This is an email from Pattern Matching, a newsletter by OneZero.
The True Cost of Bitcoin and NFTs
Blockchain takes a substantial toll on the environment that experts are beginning to reckon with
The price of one bitcoin, as I write this, is $57,383 — more than 10 times what it cost just a year ago. That price is volatile, so it will be different by the time you read this. But rest assured it will remain expensive.
There’s another toll, though, for every bitcoin created: the toll it takes on the environment. It’s one that is not paid in full by either the miner or the buyer. As bitcoin reaches new heights, fueled by advocates such as Elon Musk and Jack Dorsey, it’s a cost that’s becoming impossible to ignore.
Crypto faces a climate reckoning.
Whether or not you agree with the Citi analyst who recently predicted it will become the “currency of choice for international trade,” or the Square CFO who believes it has the potential to be “the native currency of the internet,” it’s safe to say that cryptocurrency is here to stay.
Meanwhile, after years of crypto enthusiasts insisting that the blockchain will disrupt everything, it’s finally starting to disrupt at least something other than financial regulation. NFTs, or non-fungible tokens built on blockchains, have exploded in popularity as markers of ownership for digital artworks and other virtual collectibles. A pseudonymous crypto investor this week bought an NFT of illustrations by the digital artist Beeple for $69 million, reportedly the third-highest sale price ever for a work by a living artist. Twitter and Square chief Jack Dorsey’s NFT of his famous first tweet has fetched $2.5 million; naturally, he plans to convert the proceeds to bitcoin (and then donate them to poor families in African countries, via GiveDirectly).
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.
Under-the-radar trends, stories, and random anecdotes worth your time.
- Speaking of tech’s environmental impact, could virtual reality help fight climate change? In an interview with The Information’s 411 podcast this week, Facebook’s Mark Zuckerberg pitched social VR — which Facebook is investing in heavily — as a pathway to a greener future. “The more that we can teleport around, not only are we personally eliminating commutes and stuff that’s kind of a drag for us individually, but I think that’s better for society and for the planet overall, too,” Zuckerberg said. My OneZero colleague Drew Costley was skeptical that VR will make much of a dent — or benefit anyone beyond the already well-off.
- Still, many are betting that virtual meetings will continue to be a trend even as the pandemic recedes — as evidenced by the “virtual HQ” platform Gather raising $26 million. Gather creates virtual spaces fashioned after real-world spaces, where people can walk around via digital avatars and meet in impromptu ways, such as shooting a virtual game of pool.
- Hackers gained access to live feeds from some 150,000 security cameras, Bloomberg’s William Turton reported, by breaching the Silicon Valley startup Verkada. The feeds showed the insides of everything from schools and hospitals to prisons to a Tesla factory. While surveillance cameras are touted as security solutions, the hack is another reminder that their proliferation is also a major security risk. While surveillance and bitcoin are obviously very different technologies, there’s a common thread here: In both cases, the people buying and selling them are often not the ones bearing the social cost.
- The Biden administration is looking very antitrusty. Politico reported this week that Columbia Law scholar Lina Khan will be nominated for the FTC, on the heels of last week’s appointment of her colleague Tim Wu to the National Economic Council. Bloomberg’s Joe Nocera had an insightful piece about what it all means, as did Wired’s Gilad Edelman, who apparently went to law school with Khan. I spoke this week with Marketplace Tech’s Molly Wood about how Khan and Wu’s once-radical critiques have become mainstream.
Tech Reads of the Week
— Karen Hao, MIT Tech Review
— Keith Nelson Jr., LEVEL
— Reed Albergotti, the Washington Post
— Sidney Fussell, Wired
— Evan Urquhart, Slate