The Crypto World Is Getting Greener. Is It Too Little Too Late?
Non-fungible tokens, or NFTs, are both literally and figuratively red-hot, in that they’re trendy and also contribute to global warming. In the last few months, environmentalists have slammed blockchain enthusiasts for catapulting a technology into the mainstream that requires a whole lot of energy, but are they right in doing so? While, yes, there is a problem, there are also potential solutions.
Cryptocurrency, which arose out of popular distaste for society’s bank-reliant money model, was created so that average citizens could have complete control over their funds without government interference. Of course, it has since evolved to be much more than that — but that original idea meant that all financial records had to be globally accessible at lightning speed; the blockchain, a digital ledger, had to be available on the Internet, so that a wide network of users’ computers could work together to fact check and flag fraud. When this was a niche topic, it wasn’t an issue, but the game has changed.
According to a new report from Gemini, 14 percent of American adults — about 21 million people — own cryptocurrency; and another 20 percent of American adults that have never owned cryptocurrency — around 50 million Americans — are likely to buy crypto in the next year. The amount of computational power needed to process that many transactions on first- and second-generation blockchain networks could be catastrophic, but those networks are no longer the only options.
In April, analysts estimated that minting and sending one NFT on the popular Ethereum blockchain required the same amount of energy used to power the average American household for one and a half days: 48.14 kilowatt-hours (kWh). “It’s now up to 3.6 days,” Adam Fell — co-founder of OneOf, the music-centric NFT marketplace backed by Quincy Jones — tells Rolling Stone. That’s why OneOf runs on a different network called Tezos, and its why passionate people like Fell are determined to find a variety of sustainable solutions to a very real problem. OneOf prides itself on minting NFTs that need only the same amount of energy as sending a Tweet. How is that possible? The newer Tezos blockchain relies on what’s called a “liquid proof-of-stake” (LPoS) concept.
To understand LPoS, you must first understand “proof-of-work” (PoW) and the generation-three model of “proof-of-stake” (PoS). Ethereum and Bitcoin currently run on the first- and second-generation concept of PoW. Simply put, that means “computers have to work very hard to maintain the network,” OneOf CEO Lin Dai explained for a different Rolling Stone story. The original Bitcoin required “super technical, specific computers that run on specialized chips that calculate mathematical problems impossible to calculate by regular computers.” “It’s so hard that it costs a lot,” he goes on. “Ethereum is more programmable, but that makes it a little more prone to attack.”
With ‘proof of stake,’ computers don’t have to work that hard. For one, you don’t need as many computers. Two, they don’t need those fancy chips. Instead, fewer, simpler computers stake assets — or tokens — for the privilege of verifying a transaction. “They’re putting up collateral,” says Dai. “So, if you misbehave, your collateral gets taken by the network. The bigger the network gets, the more collateral you have to put up, and the more impossible it is to attack. That’s far more efficient. The actual recording and verifying of a transaction doesn’t suck energy: it’s the mathematical problem that Ethereum and Bitcoin force you to solve before you are allowed to verify a transaction that’s unnecessary. Even Ethereum agreed that ‘proof of stake’ is the future, and they’ve been working on evolving.” (It’s true that Ethereum 2.0 is on track to become a PoS platform, but its launch has been in the works for years and has already been delayed. As of now, insiders believe it should arrive by the end of 2021.)
In general, PoS is more energy-efficient than PoW, but within PoS, there are different offshoots. For example, delegated proof-of-stake (DPoS) lets users vote on who gets to validate transactions on the network, with voting power determined on the size of a user’s stake. “The validators with the most votes get to become delegates, validating transactions and collecting rewards for doing so,” FinYear reports, adding that, “depending on the protocol, DPoS can require significant computing power for the validator.” Unlike other PoS protocols, Tezos’ LPoS lets any stakeholder participate in the validation process. According to Tezos, the barrier for entry is lower, so the process is more efficient and less costly. (Approved validators can also pass on their validation rights to other users operating on their behalf.)
If you read and understood all that, take a deep breath and pat yourself on the back. If you didn’t, feel free to follow the links to find more resources — which will lead you to more links, like that of Tezos’ white paper, a deep dive reserved for only the particularly ambitious individual.
In theory, 400 Tezos nodes (or, the computers doing the verifying) can run on the power of a toaster.
