There are lots of provocative headlines out there about NFT’s energy consumption, like this one from the New York Times on April 13: NFTs Are Shaking Up the Art World. They May Be Warming the Planet, Too. While it’s true that the technology behind NFTs is energy intensive, what’s missing from the critique is how that same technology is capable of revolutionizing how we create energy. Since the advent of Bitcoin and blockchain, mainstream critics miss the mark because they’re judging the future of this innovation through the lens of the past.
First, some basics. The critique that NFTs are a climate disaster comes from the fact that Etheruem, the blockchain on which most NFTs are minted, uses a system called Proof of Work (PoW) that is energy intensive. Ethereum is in the process of switching to a new system called Proof of Stake that will dramatically reduce energy use, but let’s focus on PoW for now, which Bitcoin also uses.
Anyone in the world with a computer can run a program that mines Bitcoin or Ethereum. The miners compete against each other to solve a complex problem first and add a new block to the blockchain. This process secures the network and adds the latest transactions to the chain. As a reward, miners receive Ethereum or Bitcoin. As the price of these assets rises, so does the competition to mine them. At this point, there are millions of specialized machines around the world dedicated to the task. Collectively, that uses a lot of energy, comparable to a small country. The critique is that every transaction is responsible for a share of the total energy the network uses and thus, if you buy digital art (or do anything else on the blockchain) you are contributing to climate change.
That’s a bit simplistic but it’s also reasonable. PoW uses a lot of energy, there’s no denying that. A common counter-argument is that we do a poor job of factoring in just how much energy the legacy banking system uses — we don’t consider all the gasoline burned by employees and customers commuting to a physical space or the environmental impact of their server farms or initial construction. This is also true. But it still misses the point.
The way we produce energy in the future will be radically different from how we produced it in the past and PoW will accelerate that transition. Even in 2021 few people really grasp why this is such a revolution. We continue to measure it against the legacy world and imagine that it’s just money.
The most important thing about crypto is not just that it is decentralized but that it will decentralize everything it touches — including energy.
Borderless and decentralized energy is a new paradigm.
Modern energy usage revolves around proximity to human populations. A square mile in New York City is going to need A LOT more energy than a square mile in Siberia or a square mile in the middle of the Pacific Ocean.
We create energy near human population centers, though there are some materials we use in that process that can travel. Unfortunately, while fossil fuels can be transported, think oil pipelines, most renewables can not. We can’t move sunlight or waves at our convenience. A surplus of energy in Cambodia is inconsequential to Mexico City.
To mine crypto you need two things: an internet connection and electricity. Crypto mining will happen where electricity is cheapest — regardless of whether humans live nearby. This will open up a lot of new possibilities.
Iceland has more geo-thermal electricity than its small population will ever use. There’s not a good way to use the excess, clean energy. Enter crypto. This will encourage further development of that resource and, with time, make it more efficient. That knowledge will also be useful elsewhere.
The middles of oceans or deserts or maybe even volcanoes and hurricanes one day can have their energies harvested, and that harvesting will become ever more efficient. This decentralized, humans-optional energy demand will accelerate the development of these technologies. Fossil fuels are not terribly efficient ways to harvest energy. They are simplistic — a means of creating heat with fire. The future methods to harvest our planet’s energy will be more complex, but they will be clean. Crypto will speed that transition, and that’s a good thing.