Crypto makes people mad; it always has. They're mad they didn’t get it, in 2010, or 2014, or 2019; they’re mad because fortunes are being made, seemingly effortlessly, from what appears to them to be nonsense; they’re mad because they failed to see one of the biggest innovations in computer history coming.
Charlie Munger very nearly burst into tears on Saturday at even the thought of Bitcoin’s success. And no wonder; it’s not a market Berkshire Hathaway can corner. Everyone’s yelling about crypto on Twitter, and indignation is fun, whether you have the faintest idea what you’re talking about or not.
People are particularly mad about non-fungible tokens (NFTs), a mysterious crypto thing that is manifestly not art, and yet millions are somehow changing hands, for things that aren’t even things, that you can’t even own! Plus NFTs burn a ton of carbon, and as everyone knows, that’s bad.
Except they really don’t. As ever, emotionally driven prejudices make people eager to believe the most ridiculous lies, about NFTs and about blockchain more generally.
The most immediate misconception about NFTs is the idea that crypto energy use is tied directly to transaction volume, so that the carbon footprint will rise and rise, the more transactions there are. That is completely false. It’s the competition between miners, not transaction volume, that determines energy costs in a proof-of-work (PoW) blockchain. One block mined in a PoW system might represent tens of thousands of individual transactions, or very few, or none at all, at the same energy cost.
In other words, an ETH or BTC transaction is not remotely analogous to a VISA swipe.
Whether you choose to list your commemorative "Downfall" meme on Foundation or not, proof-of-work crypto miners will continue to buy the same amount of hardware and use the same amount of electricity on mining crypto rewards.
We’ll leave aside for now that proof-of-work as it was originally designed is on its way out, that innovations like sidechains will continue to improve Bitcoin’s carbon footprint, that insanely more efficient proof-of-stake blockchains are online as we speak and that the Ethereum merge to proof-of-stake is months, not years, away.
The carbon footprint of crypto, a very small part of which is represented by NFTs, has to be assessed within the larger context of global emissions. Video games in the U.S. alone, according to a pre-pandemic 2019 study at UC Berkeley, had a carbon footprint of 24 megatons – substantially more than the global estimates for Ethereum, which fall somewhere between 16 and 20 megatons. Even the most wildly inflated, indefensible estimates of crypto’s global carbon footprint (about 127 megatons) are dwarfed by sector after sector of the global economy.
In this image, crypto mining would represent a space about a quarter the size of “rice cultivation.” SUVs alone produce in excess of 700 megatons of C02 annually. Air travel: 915 megatons. As Michel Rauchs of the Cambridge Center for Alternative Finance recently pointed out at CNBC, bitcoin mining uses too much electricity, for sure, but also “the amount of energy wasted on idle home devices like phone chargers and microwaves in the U.S. could power the bitcoin network for two years.”
Is PoW mining inefficient? Yes. Proof-of-work is an inefficient flea in roomful of elephants.
But in the end, it makes sense for miners to use any electricity at all only if we believe that large, distributed public blockchains are a worthwhile use of energy. And guess what? Yes, they are, because they will create, and have already begun to create, colossal energy savings.
New efficiencies are already here, in everything from creating markets in residential rooftop solar, in simplifying bills of lading, in keeping track of vaccine cold chains, in bond issuance and in protecting against counterfeit drugs (In Hong Kong, patients and pharmacists can use a phone app to scan the Gardasil package and get the full history of its movement from the point of import into the distribution chain for the market.) There are thousands of initiatives taking advantage of these new markets, too many to begin to count.
Blockchain technology will continue to snowball no matter how much Charlie Munger cries. It’s a tool we need to get past fossil fuels, not an impediment.
A note on NFTs as collectibles. It’s hard to understand why people who have no problem understanding fantasy football or the desirability of signed first editions or baseball cards go into total fits at the thought of NFTs.
An NFT is the imperishable receipt of a connection between you and the artifact it represents. Like I have a vintage Japanese tissue case full of ticket stubs to rock shows from the '70s and '80s. They are old bits of torn colored paper and have no intrinsic value other than to prove I saw Todd Rundgren at the Roxy.
That’s all an NFT is: the permanent record of an origin, a connection. And whether you list or buy or hold them or don’t won’t affect the environment at all, because your decision will not alter Ethereum’s current energy footprint one bit. If all the NFTs in the whole world were to blow up right now, that would represent only a small fraction of the Ethereum network’s activities, and the miners will continue to mine at the same energy cost.
So go ahead and list your "Downfall" meme, I hope you make a gazillion dollars. You won’t be hurting anyone.
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