Is The Crypto Industry Bad For The Environment?
The crypto industry has developed a bad reputation for having a negative impact on the environment, but the situation is far more nuanced than the headlines describe. Critics will often point to the energy footprint of Bitcoin’s Proof-of-Work mining algorithm and compare it to the energy consumption of entire countries, but this is not an entirely honest metric.
Many industries actually consume as much or more energy than a lot of smaller countries because the usage is dispersed across the entire planet. Christmas lights and washing machines actually use more electricity by comparison, for example.
Traditional banks and gold mining operations use far more energy than the blockchain industry currently does, which means that we would actually see a reduction in carbon output if the traditional banking system was replaced by blockchain alternatives, even if those alternatives were Proof-of-Work. Traditional gold mining operations also contribute to chemical pollution, deforestation and the displacement of indigenous people. Still, the energy usage with Proof-of-Work blockchains is not ideal, which is why much of the industry is moving away from this consensus mechanism.
Ethereum, where the majority of Web3 activity takes place today, is in the process of switching to Proof-of-Stake, which would use far less energy than Proof-of-Work.
There are also growing sectors of the industry that are very concerned about the environment and working towards solutions to the climate crisis. Some developers working in these areas see that there is a ton of potential for this technology to unlock solutions to the environmental problems we face. The teams building in this space consider themselves to be a part of the Regenerative Finance (ReFi) movement, where blockchain technology is being used to help fund and coordinate public goods.
This is a play on the term “DeFi,” which also flips the “degenerate” label that is often ascribed to crypto traders. The idea behind ReFi is using crypto economics and the greed of speculators to fund efforts and public goods that are often neglected or funded by violence in the legacy system. This often happens through building a treasury that is collected through fees generated on blockchain applications.
What we are building here at Solid World DAO is a great example. We are building a carbon market with a treasury that is owned by the protocol. This treasury will be used to fund carbon sequestration projects, like tree planting, or improving soil conditions on farms. We are among hundreds of different teams building in this space and finding different ways to use these new tools for the betterment of the planet.
There are projects like Proof of Humanity, who are developing anonymous means of proving that you are a unique individual without revealing your identity. This system is being used to distribute a Universal Basic Income (UBI) token, to help people escape from poverty without relying on the government or any involuntary mechanisms.
The earliest and most prominent ReFi project on Ethereum is probably Gitcoin, which funds open source development, with a special interest in climate-related projects.
Unfortunately, energy usage will be required with nearly any solution that we develop to face climate change. Whether it is machines that will suck trash out of the ocean or carbon out of the air, energy will be needed. We will also need high tech capabilities to coordinate around these problems, and these capabilities require large data centers that use energy. Most people understand this, but when it comes to crypto, they have a hard time seeing the value, so they think that any amount of energy is a waste.
There is a good chance that the mainstreaming of ReFi could change this, because people will be able to see that this industry is more than just speculation and money, real problems are getting solved here.
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