OneOf isn’t the only platform to jump on the LPoS train. The hic et nunc (HEN) NFT marketplace, which launched on Tezos in February, had more Daily Active Users (DAU) at the end of April than OpenSea, which is often referred to as “the largest NFT marketplace.” While multiple marketplaces now use LPoS, it is a Tezos invention, and it’s the only blockchain that runs this way. “It’s actually incredibly difficult to do,” Dai tells Rolling Stone. “When the white paper came out, I think in 2014 or 2015, people were like, ‘This would be awesome if you can actually build it. They were skeptical, wondering if this could be done or not. But they’ve done it and have successfully continued to operate for over three years.” Dai adds that, in theory, 400 Tezos nodes (or, the computers doing the verifying) can run on the power of a toaster.
Now, there’s also something called proof-of-authority (PoA), which is what VeChain uses, for one. While PoS relies on the amount of tokens a participant is willing to stake, PoA relies on a participant’s identity and reputation. Musician-turned-entrepreneur Fredrik Eriksson, known mainly for his composing work and status as a member of the band Grizfolk, is one of the founding members of yet another new marketplace called Allauras, which launched last month and operates on VeChain. According to Eriksson, their business is carbon neutral.
Regardless of what blockchain and operating system platforms and creators align with, there are a variety of other eco-conscious steps they can take. For example, the artist known as Beeple, née Mike Winkelmann, released the most expensive NFT in history — “Everydays: The First 5000 Days,” which sold via Christie’s for $69 million — on the Ethereum network. At this point in his career, it costs about $5,000 to offset the emissions from one of his collections, Winkelmann told The Verge. He is now promising that all of his future pieces will be carbon neutral or negative “by investing in renewable energy, conservation projects, or technology that sucks CO2 out of the atmosphere.”
Similarly, this past Wednesday, OneOf announced a new partnership with the Right Here, Right Now Global Climate Alliance, pledging to donate a to-be-determined percentage of its platform revenue to United Nations Human Rights in support of its global programs on climate change.
This Friday, an NFT marketplace called Curio, which is specifically devoted to media and entertainment works, revealed their partnership with Aspiration, a new kind of credit card company that plants trees as you spend money. “The approach we’re taking with them involves tying some of our online activity to their tree-planting activities to not just offset our carbon footprint, but also create a generative, additive value that keeps going,” CEO Juan Hernandez, who previously worked as the co-founder/CEO of OpenFinance, tells Rolling Stone. “Eventually, it’s just adding value back into the environment.”
While Curio operates on the still-proof-of-work Ethereum network, they utilize “lazy minting,” which basically means minting in batches. “The blockchain is free to read, but if you want to write something, that’s what costs gas,” Hernandez starts to explain, “For example, if we mint a collection of 10,000 items, then we have to write 10,000 lines. Lazy minting essentially batches everything and then almost zips it. That’s the best analogy I can think of. So, you zip it to like 100 lines, and that’s what you write. Later, when you go to read it, you have to be able to unzip it — but it allows us to mint our collection for about five percent of the total cost.” (When asked why all companies don’t do this, Hernandez says there are additional elements needed on a platform to be able to perform that zipping process. Aspects of some of those elements take more of a centralized approach, which, he says, may deter crypto purists. “Some of us live in the real world,” he quips, suggesting there can be a grey-area balance of “centralized” and “decentralized.”)
In June, a newer NFT tech company called RECUR, which is blockchain agnostic — meaning that “different business solutions can be built or operated from different underlying blockchain technologies” — partnered with Carbon Portfolio Advisors (CPA) to completely offset the greenhouse gas emissions associated with their entire employee base. According to press materials reviewed by Rolling Stone, they did this by purchasing environmental credits that offset any energy usage from their company’s existence, which was, upon announcement, the equivalent of 2,513,198 miles driven by a passenger car.
Prior to its partnership with the CPA, RECUR raised five-million dollars, marking the largest seed-raise to date in NFT history. (Sources say Curio is now on the heels of a seven-million-dollar financing round, though.) At that point, the company was already minting on what’s called a layer two — an environmentally friendly option that has zero gas fees, aka the fees required for transactions that require a certain amount of computational power.
