The True Cost of Bitcoin and NFTs | by Will Oremus | Mar, 2021 | OneZero

Source: The True Cost of Bitcoin and NFTs | by Will Oremus | Mar, 2021 | OneZero

…Crypto idealists see blockchains as the infrastructure for a radically decentralized future in which people can transact seamlessly around the world and verify authenticity without the need for financial institutions or governments as gatekeepers. For a fascinatingly starry-eyed journey into this vision, try this January post by Not Boring’s Packy McCormick on the value chain of the open metaverse.

But there’s an inconvenient truth at the heart of the crypto project: Blockchains are computationally intensive, which can translate to tremendous energy consumption. This is particularly true of bitcoin, whose transactions are verified by “miners” running massive banks of powerful computers around the clock in a competitive process.

Estimates of bitcoin’s total carbon footprint vary widely, but they’re all shockingly high. Alex DeVries’ “Bitcoin Energy Consumption Index” equates its energy consumption to that of the entire nation of Chile, and its carbon footprint to that of Slovakia. That’s a small fraction of the impact of sources such as cars and agriculture, of course. But it’s comparable to that of all other data centers in the world. And the greater concern is that, as cryptocurrencies boom in price and popularity, their environmental impact could expand accordingly. Among the most dire predictions was a 2018 paper in Nature Climate Change that estimated bitcoin alone could produce enough emissions to raise global temperatures by 2 degrees Celsius by 2033.

Other studies have argued that’s overstated, and that cryptocurrencies’ growth needn’t correspond directly to huge emissions increases. But even the most optimistic analyses concede that bitcoin as currently structured is far from environmentally friendly.

Influential people are starting to take the problem seriously. “Bitcoin uses more electricity per transaction than any other method known to mankind, and so it’s not a great climate thing,” Bill Gates told the New York Times’ Andrew Ross Sorkin in a recent interview on Clubhouse. In his DealBook column this week, Sorkin wondered whether bitcoin’s climate problem will lead to pressure on companies and investors to steer clear: “Will owning Bitcoin become a status symbol — or a scarlet letter for a new generation of climate-focused investors wise to the challenges it poses?”

At the same time, some tech magnates who profess concern for the environment are investing heavily in bitcoin and publicly evangelizing it. Dorsey’s Square has bought $170 million worth of bitcoin; Musk’s Tesla has bought $1.5 billion and announced plans to accept it as payment, helping to fuel its most recent price surge. Musk in particular has characterized Tesla’s mission as nothing less than saving the world’s environment. He didn’t respond to a Reuters article last month pointing out the apparent tension between his Tesla work and bitcoin enthusiasm.

There are ways that emissions from bitcoin and other blockchains could be reduced. Much of today’s mining happens in China, where coal is a major energy source. As American Public Media’s Marketplace Tech pointed out, that could pose problems for the country’s plan to go carbon neutral by 2060. That may be why China’s coal-reliant Inner Mongolia region recently announced plans to curb cryptocurrency mining there. Other mining regions in China, like Sichuan, rely on cleaner hydroelectric power.

In general, shifting mining operations to run on more sustainable energy sources could help. But the decentralized nature of bitcoin means there’s no single decision-maker capable of enacting that. There are efforts afoot, though, to dramatically reduce the carbon footprint of Ethereum, the second-largest public blockchain, by overhauling its code to make it more efficient. (The majority of NFTs are on Ethereum.)

We’re at an interesting moment at which it’s now conceptually understood that much of today’s cryptocurrency mining is bad for the environment, but there has been relatively little pressure to do much about it. People who wouldn’t be caught dead in a gas-guzzling SUV are still shamelessly touting bitcoin.

Whether it acquires a similar social stigma among the environmentally conscious in the months to come could have a significant influence on the technology’s future. One early sign that it’s becoming contentious: a website that estimates the carbon footprint of NFTs was taken offline by its creator on Friday. The creator, artist Memo Akten, lamented that its estimates were being intentionally misconstrued and used as tools of harassment. As Sorkin pointed out, large investors’ public climate commitments could also become a drag on bitcoin’s future.

Ultimately, cryptocurrency’s climate problem is just the latest symptom of the world’s systemic climate problem, which is that the social cost of pollution isn’t captured by the free market. If carbon were priced according to its impact on humanity, rather than its market value, cryptocurrency protocols would likely have evolved quite differently. Instead, we’ll have to see which gives way first: bitcoin, or the global emissions-reductions targets that didn’t take bitcoin into account.