Blockchains will maybe not destroy the planet

Today is March 18, 2022 and by now, you’ve probably formed some opinion about cryptocurrencies and NFTs. (Together, I’ll lazily refer to these technologies as “blockchains”.)

To be very, very clear, there’s a lot not to like about blockchains: it’s estimated that Bitcoin - the most popular blockchain - uses about half a percent of the world’s energy: the same as the country of Finland. If you’re in the camp of “this thing is fairly useless”, then the horrific externalities of Bitcoin mining clearly outweigh the minuscule benefits.

For the past few months, I’ve been trying to suppress my own quickly-formed negative opinions about blockchains. For the next three minutes, I’d ask you to do the same: fear not, you can pick your opinions back up at the bottom of the post.

You can basically think of blockchains as “a distributed database on a bunch of people’s computers”. To answer “are blockchains harmful to the environment”, let’s look at how much energy each blockchain uses to save something new to that database - commonly known as a transaction.

The Crypto Carbon Ratings Institute found that Bitcoin used a staggering 17.2 megawatt hours of energy to perform a single transaction. That is… alarming.

However, that number is highly blockchain-specific. Ethereum, the second most popular blockchain, uses about 1000x less energy per transaction with a still-much-too-large 37.6 killowatt hours of energy per transaction. That equates closely with an amount of energy that the EPA says equates to a gallon of gasoline (33.7 kWh). Ethereum is also working hard to migrate to a new technology that’s about 2,000x more energy efficient.

Solana, a newer blockchain that’s growing quickly in popularity, uses 10,000x less energy per transaction than Ethereum - only .17 Wh per transaction. That equates to about half a Google search (0.3 Wh) or leaving an LED light bulb on for one minute. In a year, Solana uses about as much energy as 1000 U.S. households. That’s still something, but it’s squarely in the realm of “we accept that useful and ethical things can use this much energy”.

The important takeaway from these numbers is that high energy use may be an inherent part of some blockchain implementations - like Bitcoin - but it’s not an inherent part of the underlying idea of blockchains. The two can be separated. The details matter tremendously here: there’s a 100,000,000x difference (8 orders of magnitude) between the energy requirements for a Bitcoin transaction and a Solana transaction.

To say “blockchains use too much energy” is a little like saying “Amazon employees have amassed too much wealth”: are you talking about Jeff Bezos or Joe the warehouse picker? The imagined relative wealth disparity between those two ($179B vs. $1,769) is the same as the difference in energy consumption between Bitcoin and Solana transactions. The details are paramount.

Bitcoin’s energy usage is a big problem, especially because cryptocurrencies are self-perpetuating in nature: the current Bitcoin miners and token holders have an enormous incentive to maintain the status quo. If there’s a way to reduce Bitcoin’s environmental impact, it’s certainly above my paygrade.

But as someone evaluating whether Solana, for example, might be useful to solve real problems in the world, Bitcoin’s energy costs are irrelevant. The two come may come from the same ancestor, but they’re worlds apart.

With that being said, I agree that just because blockchains aren’t bad doesn’t make them necessarily good.

The reason I’m interested in blockchains is that they’ve created a scenario where enormous pools of resources have been amassed to do something (consume computational resources and therefore energy) that normally costs money. The Bitcoin community has poured millions and millions of dollars into finding more efficient ways to do that thing. And they’ve done so not out of the goodness of their hearts, but because they’re incentivized to.

If you care about the climate and this doesn’t pique your interest, it should: if it were possible to tweak the incentive structure of a blockchain such that the thing that people are aligned to do is “capture carbon” instead of “use energy”, then you would have effectively created an economy around carbon capture that doesn’t rely on governments to enact carbon taxes. (Regardless of whether you think governments enacting carbon taxes is the right thing, I expect that we can at least all agree that it’s an enormous hurdle worth avoiding if the end result is the same.)

In my opinion, some of our society’s biggest problems come down to situations where an individual’s incentives are misaligned with the greater good: providing affordable health care and better education, combating climate change, and building more affordable housing represent different flavors of this same problem.

I won’t tell you that “blockchains are the solution to all of these problems” because I frankly don’t know if they are. However, blockchains do have incentive-aligning traits that make them an interesting tool worth learning about.

My big ask: if you find yourself in a conversation where the other person bemoans the environmental impact of blockchains, cryptocurrency, or NFTs, tell them it’s a little more nuanced and point them my way.

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