The Hidden Cost of Cryptocurrency and NFTs

Companies with significant ESG commitments to shareholders will not be able to hold investments in cryptocurrencies or NFTs and still meet their
sustainability goals; public companies with these technologies in their portfolios will be responsible for the emissions created by their investments.

Blockchain has become the go-to technology solution for enabling traceability
throughout circuitous product supply chains — most notably in
food
and
textiles.
But in the finance world, blockchain has become inextricably linked to the rise
in popularity of cryptocurrency and non-fungible
tokens
(NFTs).

While blockchain has proven its value as an emerging solution for certain
applications, there is more to consider about the tech’s implications —
specifically, as we think about the role future iterations of blockchain have on
carbon-reduction goals for a rapidly changing climate.

That’s not to say that these technologies will never be carbon neutral; but in
their current iterations, market leaders such as Bitcoin and Ethereum
are not sustainable. New currencies and NFT development processes claim to be
‘greener’ because they don’t rely on the same “Proof of
Work”
system that involves
huge amounts of calculations (and thus, processing power) to produce a single
token. Cryptocurrencies that instead use a “Proof of Storage” or “Proof of
Stake”

system use far less energy, as do currencies using a technology called block
lattice

— which doesn’t require
mining.
Similar processes are being applied to the NFT market in an attempt to reach
carbon neutrality. At this point, however, it’s hard to tell if these
technologies, were they to scale, would be any better — or even worse for the
environment.

Therefore, everyone — from the everyday individual to the global corporation —
should welcome the continued evolution of these types of energy-consuming
technologies

and how they’re created; since, as of now, most cryptocurrencies and NFTs are
produced by methods that are completely at odds with efforts to mitigate climate
change, which affects every living thing on the planet.

These technologies require massive computing power to generate, resulting in an
outsized and irresponsible carbon footprint. In fact, the process is purposely
designed to be highly energy inefficient, to make it harder to tamper with a
file’s legitimacy. Bitcoin alone uses as much electricity as an entire
country
.
The same goes for NFTs, the security and value of which hinge on
energy-intensive processes — a single transaction can use as much electricity as
the average household uses over
decades
.

Every cryptocoin mined uses more energy than all those mined before — and about
21 million Bitcoins have been mined so far. After it’s mined, cryptocurrency
continues to generate a vast network of computer connections with every
transaction. Bitcoin and Ethereum activity combined
consume as much
electrical energy as an entire nation — nearly 290 TWh per year.

2023 could be the tipping point for these technologies as new federal rules
around carbon accounting are slated to take effect next year. An SEC
proposal

seeks to improve transparency among funds that purport to take Environmental,
Social and Governance (ESG) factors into consideration when making investing
decisions. This new reporting regulation will require any publicly traded
company to disclose their full carbon footprint and enforce carbon-offset fines
on those that greenwash their
progress
.

Companies that have significant ESG commitments to shareholders will not be able
to hold investments in cryptocurrencies or NFTs and still meet their
sustainability goals. Corporations that continue to embrace NFTs and
cryptocurrency will face expensive carbon-offset costs and negative brand
perception. And once every publicly traded/reputable company pulls out of crypto
and unloads their NFTs to meet their ESG goals, there will be nothing left to
prop up these markets.

Sustainability experts might see this on the horizon; but ideally, individuals
and corporations will also have the foresight to not continue throwing
additional money into these notoriously energy-intensive technologies until they
can truly be sustainable. Cryptocurrency and NFTs use mind-boggling amounts of
computer energy and create substantial greenhouse gas emissions, outweighing any
current perceived value. Public companies with these technologies in their
portfolios will be responsible for emissions created by their investments. The
new federal reporting regulations might mark a fork in the road for these
digital currency trends.

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