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Bitcoin and Blockchain Sustainability — April 2022 Update

When we set out to develop our Impactoverse NFT platform/marketplace and plan for our future DAO, we needed to choose a blockchain.

We started diving in to learn more, and oh what a tangled web we found. As you are likely aware, there are many good questions about the energy use and sustainability of the #Bitcoin blockchain.

#Ethereum is going through growing pains, too. Even though it is by far the most popular blockchain for NFTs, for reasons I’ll share later, we don’t want to build on it, even though it would make our lives easier in the short run.

For Impactoverse, we decided to go with a newer, more sustainable blockchain. We had to figure this out for ourselves; we learned a few things and thought we’d share them with you.

I also like to offer relevant information that will help you create an informed opinion around topics that the media has crowned with clickbait.

This post is not an exhaustive review of Bitcoin sustainability, mostly because I’m more interested in writing about blockchain for impact than BTC for HODLrs. Also, there are more qualified people than I doing a terrific job covering Bitcoin energy pros and cons.

I parse out a basic understanding and then direct you to more in-depth information via links in context and at the end of the post. So let’s get started!

Blockchain and Bitcoin are Not the Same

Bitcoin is the first cryptocurrency and as such, a new digital currency needs a ledger, right?

The creator (or creators) of Bitcoin conceptualized the blockchain as a distributed digital ledger to record transactions using Bitcoin.

This can be confusing because Bitcoin transactions are recorded on the Bitcoin blockchain. Since the emergence of Bitcoin, other digital currencies use different versions of blockchain technology to record transactions, too.

Key point:

Blockchain is not just for cryptocurrency. You can record other types of transactions on a blockchain that have nothing to do with cryptocurrency.

The blockchain big picture gets lost in the hype around Bitcoin and cryptocurrency. Why? Because headlines about crypto heists are better click-bait than updates on other potential uses of blockchain such as supply chain, music royalties, personal identity, real estate, and more.

Blockchain’s potential impact on global commerce and peer-to-peer transactions is ginormous. The big picture impact of blockchain is the reason we at Impactoverse want more people to understand what blockchain is, not because we think everyone needs to hop on the Bitcoin bandwagon.

The Bitcoin Energy Bad Rap

So what's the sticking point with Bitcoin and energy use? Here’s an example.

The process for mining new Bitcoin is wasteful and flawed from a sustainability standpoint. Miners are the owners of computers, (or nodes) on the blockchain. To get permission to create more Bitcoin, miners compete to solve a problem that takes a lot of time and computing power. The first miner to solve the problem wins. This is called proof-of-work (PoW).

PoW is wasteful because you have different computers grinding away, using a lot of power, trying to win, but only one succeeds. All that extra energy the losers spent is wasted.

As of today, Cryptoslate lists 353 mineable coins using the proof of work (PoW) consensus algorithm to generate new blocks on the blockchain, with a total sector market cap of $1.17T. Bitcoin and Ethereum by far comprise the lion’s share, with Bitcoin’s market cap at $755B and Ethereum at $360B.

If you want to be able to talk about Bitcoin energy consumption in an informed way, (yes please!) but don’t want to spend weeks researching (same), Nic Carter’s How Much Energy Does Bitcoin Actually Consume? in the Harvard Business Review, May 2021 is a must-read.

Below we’ll look at some overview points.

Apples to Apples: Bitcoin Is Not a Small Country

You may have seen the articles reporting that Bitcoin consumes (or, as drama mama Forbes said, “devours”) as much or more electricity as Argentina, the UAE, or the Netherlands.

When I see data comparisons like that, I want to ask the author, “And your point is…?”

I have a confession to make. Accounting made me cry (still does), but I had a 4.0 in my stat classes back in the day. One thing I know is that comparisons of apples to orange datasets do not help people understand if there is a problem or not, and if so, what is the extent or severity of the issue.

While we’re tossing clickbait around, we could compare Bitcoin energy consumption to the carbon footprint of global agriculture, the US military-industrial complex, or even cloud video gaming in California.

See what I mean?

Those comparisons might make us a hit at the next cocktail party or Twitter for about 5 minutes, but they don’t help us understand Bitcoin’s relative impact in any useful way; like for conscious business planning or personal investment decisions, for instance.

It is more useful to compare Bitcoin to energy data across different industries, starting with finance and insurance. Haas McCook, a retired civil engineer and writer for Bitcoin Magazine, estimates that Bitcoin emits less than 5% of the legacy financial sector’s carbon emissions.

In mid-2021, China banned Bitcoin mining. In a matter of months, they went from having the highest concentration of mining activity in the world down to zero.

Needless to say, the ban caused a big shake-up in the Bitcoin world. One of the happier outcomes was it shifted a significant amount of coal-powered Bitcoin mining to natural gas almost overnight.

According to Bitcoin Magazine:

“Since the Chinese exodus, Bitcoin’s carbon intensity has dropped by a third, from 419 to 280, mainly as a result of shifting away from coal to the much cleaner natural gas.” (source)

In terms of overall energy use, Bitcoin uses 79 TWh/y (tera-watt hours per year) as compared to the finance and insurance industry sector use 4939 TWh/y.

