The recent craze around NFTs, such as Beeple’s $69 million digital collage (left), are sparking questions about the impact of the blockchain-fueled transactions on the actual environment (right).Time will tell whether buying NFTs for Beeple’s digital collage for $69 million or Twitter founder Jack Dorsey’s first tweet for $2.9 million were smart investments, or simply falling prey to hyped consumer fads dating back to the tulipmania of the 1600s.
The more urgent question for many is this: what are the climate impacts of tethering the sales of virtual items to cryptocurrency? Will the exchange of NFTs erect another giant, flaming hurdle in the path to saving our warming planet, or do they amount to a Beanie Babies-sized bump in the road?
It turns out that before the recent furor sparked over NFTs, the blockchain-supported tokens were being embraced by some folks who might surprise you: climate champions. That includes two Pacific Northwest-based efforts working to create trustworthy platforms for carbon exchanges: the nonprofit Blockchain for Climate Foundation and a startup called Nori.
“I am a booster of Ethereum and blockchain, and I’m a carbon professional,” said Joseph Pallant, founder and executive director of the Vancouver, B.C.-based foundation.
To understand how Pallant holds both identities, one first has to dig into the tech puzzles of blockchain and cryptocurrency.
In very simple terms, NFTs — or non-fungible tokens — are akin to a digital certificate of ownership, whether it’s for an artwork, a tweet or a promise to farm 1,000 acres in a manner that keeps carbon trapped in the ground. Fungible items, such as money or barrels of oil, are generic and interchangeable. The non-fungible tokens contain unique lines of code that link them to unique items. (Amy Castor and The Verge have great, more detailed explainers.)
The NFTs exist as a part of global computing networks called blockchains, and most, though not all, are supported by the Ethereum blockchain. People are often familiar with blockchains as the foundation for cryptocurrencies such as Bitcoin and Ether, which is Ethereum’s fungible token.
A cryptocurrency mining setup in Iceland. (Wikimedia Commons Photo / cc4.0)Climate enters the picture because Bitcoin, Ethereum and other “proof of work” blockchains require massive amounts of energy to run computer servers that churn out cryptocurrency and perform other computational tasks and transactions. Creating or “minting” NFTs is one of these tasks.
While Bitcoin launched nearly a decade ago, the emergence of crypto art NFTs has brought the planetary impacts of the sector to the fore, highlighting stark divisions between those for and against blockchain.
“It’s an incredibly inefficient way to do things, where people are constantly being sucked into these manias,” said Fred Heutte, a senior policy associate at the nonprofit Northwest Energy Coalition.
Blockchains have “enormous positive use,” countered Nori CEO Paul Gambill.
But in many regards the bottom line comes does down to this: What’s the carbon footprint for an NFT of a dancing cat video? That question is tricky to answer.
Sizing up carbon footprints
As NFTs startled sizzling, members of the art community began raising alarms about their energy impacts, and some artists ducked out of NFT auctions altogether or pledged to offset their climate impacts. Pro and con camps began lobbing wildly varying numbers for the carbon emissions of the transactions.
Digiconomist, a site started in 2014, calculates the energy and carbon footprints of Ethereum and Bitcoin networks in their entirety. Ethereum’s estimated annual energy use is more than 30 Terawatt hours (TWh) — an amount on par with the power consumed by Ireland. Its carbon footprint is roughly 15 million metric tons of carbon dioxide. Seattle’s yearly emissions, by comparison, are about 5.8 million metric tons.
Joseph Pallant, CEO and founder of Blockchain for Climate Foundation, at the 2019 United Nations Climate Change Conference, which was held in Madrid in December 2019. (BCfC Photo)A site on GitHub goes a step further. It takes the Digiconomist data and other sources to estimate the impact of the crypto-art platforms alone. The largest is OpenSea, which by late March had conducted more than 800,000 transactions. That translated into 61,000 metric tons of carbon dioxide, which the EPA equates to driving 13,000 passengers cars for a year; the footprint for the nine largest crypto-art exchanges combined amounted to the carbon output of 22,000 vehicles. (Carbon.fyi also calculates Ethereum-driven emissions.)
Pallant agrees that these numbers are reasonable approximations, but adds a wrinkle to the NFT math. It’s a mind-bending concept, relating to whether each transaction actually requires more power or is sort of folded into other operations that are taking place.
“The Ethereum blockchain and all its transactions are always happening,” he said, “regardless of adding NFT users or not.”
NFTs and offsets
So what’s an organization trying to slow climate change doing in the world of NFTs anyways?
When Gambill co-founded Seattle-based Nori in 2017, he was interested in the removal of atmospheric carbon as an important strategy for fighting global warming.
He developed a marketplace that matches farmers who adopt practices that sequester carbon in the soil with consumers and businesses eager to offset their carbon emissions. A third party verifies the farmers’ compliance with the program. To document the offsets and ensure that the carbon benefits are sold only once, Nori uses Ethereum to mint an NFT, which it calls an NRT or Nori Removal Tonne.
The blockchain serves as a transparent, secure database for tracking the sales and preventing people from selling an offset twice.
