Cryptocurrencies use an eye-watering amount of energy. Ethereum, the world’s second-largest cryptocurrency, uses an estimated 78 terawatt hours of electricity each year, comparable to the power consumption of Chile. Ethereum has announced plans to rid itself of the energy-intensive code that has long muddied crypto’s environmental image, and cut 99 percent of its energy use in the process. Some cryptocurrency commentators suggest that the “merge,” as the makeover has been coined, represents one of the most important events in the history of crypto. Even those uninterested in pixelated cat NFTs and metaverse meetups, most of which depend on Ethereum, will find comfort knowing the carbon equivalent of Hong Kong’s annual emissions will be erased overnight.

Specifically, the merge will result in Ethereum shifting its security mechanism away from what is known as a proof-of-work method towards so-called proof of stake.

Proof of work v. proof of stake

Cryptocurrencies are not governed by banks. For networks using the proof-of-work method, the job of validating transactions is performed by a global network of specialist machines, known as miners. These machines repeatedly guess a random code with the winner receiving transaction fees as well as some newly minted cryptocurrency. Crypto mining works like an ever-expanding game of hungry hippos. The more players that join the mining competition, the harder it becomes for any single player to win anything. These machines consume vast amounts of energy. A single Ethereum transaction is responsible for the same amount of energy used by the average U.S. household in a week.

The proof-of-stake process reduces the need for energy-intensive processing equipment to validate transactions. Cryptocurrency owners instead offer their own coins as a security deposit for the chance to become validators. Ethereum requires users to stake a minimum of 32 Ether tokens. Rather than competing, validators are selected to mine. Do the job well, and the validator is rewarded with even more crypto. But if they validate fraudulent transactions or otherwise defy network rules, they lose their stake. This disincentive is called “slashing.” Proof-of-stake networks are typically assembled around 20 machines, using a comparatively small amount of energy. While being more efficient, proof of stake also reduces network congestion while being cheaper for users.

Advocates for proof of work argue that proof of stake is an unproven alternative. Many fear that the merge might consolidate control of the network in the hands of wealthy investors while weakening its security. However, several networks, including Cardano and TRON, already use a proof-of-stake method. To uphold security, crypto owners in these networks vote for the most qualified validators. 

As it is written into the project’s “development roadmap,” Ethereum’s journey to proof of stake has always been likely. Ethereum’s developers have consistently repeated claims of an imminent shift. But progress has been slow, leading many to believe the merge might never happen.

Resisting the change

Proof-of-work mining has up to now proved very profitable. However, the global energy crisis and crumbling crypto markets have made it far less lucrative than previously. The energy crisis is also prompting regulators to act on energy-intensive industries. This is particularly true in Europe where the transition away from Russian energy dependence is biting hardest. While a proposal to ban proof-of-work mining failed to win EU approval earlier this year, an imminent crackdown looks inevitable

Yet, despite the regulatory risk, the movement to keep Ethereum’s proof-of-work mechanism alive is gathering momentum. Several prominent crypto traders have repeated their support for proof-of-work mechanisms. Alternative versions, called “forks.” that ignore the software update are therefore highly likely. These forks will replicate the existing network, allowing subsets of the community to continue mining

Many exchanges broadly support Ethereum’s proof-of-stake chain. Opensea, the largest marketplace for collectable crypto assets, says it will not list any other kind of Ethereum digital artwork. However, the market is far from conclusive in its support. Large exchanges, such as FTX and Coinbase, have confirmed that they will allow users to trade forked Ethereum tokens. While soaring energy bills could discourage the mining of an unpopular Ethereum fork, miners, in this case, may migrate towards more established proof-of-work networks. This would reduce Ethereum’s carbon footprint, but redistribute crypto’s carbon headache around the network.

What does this mean for Bitcoin?

Responsible for an estimated 70 million tons of CO₂ a year, Bitcoin remains the dirty elephant in the room. Mining the number one cryptocurrency has become so competitive that the cost of entry can be up to $1.8 million. Bitcoin mining is done by commercial mining companies that have to invest heavily in specialist hardware. Bitcoin miners, therefore, tend to be protective of their investments and resist changes to the status quo. For cryptocurrency networks that cannot clean up their act, a global regulatory crackdown on proof-of-work mining is required. Miners are otherwise free to migrate to other chains, or operate from countries with weak environmental regulations, rather than adopt more sustainable practices.

During an energy crisis and climate emergency, Ethereum’s switch to a more efficient technology is good news. If it proves successful, regulators will probably see no reason why Bitcoin and other wasteful cryptocurrencies should not follow suit.

Peter Howson is an Assistant Professor in International Development at Northumbria University in Newcastle. (This article was initially published by The Conversation.)

