Cryptocurrency, blockchain, and NFTs have exploded into the daily lexicon with a serious case of Jekyll and Hyde Syndrome. Blockchains offer an alternative to opaque financial institutions by creating a form of currency that is decentralized and strives to empower individuals through the erosion of traditional power structures. The problem is it takes a hell of a lot of energy to power them. Can naysayers handle a new technology that has, until recently, sourced its energy from low-cost, high-carbon options when climate change has already reared its destructive head? But what if instead of standing in the way of a green-energy future, blockchain technology might actually hasten us toward one? 

First, let’s acknowledge a fact: the NFT market is growing, and the criticism leveled at cryptocurrency and NFTs hasn’t deterred their growth. For many disillusioned by a society where the rich keep getting richer, the concept of a decentralized financial system is revelatory. Anyone with an internet connection can make a transaction at any time without appeasing a bank, which opens up new horizons for people worldwide. Meanwhile, NFTs offer artists a way to sell directly to collectors, rather than going through dealers or auction-houses. Thanks to Twitter, Super Bowl ads and PayPal pop-ups, an increasing number of people are being enticed into the blockchain ecosystem. Around twenty percent of American adults are invested in cryptocurrency; the figure is even higher for millennials at 36%.

Of course, the democratic nature of this new currency is the “Dr. Jekyll” of the industry. The doctor’s nefarious doppelganger, some would argue, is the computational energy needed for a network like Bitcoin, which is always running at full capacity, to validate new blocks in a blockchain, which is how transactions are registered. “Mining” is the high-energy activity required to validate and record submissions to a distributed ledger which utilizes the proof-of-work consensus mechanism (PoW). In order to submit new transactions and mine new coins in return, every computer in the network competes to solve a complex mathematical puzzle (with a hashed output) necessary to submit the winning block. If, after thousands of numerical guesses per second, a computer cracks the correct hash code, it wins the right to “mine” a block.

Anyone who has ever watched an early Bitcoin miner in action (or played a graphically cutting edge video game on a PC) knows the loud whirring of computer fans that signal prodigious energy consumption. Now, imagine the energy output of thousands of computers running 24/7 to solve complex puzzles, produce new coins and log the exchanges occurring across Bitcoin and Ethereum, by far the two most commonly used networks.

As blockchains have taken off, their carbon footprint has grown apace, and in ways that are not so obvious.

With their need for energy comes another slew of concerns as companies tear down acres of forests to build new mining farms and cause harm to waterways. When China amped up its crackdown on Bitcoin mining, neighboring Kazakhstan took up the mantle, hoping to cash in by building its own mining farms. That, coupled with an influx of miners from China has helped drive fuel prices in the country upward. Kazakhstan now faces power shortages, and is eyeing nuclear energy as a way to tackle its increased electricity needs. In the meantime, some miners have already moved on and vacated farms. Kazakhstan offers a glimpse of the market’s volatility, demonstrating how one global event, like a government shutdown, can recalibrate a community’s energy concerns.

Even farms that source energy through hydropower can hurt communities. Hydropower was a big source of energy for the numerous mining farms in China, but the water used to power those farms is a finite resource that could have been used to power homes or provide clean water to northern cities facing shortages, like Beijing. While hydroelectric power can sometimes offer a surplus of energy, it begs the question of whether water will be directed towards towns, municipalities, or revenue-generating farms in times of drought. Water plays an important role even in farms that do not run on hydropower. In New York, locals living along Seneca Lake have complained about a bitcoin mining site that uses water to cool its computers and discharges hot water back into the lake. A similar issue may soon arise in northern Italy, where mining sites have popped up near hydroelectric dams. Given that many of these sites are still relatively new, it may be too soon to measure their impact on the local environment. Even so, rising water temperatures have already damaged breeding grounds for marine animals and threatened cold water fish.

Before you swap your reusable water bottle for a torch and pitchfork, recognize that the technologists inviting artists into the NFT market are not deaf to criticism. From its inception, crypto has defined itself as a system that is adaptive and innovative. No shortage of companies have announced plans to create blockchains that are carbon neutral. If they succeed, artists in the NFT community may continue to thrive without worrying about the negative effects of energy consumption on the environment.

Dozens of new blockchains, as well as the companies that support them, have grown out of a few tech-savvy college kids mining and coding in their basements. Plenty of these same founders are looking for new ways to provide the benefits of blockchain technology without the drawbacks. Several blockchains like Solana and Tezos offer similar services as OGs like Bitcoin and Ethereum while generating 99% less energy.

One potential antidote to the energy consumption problem is called “proof of stake,” or PoS.

Unlike PoW systems, PoS does not require the same amount of electricity in the form of tremendous computational power. Instead, it requires participants to stake crypto behind the next block they want added to a blockchain. Who can validate a block depends on the network; on some blockchains, a participant can get started online by staking some of their currency, and users are encouraged to become validators in order to process information faster.

Tezos has been utilizing proof-of-stake since it was founded in 2018, allowing it to consume about two million times less energy than PoW networks like Ethereum, and twenty five million times less energy than Bitcoin. Although Tezos’ network is less widely used, and thus has fewer transactions to confirm than Bitcoin or Ethereum, it has still grown over the years, and its energy expenditure has shrunk proportionally to the increased activity.