“Carbon markets are plagued with issues of double-counting, especially in international trading. It’s a silly problem that is easily solved with double-entry bookkeeping, but thus far the international community has not agreed to do so,” Gambill said.
“That’s exactly why blockchain is so useful here,” he added. “NFTs are provably unique assets, and so using an NFT to represent a unique carbon certificate is the perfect application for solving this problem.”
Nori CEO Paul Gambill. (Nori Photo)The NRTs are sold by cash or credit card, but later this year Nori plans to launch its own cryptocurrency.
In a funny bit of circularity, Gambill plans to make the Nori marketplace itself carbon neutral by buying offsets to cover the emissions generated by his marketplace for selling offsets.
And at some point, Nori’s own carbon debt could get much, much smaller — that’s if and when Ethereum shifts to Ethereum 2.0.
Proof of stake
The reason that Bitcoin and Ethereum are drawing alarming amounts of energy is due to how they run their transactions, using what is known as “proof of work” to verify their systems.
Bitcoin, which is already something of a power hog, is by design only going to get hungrier over time. It’s literally built that way. As more of the cryptocurrency is mined, it gets harder to pull more Bitcoin from the system, requiring more energy and more powerful servers and yielding a smaller payoff.
Some of the fuel used to power blockchains come from clean sources such as wind, solar and — particularly in the Northwest — hydropower from dams. But demand from other sectors will keep ramping up as well as transportation, building heating and cooling, and other power users move from fossil fuels to the energy grid.
The Grand Coulee Dam in Grant County, Wash. The region has been a hub for Bitcoin miners because of the cheap energy provided by the area’s dams. (GeekWire Photo / Tom Krazit)Digiconomist currently puts Bitcoin’s annual carbon footprint alongside Hong Kong and its energy use is on par with the Philippines. A recent report by Bank of America put those numbers significantly higher, with a carbon footprint that exceeds American Airlines and is much bigger than oil giant Conoco Phillips; its energy use is just shy of the Netherlands. A third source from the University of Cambridge offers a range of Bitcoin energy estimates; its mid-level guess is that the cryptocurrency’s power use roughly matches Norway.
Critics of Bitcoin’s burgeoning carbon impacts include Microsoft co-founder and climate advocate Bill Gates, while Tesla’s Elon Musk is touting the cryptocurrency and recently disclosed that his electric car company owns more than a billion dollars worth of its tokens.
Ethereum, whose energy and carbon footprints are about one-third of Bitcoin, according to Digiconomist, could become drastically leaner. The Ethereum community has pledged to move the blockchain from the proof of work approach to the energy sipping “proof of stake” system.
The effort, however, has been years in the making and beset by delays. But it’s not impossible: other blockchains already run as proof of stake. Ethereum’s proponents, Pallant and Gambill included, are confident the shift will happen soon and parts of the transition are already underway.
Even Vitalik Buterin, the now 27-year-old Russian-Canadian computer scientist who created Ethereum nearly six years ago, has lamented his creation’s energy use.
“That’s just a huge waste of resources, even if you don’t believe that pollution and carbon dioxide are an issue. There are real consumers — real people — whose need for electricity is being displaced by this stuff,” Buterin said in 2019 in IEEE Spectrum, a monthly engineering publication.
The rebirth of Ethereum, dubbed Ethereum 2.0, could slash its energy use by 99%, according to the IEEE story.
Galvanize and mobilize
As thousand- and million-dollar NFT auctions began stirring up climate controversy, Pallant decided to enter the conversation.
“It occurred that we might be in a good position to shed some light on the topic of NFT carbon footprints, and perhaps help concerned folks in making decisions about the space,” read a March 8 post on the Blockchain for Climate Foundation website.
Pallant, a resident of British Columbia, has been working since 2004 to build carbon markets where people can buy and sell credits that reduce carbon emissions. He launched the foundation in 2017 with the aim of putting the Paris Agreement — the international accord for cutting greenhouse gases — on the blockchain.
Employees of the Blockchain for Climate Foundation attended the UN Climate Action Summit in 2019 in New York. (BfCF Photo)The foundation’s goal is to create tools using the blockchain so that the world’s nations will have “a transparent, public and universal ledger” where they can trade and account for carbon credits in order to reach emissions targets set by the agreement. Using the blockchain to track the projects would discourage double-counting while providing support for climate friendly efforts worldwide. Canada, for example, could finance a geothermal power project in Kenya and the deal would be accounted through the transfer of NFTs.
While the response to Nyan Cat and Grimes video NFTs have been mired in confusion and misinformation, the spotlight nonetheless “helps our cause,” Pallant said. “Because more interest in NFTs begets more understanding in Ethereum as well. We have the task of explaining to decision makers at national governments that we want to use this fancy, newfangled tool to engage with the Paris Agreement.”
At the same time, the NFT controversy could provide a wake-up call for Ethereum blockchain developers to step up their carbon game.
“I really hope this is an opportunity to galvanize and mobilize members of the Ethereum community,” Pallant said, “to inspire people young and old to find solutions and build solutions to help beat climate change.”