Yes, there is an absurdity here but only if viewed from an oblique angle. An NFT serves at various times and in various ways as a store of value, an asset, or a vehicle of transfer. In this it is no different than you trading your house with me for a small piece of paper. The deal only flies if you agree that the small piece of paper is a store of value, a proxy, or an effective transfer of value equal to the agreed value of your home. Owning a game asset in a virtual world is no less valid than holding shares in a fish cannery. You may not play the game or eat fish, but you are assured by the market that you can sell the asset now or at some future date for a price determined by that market. The lurid details supporting the outrage of an NFT sale are simply the optics of truth passing through a refracting glass.

Add to this the observation that our bad boy of the moment is one of the most egregious violators of environmental wellbeing and we only reinforce the misperception. To be clear,  blockchain technologies are prodigious consumers of energy. The computational effort to perform all the proof of work (POW) tasks necessary to validate decentralized crypto transactions is huge. Not only is it huge, it is also transparently calculable, unlike the energy consumed by the conventional banking system for example. The same could be said for most any industrial undertaking, but because they serve society in ways deemed more valid than the spurious transfer of game tokens, collectables and questionable art, they are given a pass. It is far easier to simply layer shame on the hapless NFT while the concrete plant near my home is forced into night production so as to avoid causing power brown outs during the day.

And, for the record, NFTs are not the culprits. If you want to resolve the carbon footprint, change the source of energy. Yes, electric cars pull their energy from largely carbon-fired plants, but the car still produces low- or no-carbon transportation. Worried about the increased carbon production? Change the source of energy.

When “No” is a placeholder

Comparing vices is not a path to virtue. Just because one industry is less consumptive than another does not make it a shining beacon on a hill. There is definitely a problem to be solved here. The objective responsibility shared by us all, is to minimize our carbon footprint, full stop. But to simply shoot the messenger only silences the truth in favour of perpetuating the problem or the lie.

Instead of saying “no” to flawed solutions, ask things like “how” and “why not”. To simply condemn crypto currencies and the blockchain because of the energy consumption is to shoot the messenger. Better that we recognize the value in them and find ways to deal with the downside. For years the petrochemical industry has sought to minimize its polluting effects. Those have been largely motivated by two often competing imperatives: environmental concerns and corporate self-preservation. Like filters on cigarettes, many laudable innovations have resulted in cleaner burning fuels and emission reductions. But at the end of the day, the law of diminishing returns means that people continue to die from lung cancer, and the climate continues to change. So, if the blockchain is driving up carbon production (along with all other industrialized activity), what can be done to make it right? How can we do it and if not, why not?

Carbon Generation vs. Energy Efficiency

The path to a solution can easily stumble over two dimensions of the challenge. Carbon generation is the root of the problem in blockchain management but it is often measured in terms of the amount of energy it consumes. As with many new and emerging technologies, the blockchain is wildly inefficient. The first internal combustion engines drank gasoline with the abandon of Sazerac swillers at Mardi Gras. Inefficiencies breed innovations from the market. Blockchain service providers will compete their ways to lower costs – and lower waste.

It was only after the celebration of making the vehicle to move that any thought was given to making it move cheaply. It was only with the dawn of Ash Wednesday that excesses of the night before were given due reconsideration.

Curbing carbon generation is the first order of magnitude. Fossil fuel burning as a means of electricity generation is the most potent argument against it. Alter the mode of production and the problem disperses. Completely convert to renewables and the carbon concern is defeated. Yes, change in one area creates issues in others. But they are not the issue now. In so far as they are known in advance, actions can be taken to mitigate their effects. What is important is that meaningful change be instigated.

That was the first order of magnitude, but there is another dimension standing in the way of the blockchain’s full flourishing. It is often under-reported by the proponents of crypto innovations that the waste of energy plays a large part in the fees generated against sales like NFTs. As the work of Kimberly Parker shows, it is not unusual for individual NFT sales to have to be for $500 or more in order to break even – that, in a market where 33% of all sales (if the products sell at all) are for $200 or less. Only when sales exceed $1,000 do the fees approach anything like “workable” (low double digits). While crypto gas is not the only (or largest) element in the fee structures of most brokerages, it is a driver threading through them all. Reducing it will go a long way to building efficiencies and competition into the wild west border town known as Cryptoville.

So, the path has two urgencies that should not be confused, one with the the other. First the source of energy must be cleaned up. Next, the systems of delivery need to be made more efficient. Manage the first and society is better off. Manage the second and the industry is more likely to thrive.

The perception of the blockchain as an inefficient consumer of dirty energy is accurate. But so too is society at large. Because the blockchain is by its nature transparent and measurable, it is a messenger from the future. If we clean up our act and tighten up our processes we will reap significant benefits. Or we could shoot the messenger and reap the ongoing harvest of our established corrupt and polluting inefficiencies. Your call, my call.

What say you?