Yearly electricity consumption for Bitcoin, Ethereum, Proof of Stake networks Polkadot, Tezos, Avalanche, Algorand, Cardano and Solana, and an average US household in kWh. Logarithmic scale (source: Gallersdörfer et al., 2022)

Solana claims to have achieved carbon neutrality in 2021 and plans to maintain it going forward. Rachel Cassaccia, a Senior Account Executive for Solana, broke it down for me: “In March 2022, the Solana Foundation reported the carbon intensity of the blockchain was 198g CO2 per kWh. Each transaction uses less energy than three Google searches.” To put that in perspective, a PoW system, like Bitcoin, generates more energy per transaction than a gallon of gasoline in a fuel engine. Cassaccia cited research from Solana’s monthly energy report, which offers breakdowns of the blockchain’s energy expenditure in relation to its competitors as well as to other activities like driving a car or using a PlayStation for an hour^[3].

In addition to utilizing PoS, Solana also spearheaded the use of Proof of History (PoH). Using a PoH generator, a sequence of transactions are created then shared with the validators who confirm the “entries.” Each entry exists like a frame in a film: what came before and after it is clear because it can only fit cleanly in one spot. This quickens the pace of the validation process by breaking blocks into smaller batches that can be confirmed simultaneously, rather than one block at a time. 

But even with all of these good intentions, one cannot ignore the facts. Tezos does not currently provide the same value transmission as Bitcoin, nor the same real world utility as Ethereum; and the Solana network, often referred to as the “Ethereum killer,” has had multiple network outages just this year, resulting in both lost work and duplicate transactions. If these networks cannot provide a safe, secure, and production-ready system, then validators and users alike will likely take their financial assets elsewhere.

One major drawback to PoS systems is that control of the network lies in the hands of the owners of the token, which means that those with larger staking power have more say on the rules of the network. They can afford to stake more tokens, and thus more easily acquire new tokens, resulting in a feedback loop that can centralize the network very quickly, with fortunes made only by the largest holders who can very well stage an organized attack with way less than the 51% needed to attack a PoW system like Ethereum or Bitcoin.

Does the risk outweigh the reward? Let’s look at Ethereum.

A skeptic might point out that the biggest and most-used blockchains are still PoW systems like Bitcoin and Ethereum. But they are changing, too. Ethereum–a popular currency for many NFT markets including SuperRare–is in the middle of a three-phase program designed to switch its consensus mechanism over to PoS. In 2020, Ethereum introduced the Beacon Chain, a PoS ledger that began functioning alongside their original system. The next major step will be to merge the current Ethereum mainnet with the Beacon Chain which will reduce energy expenditures by an impressive 99%. Moreover, the PoS system will run faster allowing for thousands of transactions per second, which will be cheaper to boot. The merger, which has been delayed several times already due in part to security concerns and in part to the NFT boom, is expected to occur sometime in the second or third quarter this year, and may prove transformative for everyone who has been benefiting from Ethereum’s increasing scalability and prevalence in blockchain technology. Transition to the Beacon Chain is also big news for creatives who have been hesitant to join the NFT market because of environmental concerns. 

Ethereum is planning to take its updates a step further by introducing sharded processing, likely in 2023, or whenever the move to the Beacon Chain has been finalized. Sharding is the breaking off of transaction processing into smaller “shards”– a method that increases both security and scalability.

Bitcoin’s popularity has attracted a great deal of criticism. Indeed, Elon Musk has weighed in multiple times, temporarily refusing to accept Bitcoin as a form of payment for Tesla cars due to energy concerns. Yet recently, the biggest gas-guzzler^[4] of the blockchains has been actively greenifying its profile. Bitcoin estimates that more than half of its network is already powered by renewable energy. Hydro, wind, and solar-powered factories are all the rage for miners, particularly since many renewable energy options are now cheaper than gas, coal, and gasoline. Blockchain companies are moving towards carbon neutrality at a rate not seen in other Fortune 500 companies. Ultimately, that’s because the PoW mechanism provides a natural incentive for the adoption of cheaper, and more efficient energy. In the 21st century, that means updating outdated power grids, and going green. And if blockchain has already proven that it can go carbon neutral, then there is reason to hope that the industry can also undercut the other consequences of energy consumption.

Furthermore, technology can go beyond neutrality by encouraging the removal of carbon from the atmosphere. Carbon credit tokens have increased in popularity, and anyone who uses Ethereum has options, like Carbon Utility Tokens, (CUT), Universal Carbon Tokens, (UPCO2), and Moss Carbon Credit (MCO2). These tokens are made available when carbon dioxide is offset by a company through conservation or proper disposal. The “credits” are then tokenized and traded. Despite the complaints that crypto’s energy consumption makes it harmful to the environment, blockchains are bringing increased awareness to energy consumption on both the individual citizen and on the company-wide scale.

With companies from IBM to Walmart embracing blockchain technology and the cost of green energy decreasing globally, we are at a pivotal moment. Crypto mining powered by renewable energy may drive up demand for renewable energy, creating a booming job market the likes of which many activists have been hoping to see for years.  Already,  in Africa, The Sun Exchange harvests solar energy and utilizes Bitcoin for contracts and monetary transactions, while in Brooklyn, the Brooklyn Microgrid uses blockchain technology to create a power grid for Brooklyn residents to sell excess solar energy to other New York City residents. If momentum along these lines continues, there is reason to hope that crypto adoption will mitigate some of big business’ less glamorous attributes.

This is an age of unparalleled opportunity; the artists and intrepid creators who see a future in code have a lot of reason to believe that an open, efficient, and secure world of banking, minting, and resource allocation is imminent.