From Pariah to Partner: Crypto's Climate Answers

There are signs that policymakers are beginning to recognize crypto's potential for balancing the grid and reducing greenhouse gas impacts.

AccessTimeIconMar 18, 2022 at 4:49 p.m. UTC
Updated May 11, 2023 at 4:57 p.m. UTC
Layer 2
10 Years of Decentralizing the Future
May 29-31, 2024 - Austin, TexasThe biggest and most established global event for everything crypto, blockchain and Web3.Register Now

A tiny seed of awareness seems to be taking root among policymakers and the public at large, a realization that cryptocurrencies might not be the environmental death knell their critics harp on about.

This week saw the narrow failure of a move to ban energy-intensive proof-of-work mining in the European Parliament (EP). That came after last week’s executive order from President Biden on blockchain and cryptocurrencies technologies, which, among other edicts, called for U.S. agencies to produce a report on “the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad” and on “the impacts [they] have on the environment.”

You’re reading Money Reimagined, a weekly look at the technological, economic and social events and trends that are redefining our relationship with money and transforming the global financial system. Subscribe to get the full newsletter here.

These two political developments reflect core foundational shifts in thinking that could pave the way for the crypto community to take an important place in global efforts to curb climate change.

Firstly, there’s an emerging recognition that, whether people like them or not, these new, essentially unstoppable systems are not going away. Many EP members who’d considered supporting the so-called “Bitcoin ban” likely didn’t, not because of some great appreciation for cryptocurrencies but because they recognized it was futile. They understood that, if prohibited from operating in the European Union, miners would simply move to other regions with far dirtier fuel sources than those of the EU.

Beyond that begrudging acceptance, there are also signs of a wider, more positive interest in crypto’s potential to drive climate positive outcomes.

Biden’s EO called for a report analyzing “potential uses of blockchain that could support monitoring or mitigating technologies to climate impacts,” and the “implications for energy policy, including as it relates to grid management and reliability, energy efficiency incentives and standards, and sources of energy supply.”

As I’ve discussed previously, I believe energy policymakers should start to treat bitcoin miners as partners, not enemies. With calibrated tax and subsidy models, private-public pacts geared toward infrastructure development, and compensation contracts that commit miners to power down their machines during peak demand, mining capacity expansion projects can help communities fund and develop smart, renewables-based electricity grids. It’s heartening to see the highest office in the land alluding to such ideas, even if obliquely.

A more sophisticated conversation

I was also struck by the quality of the conversation around blockchain’s potential contribution to environment, social and governance (ESG) sustainability objectives during the South by Southwest (SXSW) festival in Austin these past few days. (A few CoinDeskers were there to participate and cover the conference and satellite events and to scope out the setting for our Consensus festival in the same city June 9-12, which will also include an ESG sub-conference.)

Presentations at Protocol Labs’ Sustainable Blockchain Summit delved into the increasingly sophisticated blockchain mechanisms for tackling climate change challenges. One SXSW official panel addressed “decarbonizing blockchain” and another looked at the “intersection of NFTs, block chain, DAO, DeFi with art, media, games, digital properties, brands, and how social movements, environmental impact, and nonprofits can capitalize on the trend for social good.”

These were not utopian “blockchain fixes everything” discussions, but serious conversations about the potential and challenges associated with this technology in use cases such as supply-chain carbon emission tracing and certifying and trading renewable energy. Alan Ransil, lead researcher for Filecoin Green at Protocol Labs, argued that these kinds of real-time solutions, with “programmable money,” offer an urgent upgrade to the existing “fiat system’s” laboriously slow measurement and response mechanisms. The world can’t afford to work off 1-year-old carbon audits, with information that’s too little too late.

Some speakers at the Protocol Labs’ event highlighted Toucan Protocol’s moves to bring carbon credits on-chain in the form of tradable tokens. But they also discussed the need to get beyond that voluntary market, which as my colleague Daniel Kuhn pointed out last November, does not actively halt CO2 emissions. There’s a need for real net-reduction strategies.

One of many interesting examples of the latter is found in GainForest, which was present at SXSW. That project, which won the Hack4Climate hackathon at the United Nations COP23 conference in Bonn, Germany, in November 2017, is working with indigenous communities in rain forest areas. It uses smart contracts to forge proactive incentive systems that tie the distribution of grant money to reforestation objectives.

In parallel to their efforts to achieve climate objectives, such projects are now also taking high-profile steps to mitigate what might be called blockchain technology’s environmental Achilles' heel: its own carbon footprint. GainForest recently moved from Ethereum, which relies on energy-intensive proof-of-work consensus, to Solana, which is based on a less computationally heavy proof-of-stake algorithm. And Metagood, an NFTs-for-good platform that raises money for causes such as the preservation of coral reefs in the Bahamas, uses cutting-edge processes to mint thousands of NFTs within a single transaction, reducing the computational load and the Ethereum gas fees for charities.

For more on the various efforts to reduce blockchain technology’s environmental externalities, read Ian Allison’s review of some of the leading ideas.

If blockchain developers can give the public fewer reasons to complain about their environmental impact, they can start to make the case for open, trustless, incentive-driven systems that tackle the global “Tragedy of the Commons” problem.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.

Michael J. Casey

Michael J. Casey is CoinDesk's Chief Content Officer.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.