NFTsSince the beginning, they have been polarizing.
These JPEG files were crypto-backed and a lot of questions arose about their potential uses and what they might mean for the future digital art.
The most pressing and important question was about non-fungible tokens relative energy consumption. Bitcoin (BTC), as well as other cryptocurrencies, has long been known to consume large amounts of energy. Most of that energy comes from cheap fossilfuels. How does NFTs fit into this existing framework and what are the responsibilities of artists who wish to contribute their work to the blockchain?
This article is part CoinDesks Mining Week series.
Kyle McDonald is an independent researcher looking for answers to these questions. Inspirational online challengeCantankerous bitcoin advocate [and CoinDesk columnist]Nic Carter, McDonald’s founder, created a dashboard that allows you to calculate the percentage of Ethereum transactions attributed to NFTs. He released the dashboard in late 2017. ShareAnother dashboard, this one looking at the emissions for the entire Ethereum network.
His work is informed and informed by the lessons learned from the NFT backlash. Even if we are vaguely aware that crypto is bad for our environment, it is important that we have hard, current data to back this up.
Memo Akten, an artist, was an assistant professor at the University of California at San Diego. He devised his own method for calculating the carbon cost of one NFT transaction on Ethereum blockchain. He made it viral on social media and removed them soon afterwards. He cited their role in harassing and directing abuse towards artists using NFTs. McDonald points out that his work may have been flawed and over-indexed those emissions. Another viral anti-crypto postThe ecological cost of NFTs was called a crime against humanity from last spring, but most cited studies that were woefully outdated.
Blockchains are essentially huge public lists of transactions. Each transaction is added to the ledger by a network computer running special software. This verification process is what makes blockchain networks decentralized. There is no central actor (such as a bank) that approves every transaction and ensures it is safe.
It can also occur in one of several ways. These processes are known collectively as consensus mechanisms. They are the way that computers in a network reach agreement about which transactions are legal.
The proof-of work consensus mechanism is the oldest. It is structured like a race between all the computers on the network. The first to solve a difficult math problem and crunch enough numbers gets a reward of a certain amount. It is the most popular consensus mechanism and uses the most energy. This is how Bitcoin, Ethereum and Monero work.
Proof-of works is a big rival to proof-of.stake, a consensus mechanism that selects computers for transactions based on the amount of cryptocurrency they hold and not the computing power used to solve one of those math problems. It uses significantly less electricity that proof-of-work.
Scientists and data scientists agree that there is already a reliable resource for quantifying energy consumption for the bitcoin network. It is the Centre for Alternative Finance at Cambridge University. Even though Cambridges numbers are essentially guesses at its low estimates for energy use, they are only 1/10th as accurate as the high estimates. However, the analysis is more thorough than any comparable metrics for Ethereum. Alex de Vries (blogger and researcher behind Digiconomist) is the most frequently cited dashboard for Ethereum.
McDonald’s is not just about the hyperbole. They are actually focusing on the numbers. They include data about chip performance as well as energy mixes for international power grids.
McDonald’s recently spoke with CoinDesk about how he created his Ethereum energy dashboards and what he thinks about artists trying to enter the complicated crypto space.
The following Q&A have been edited and condensed.
How did your dashboards grow out of the debate about NFTs and carbon emission?
Nic asked me to make the NFT activity one of the first. [Carters] bounty. Nic’s bounty was born out of a lot discussion about art NFT emissions. Memo Akten released his own. crypto.wtfNFT emissions calculator. People started using it to not only check their own emissions, but also to shame other artists about their emissions. There are some issues with Memo’s calculator. He had a bug in there that pooled the entire emissions of the Foundation smart contract. If you only put one artwork into it, it would pull the whole platform. [Foundation is a popular NFT marketplace it launched on Ethereum, switched to a low-emissions layer 2, or companion, system called xDai in late 2020 and then eventually switched back to Ethereum.] It just made it look like anybody who put in from that platform had a ton of emissions that was super-disproportionate to anybody else. He eventually took it down because he felt that his main point was being made.