“To give you an example of how much more energy efficient [layer two] is, for every single transaction that on the [Ethereum] mainnet, you can do 8,500 transactions on the secondary,” Thomas Emmanuel, YellowHeart’s Chief Product Officer
YellowHeart, the company behind Kings of Leon’s splashy NFT drop this spring, also uses layer two. “To give you an example of how much more energy efficient it is, for every single transaction that on the mainnet, you can do 8,500 transactions on the secondary,” says Thomas Emmanuel, YellowHeart’s Chief Product Officer. “Layer two has much higher bandwidth and throughput with lower fees.” To be clear, the terms “proof-of-stake” and “layer two” are not synonymous, but Emmanuel says the “vast majority” of layer-two users operate on PoS. YellowHeart has been using layer two on Ethereum, though. (Here’s a helpful definition from Ethereum’s website: “Layer two is a collective term for solutions designed to help scale your application by handling transactions off the Ethereum mainnet (layer 1), while taking advantage of the robust decentralized security model of mainnet. Transaction speed suffers when the network is busy which can make the user experience poor for certain types of dapps. And as the network gets busier, gas prices increase as transaction senders aim to outbid each other. This can make using Ethereum very expensive.”)
Quick catch-up: PoS, LPoS, PoA, lazy minting, layer two, and various forms of carbon offsetting are all ways towards a more sustainable future. But there’s more: Some companies are also investing in alternative energies to power their facilities. YellowHeart, for example, is currently in the process of building solar-powered mining spaces in Puerto Rico. (Mining is the process of creating new tokens by solving a computational puzzle. Miners with large servers that run on electricity to rush through algorithms at all hours of the day and night have gotten a lot of flack in the past.) “There are a lot of initiatives happening right now in alternative energy sources to power the blockchain, like solar, wind, and thermal,” says Emmanuel. “When you think of the economic incentives for mining — which secures the network, processes transactions, and produces more tokens, whether it’s bitcoin or NFTs — the reward you get for processing or mining the block minus your cost of power is your profit. So, if you get onto a less expensive source of energy than you’re increasing your profit margin.”
Emmanuel goes on to explain that 60 percent of bitcoin mining was happening in China at one point. China, which has toggled back and forth in regard to its stance towards crypto, is now cracking down on mining, which means that the majority of Bitcoin’s hashrate — or, the collective computing power of miners worldwide — is now available, leading to a gold rush of sorts. As CNBC reports, bitcoin mining is now easier and more profitable than ever — and alternative energies just make it even more profitable.
Clearly, there’s a lot of information to take in. And many enraged crypto-haters, who don’t have all the details and use social media platforms like Twitter as soapboxes for condemning the new frontier, seem to forget that environmental harm is not exclusively a crypto problem: It’s a tech problem. The idea of decentralized, fully transparent blockchains — which originated as a an alternative to traditional, privatized banking systems — is relatively new in the grand scheme of things. And just like the evolution of computers — which started out as big, clunky, difficult-to-use boxes — blockchains and related technologies should transform through multiple generations, becoming more thoughtful and approachable with mass adoption.
As long as the public keeps speaking up about these issues, which they clearly love to do, crypto will evolve too. A decade ago, TD Bank made headlines for investing in carbon-negative banking. When the bank opened a property in Florida, officials told Reuters that the space would “require approximately 97,000 kilowatt-hours (kWh) of electricity a year to operate”; however, they said, it would also “produce a minimum of 100,000 kWh a year on site.” Back in 2013, Time reported that the average iPhone used about 30 kWh a month — and that was before social-media usage skyrocketed, increasing average screen times; flash forward to 2020, though, and Apple has plans to be 100 percent carbon neutral for its supply chain and products by 2030. In 2019, Amazon shared its goals of going carbon neutral by 2040. Even China, the country that produces the most carbon dioxide, announced a plan last year to become carbon neutral before 2060.
“When you go from the physical world to the digital world, it’s done on electronics, which run on electricity,” says Emmanuel. “The same people [complaining about crypto] are using YouTube and TikTok, and all these other digitally native platforms. This is now an extension of our lives. It’s not going to go away. When you think about the system of blockchain that is here and continuing to emerge in bigger ways, think about the financial system [it could replace.] Think about all of the banking systems. Think about the exchanges like Wall Street — and the machines that go into maintaining the physics of Wall Street. It’s astronomical.”
Considering how rapidly things have changed in the crypto space over the last decade or so — when the Bitcoin blockchain was first introduced — and the fact that the United States’ greenhouse gas emissions were down 13 percent in 2019 when compared to levels in 2005, this writer still maintains hope for a better tomorrow. Don’t get me wrong: I’m not denying that years of human-caused damage haven’t resulted in dangerous climate change. It’s just that crypto’s boom really couldn’t have come at a better time, given that U.S. emissions hit a record low in 2020 as a result of the Covid-19 pandemic’s impact on the economy, which is, in this unusual case, bittersweet. But a blazing fire at small percentage of containment is still a blazing fire: We can’t stop here. We must keep evolving — quickly and thoughtfully.