Beyond Bitcoin: What About Ethereum?

The goal of Bitcoin currency (BTC) is to be a new form of money — a medium of exchange and store of value.

Ethereum is the second most popular blockchain and cryptocurrency. It also has a coin called Ether (ETH) that is often confusingly referred to as Ethereum, too. Even Investopedia doesn’t know for sure, so I’m letting myself off the hook. They say:

The ETH coin is commonly called Ethereum, although the distinction remains that Ethereum is a blockchain-powered platform and Ether is its cryptocurrency.”

The Ethereum blockchain is different from Bitcoin because it facilitates smart contracts and applications via ETH. Investopedia says that the primary purpose of the Ethereum blockchain is “to facilitate and monetize the operation of the Ethereum smart contract and dApp platform.”

NFTs

The Ethereum blockchain was an important step in the evolution of blockchain utility. Smart contracts gave rise to NFTs, DAOs, and other innovations.

Art NFTs in particular took off in 2020–2021, bringing the concept of NFTs into the mainstream. It is important to remember that just as blockchain technology has extensive utility outside of Bitcoin, so do NFTs apart from art.

The problem for the planet is that at least 97% of the boom in NFT games, collectibles, and marketplace sector activity took place on the Ethereum blockchain, which continues to dominate.

article link

NFT market numbers from Motely Fool in Feb. 2022 indicate the boom at the top end continues. NFT transactions for 14 of the top 15 single NFT sales in the last two years were powered by Ethereum.

Top-selling artist Pak sold 266,445 shares of an NFT for $91.8 M in December 2021. As of today, his total art value stands at $423,380,239.58, or 140,556.089 ETH, and is hosted on Nifty Gateway, which runs on the Ethereum blockchain.

The burgeoning Defi space relies on Ethereum, too, although new competitors are offering advantages and capitalizing on Ethereum’s growing pains in the Defi space.

All that growth is problematic because the Ethereum blockchain uses the same energy-intensive proof of work (PoW) mechanism as Bitcoin does.

This puts eco-conscious Web3 entrepreneurs, NFT creators, and fans of all types in a very tough spot. For art and collectibles NFTs, an engaged community is paramount for success. Creators need to be in the mix where the action is, which so far has been dominant marketplaces like OpenSea, Axie, and Nifty Gateway, all built on the Ethereum blockchain. The most high-profile NFT collections are also on the Ethereum blockchain.

Ethereum’s founders and team have been working on transitioning Ethereum to a more sustainable model for about 7 years. In an undated entry on their knowledge base, Ethereum claims the following:

  • NFTs aren’t directly increasing the carbon footprint of Ethereum.
  • The way Ethereum keeps your funds and assets secure is currently energy-intensive but it’s about to improve.
  • Once improved, Ethereum’s carbon footprint will be 99.95% better, making it more energy-efficient than many existing industries.

Unfortunately, the improvements were not in place prior to NFT’s explosive growth in the last couple of years. For now, artists, creators and NFT entrepreneurs can and do purchase carbon credits to backstop their impact, yet carbon credits come with their own baggage.

The good news for the industry is other blockchain developers are learning from Bitcoin and Ethereum’s challenges and are launching more eco-friendly blockchains.

The Coming of the Bell Curve Bulge

Up until recently, the blockchain, crypto, and NFT spaces have been dominated by high-profile players and early adopter fans. Next up we’ll see a wave of new participants that are not emotionally attached to founders, coins, or platforms. I should know because I am one!

We will build on what exists and also bring fresh ideas for NFT utility. We are looking for secure marketplaces with ease of use and a good answer to the sustainability question.

Right now, working with marketplaces and NFT collections that drive demand for PoW mining on Ethereum, a platform that hasn’t fixed the issue after 7 years — it kind of feels like buying a Hummer just to keep up with the bros at the yacht club.

Let’s just say it's nice to have alternatives.

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Interested in helping build out a more inclusive Web3? Join our Impactoverse email community for more updates as we build out our platform. Sign up and let us know how we can serve you.

More reads:

#1 recommendation: Nic Carter’s How Much Energy Does Bitcoin Actually Consume? for the Harvard Business Review May 2021

Ethereum and NFTs:

NFTs for Artists Artnews article

MIT Technology Review — Ethereum's Big Switch to Proof of Stake, explained.

Finer points of NFT definition from Wired Magazine

Deep dives:

Galaxy Digital report: On Bitcoin’s Energy Consumption: A Quantitative Approach to a Subjective Question

Uncovering the Hidden Costs of the Petrodollar

September 2020, University of Cambridge — 3rd Global Cryptoasset Benchmarking Study

The 2020 Global Crypto Adoption Index: Cryptocurrency is a Global Phenomenon

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Kala Philo

Kala Philo

Hi! I’m a Web3 and tech marketing writer and co-founder. I also write about personal growth via immersive travel. More info at kalaphilo.com