• Sat. May 21st, 2022

How Cryptocurrencies Fail Spectacularly to Green

ByHazel R. Lang

Apr 23, 2022

“Imagine if keeping your car idling 24/7 produced solved Sudokus that you could redeem for heroin.” This is how a Twitter user described production, transaction and usefulness of Bitcoin and other cryptocurrencies in 2018. Although an exaggeration, this description is not entirely irrelevant – cryptocurrencies require huge amounts of energy to be produced and used. Bitcoin has the annual carbon footprint equivalent to the Czech Republic while producing as much annual electronic waste as the Netherlands.

These numbers have not thwarted the claim of many cryptocurrency enthusiasts that it is a one-size-fits-all solution to all of the world’s energy problems. “Bitcoin mining solves a number of climate problems, while creating a more profitable model,” crypto enthusiast Anthony Pompliano. wrote last August.

Many developers say they are working on cryptocurrencies that are meant to encourage environmentally friendly practices, and even tokenize carbon offsets. While these solutions seem appealing at first glance, experts in climate and environmental policy doubt that they will have a big impact on mitigating climate change and changing our energy habits. Even if some of these projects are driven by technicians with good intentions, these quick fixes and greenwashing proposals are unlikely to bring us closer to a zero-emissions world.

For the uninitiated, Bitcoin and many other cryptocurrencies use a proof of work verification method to add new transactions to the blockchain. This process forces users to spend considerable effort on transaction validation to make it more costly for a user to engage in malicious behavior. Similar security methods are also used to deter spam. With Bitcoin however, proof of work is responsible for wasting large amounts of energy.

The process of verifying Bitcoin transactions is called crypto mining: millions of expensive computers try to guess a number that corresponds to a new transaction. The first computer to guess this number adds this new information to the list of transactions, and the owner of this computer receives Bitcoin as a reward. The rest of the energy is wasted.

At one point, China was home to the most crypto-mining operations, which equates to around 75 percent of global bitcoin mining capacity. Then, in June 2021, the country banned crypto mining, pushing crypto mines back to the United States. Since then, the percentage of renewable energy used for mining has fell from 42 to 25%— many miners in China had access to renewable hydroelectric energy while in the United States, many current operations are fueled by natural gas.

The consequences add up quickly. Bitcoin has the same power consumption as Thailand during the year. The second most popular cryptocurrency, Ethereum, has an annual report energy consumption comparable to the whole country of Kazakhstan.

Ethereum has promised to move to a more environmentally friendly method of settling transactions. Replacing proof of work, Ethereum 2.0 would use a method called proof of stake which would work more like a lottery. The more Ethereum a person helping to verify transactions holds, the more likely they are to be selected to verify a transaction. This means that a single machine will perform calculations for each transaction, rather than having millions of machines competing with each other. Proponents say it would reduce emissions of more than 99 percent.

But this the upgrade has been continuously delayedand it’s not clear at the moment when it’s ready.

Currently, the vast majority of transactions in cryptocurrency involve wash trading, a process where the same party buys and sells an asset to increase its price. When not used for wash trading, crypto is used in hacks and ransomware attacks to fund North Korea, run financial scamsor sell stolen art. There is little pressure from those involved in these efforts to push cryptocurrency toward green practices.

“Even if it were true that cryptocurrencies ran on renewable energy, the idea that it is normal for speculation to waste large amounts of renewable energy assumes that this does not compete with the more socially valuable uses of renewable energy. renewables, or even energy in general.” said computer scientist David SH Rosenthal in February.

Cryptocurrency tries to go green

Many decentralized apps and projects that sell NFTs, such as the curated generative art platform art blocks, offset the greenhouse gas emissions produced by cryptocurrency transactions. Some of the money ArtBlocks makes from selling artwork is used to buy carbon offsets. A carbon offset unit represents the removal of one metric ton of carbon dioxide from the atmosphere or the avoidance of one metric ton of carbon emissions.

For example, if an organization develops an initiative that reduces its carbon emissions, it can generate carbon offset units to sell on a free market. Then another party can offset the excess emissions by buying those offsets on the market. In theory, this encourages the development and financing of greener projects.