How much would you be willing to pay for a one-of-a-kind work of art? For some collectors, the limit lies somewhere in the region of hundreds of millions of dollars. What about a work of art that has no tangible form, and exists only as a digital token that’s no more “real” than a JPEG file? Welcome to the strange world of crypto art collectibles, also known as NFTs. Like Bitcoin, NFTs (non-fungible tokens) are cryptocurrencies. But whereas individual bitcoins all have the same value, NFTs are more like baseball cards. Each token has a different value and they can’t be used to buy things. They exist on your computer as digital representations of artworks, songs, films and games, among other things.

NFTs have been around since 2017, when the first mainstream experiment in crypto-collectibles emerged: CryptoKitties. The average price for one of these cat cards was about $60 back then. But that is chicken feed compared to current takings. A compilation of digital images recently sold at auction for $69.3 millionCryptoPunk 7804 (a crudely drawn alien with a pipe) sold for $7.5 million. A house “on Mars” was purchased for upwards of $500,000 – that is a digital house, not one that you might live in. And Twitter CEO, Jack Dorsey, recently sold his first ever tweet as an NFT for just under $3 million.

But how can someone buy a tweet?, you may ask. After all, anyone is free to click on, look at, print out and frame the tweet as many times as they like. This example gets to the heart of NFT ownership: When you buy an NFT, you are buying a unique certificate of ownership, which is locked away on an immutable distributed database known as a blockchain. The creator of the artwork generally retains the copyright and thus, in most cases, you generally own little more than bragging rights. Creators are also likely to pass the costs for creating your NFT files (or “minting” them) on to you (roughly $100). 

And most of the time, you will be responsible for something else, as well: an enormous carbon footprint.

Counting the carbon cost of NFTs

Because they depend on a blockchain, NFTs use a lot of energy. Most creators still use Ethereum, a blockchain secured using a similar proof-of-work system to Bitcoin. This involves an energy-intensive computer function called mining. Specialist mining computers take turns guessing the combination to a digital lock (a long string of random digits). The computer that correctly guesses the combination wins a reward paid in a cryptocurrency called Ether. The digital lock resets roughly every 15 seconds, and the competition continues. Ethereum uses about 31 terawatt-hours of electricity a year, about as much as the whole of Nigeria.

It is very difficult to calculate exactly how much responsibility the NFT industry should take for Ethereum’s carbon emissions. Ethereum was going to run with or without NFTs. But with the growing demand for digital art, NFT buyers and sellers are becoming liable for an increasing share of Ethereum’s total energy use, and some artists are starting to think twice. 

The French digital artist, Joanie Lemercier, for instance, recently cancelled the sale of six works after calculating the associated energy costs. In a matter of ten seconds, the sale would use enough electricity to power the artist’s entire studio for two years. Meanwhile, ArtStation, a site for digital artists to showcase their portfolios, recently developed an NFT marketplace. But within hours of telling the world about the planned launch, widespread condemnation on social media forced ArtStation to scrap the project.

Alternative technologies exist that enable NFT markets without the carbon headache. Sidechains use negligible amounts of energy to process NFTs because these transactions occur on a more centralized platform where costs (and carbon footprints) are much lower. Damien Hirst is due to release a collection of NFTs called The Currency Project using the Palm sidechain. Hirst will still be accepting payment in Bitcoin though, so his NFTs could still come with hefty carbon baggage.

Taking artistic license with climate solutions

NFT enthusiasts argue that the increasing popularity of blockchain technology, with its voracious appetite for energy, provides incentives for upgrading energy grids from fossil fuels to renewable sources. Similar arguments have been made by the airline industry: in order to fund the efficiency innovations that could make aviation greener, people should fly more, not less. For NFTs, evidence shows this approach is unlikely to work. Due to the competitive nature of proof-of-work mining, booming NFT markets are encouraging the construction of reliable coal-fired power stations, so that crypto miners don’t have to suffer intermittent access to renewable generation.

Some NFT creators are trying to have their crypto-cake and eat it by using carbon offsets. Buying offsets funds conservation work, with each carbon credit purchased equivalent to one ton of carbon saved, which is either stored in a tree or theoretically prevented from escaping into the atmosphere through some sort of industrial innovation. The Offsetra company provides an emissions calculator and sells carbon credits to offset emissions caused by NFT transactions. The NFT marketplace Nifty Gateway recently auctioned eight carbon net-negative NFTs “inspired by Earth and the climate crisis.” The artworks received 60 carbon credits. Each offset was itself an NFT.

NFT carbon credits (or any carbon credits for that matter) depend on clever accounting and a belief that carbon, like NFTs on a blockchain, can be immutably locked away in trees forever. It cannotNifty’s website explains that offsets make sense for neutralizing our unavoidable emissions, “after we have done all attainable actions” to reduce our carbon footprint. But does acquiring bragging rights to a digital image that anyone with an internet connection can enjoy constitute an unavoidable part of one’s carbon footprint?

Peter Howson is a Lecturer in International Development at Northumbria University in Newcastle. (This article was initially published by The Conversation).