A company that offers carbon offset services is Gap, which provides comprehensive open-source documentation for estimating the carbon emissions of a single Ethereum wallet or application. Customers can track carbon emissions and then pay Offsetra to purchase offsets on their behalf, making the process easier rather than leaving them to find and purchase verified offsets themselves.

According to Damien Schuster, advisor to Offestra, the company essentially helps the founders to reduce the total amount of emissions and to work in a more environmentally friendly way. “Today, there are also other options for people who want to use Proof of Stake options,” he added.

Offsetra, like many other carbon offset providers, is caught between a rock and a hard place. For one, they educate and provide founders in the cryptocurrency space with ways to reduce or offset their emissions. On the other hand, they provide offset services that do not directly reduce greenhouse gas emissions for an industry that uses huge amounts of energy.

“Our goal is also to encourage people to retroactively go back and fix these emissions or at least account for them,” Schuster said.

“Yes, it’s a Ponzi scheme. But who cares ?”

— Andrew Thurman

Tokenization of carbon offsets

KlimaDAO, an ecologically oriented cryptocurrency project founded by anonymous developers and aimed at combating climate change, has proposed its own solution to combat climate change via cryptocurrency: “tokenizing” carbon offsets themselves. same.

How it works is a bit complicated, but here’s the gist: First, carbon credits are purchased from a verified seller and turned into a token on the blockchain. Then the original carbon credit is removed, which means that no other company can claim to buy and use it on the seller’s website. The carbon offsets are then deposited into KlimaDAO’s treasury in exchange for a carbon-backed currency called KLIMA. Holding the token drives up the price of carbon offsets, with the aim of making them more expensive and financially incentivizing companies to go green. The price of KLIMA is tied to all carbon offsets in the Treasury, so increasing carbon offsets means people in possession of KLIMA earn more money.

The underlying economy is a form of decentralized finance that has been criticized by financial and securities experts. The code underlying KlimaDAO is based on another project, Olympus DAO, which incentivizes people to deposit assets into a treasury to increase the price of the OHM token generating over 7000% annual gains.

Supporters of Olympus DAO and similar projects readily admit that it may be a financial scam. In a Coindesk 2021 article, Andrew Thurman, journalist and co-founder of a blockchain start-up wrote: “Yes, it’s a Ponzi scheme. But who cares ?

Other projects based on this idea, built with similar code, have been hacked and have millions of stolen funds.

“KlimaDAO has created huge hype through misleading claims and provided funding to people speculating on crypto token values,” said Robbie Watt, an expert on carbon markets and international policy responses to climate change from the University of Manchester, to the Daily Beast. “Most of those who have invested are looking at acute short-term losses in an experimental project that may struggle to gain center stage in the architecture of the carbon offset market.”

““In a net zero world, there is literally nowhere to offset.””

— Matthew Paterson

While Watt himself studies and critiques carbon offsets, he doesn’t think blockchain necessarily adds transparency to carbon offsets without overarching governance reforms. “You could just as easily do the latter, without worrying about the blockchain,” Watt said.

This criticism did not stop KlimaDAO, which has now acquired more than 14.5 million carbon offsets. It was developed by an anonymous team and funded by billionaire Mark Cuban, who has been involved in previous cryptocurrency scandals. He supported an Instagram account that provided undeclared paid promotions of NFT projects, which resulted in the account being banned on Instagram.

Asking users to offset miners’ energy costs is reminiscent of oil and gas conglomerate advertising individual responsibility and the carbon footprint to mask their role in anthropogenic climate change. Raising the prices of carbon offsets may not be a viable solution either, given that the offsets themselves are highly flawed.

“On top of all the traditional criticisms of offsets – that they almost never deliver additional emissions reductions as they claim, they can generate human rights abuses, they distract from the need to transform all our economic activities, Matthew Paterson, professor of international politics at the University of Manchester, told the Daily Beast. “IIn a net zero world, there is literally nowhere to offset.

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