Nic posted this bounty around that time and I believe even before he took the bounty down. Nic said, “I don’t think NFTs are a majority of the activity on Ethereum. Maybe it’s misplaced for artists to be blaming Ethereum for the emissions of Ethereum. It’s not even what Ethereums do.” This was true. It has been less than 20% of Ethereum activity with a few short spikes. However, I believe he was also asking about his second question. How do we assign responsibility for emissions within the network where emissions don’t change depending on how many people use it? The third question was, “Are these emissions numbers that were used in the first place?”
In carbon accounting, there is a paradigm that if you can’t find a direct relationship like a marginal increase in emissions due to your use of a particular service, then you can compute emissions by looking at the price you pay for that same service versus what that service is making from everyone. This is a value-based accounting approach to carbon accounting. It’s what I have been using when thinking about NFTs.
It comes down transaction fees. Transaction fees should be used as a marker of their emissions responsibility. Instead of counting the transactions, I look at fees to estimate the NFT share of Ethereum network emissions. The last few months have seen it hover between 15% and 20%. It was also between 15% and 20% towards the end last year, with a little lull in the new year.
What about the overall emissions dashboard.
Because of the first NFT debate, with Memos stuff, there was Sterling Crispin and other artists pushing back. They said, “All this stuff is based upon the work of Alex de Vries Digiconomist. Who even trusts his stuff?” Is this really science? Alex has done some great work on this subject, but he is also loud and opinionated. He has also, I believe, misdirected some people. He talks about per-transaction emissions. It gives you an understanding of scale, which I can understand. It also misleads people, making them believe that every transaction has an marginal. [cost in]Energy or emissions. These kinds of things have gotten him a lot retort from the crypto community.
I was struck by that thought and realized that we need to find a trustworthy source to facilitate this discussion. I wonder where we will find that.
I need to know the PUE of the data center overhead. [power usage effectiveness]? What is the grid loss in different locations where Ethereum is running? What is the hashing efficiency across all GPUs? [graphics processing units], or the PSU [power supply unit] efficiencies? I tried my best to answer each question and then put them all together like a puzzle. I looked at tons of GPU benchmarks and tried to understand how hashing efficiency changed with the different GPUs.
How do you even begin to figure that out? How many data farms and mining centres actually report what equipment is being used and from what sources their power grids are getting energy?
There are a few good tips here. When you realize that China is home to 30% to 40% of all the mining, you can then look at China and ask, “What do we know about China?” We know that miners are moving to Xinjiang, Northwest China, from Sichuan in South China. They also travel back and forth during the wet season. They can then take advantage of hydropower. You can then find basically Chinese government documents, as well as estimates of the energy mix by companies interested in getting high prices for their electricity. This proxy will allow you to understand the energy mix of the miners. There is always the possibility that some of the mining in a particular region is off-grid and that it’s using electricity from sources that are not connected. But I haven’t seen any evidence for Ethereum that this is a major issue. It’s more likely that Bitcoin has a lot of off grid mining. There’s a small percentage of bitcoin that is mined with flared gas. This gas is not connected to any grid in Texas.
The question about the GPU mixture is actually a bit more direct. Two services were available that I found helpful. Nanopool publishes your worker IDs publicly when you register your workers. You can log in to your Ethereum farm and name your workers 3070-row 1-column 3 or something. Then I can look at their mining activity using 3070 GPUs. I can also see your hashrate on that collection of GPUs, and then do that for a lot of GPUs. I can then use that to extrapolate the ones I don’t know.
Then I can cross-check it with another resource. [HiveOS]. It is a tool used by people on large farms to keep track of the GPUs running.
There have been many arguments, mostly from companies within the industry, that mining bitcoin with flared natural gas is actually good for our environment. This is because it traps extra gas that would otherwise be burned at local refineries. It is a process that takes advantage of existing gas businesses. What’s your take?
There are two main points that come up. They are the pro-energy argument for proof of work, which is basically what it is. [that it uses up]Flammable gas and stranded sources of energy, and proof-of work as a controllable load resource. This is something that is constantly meeting the base load of demand and can be turned off to provide additional capacity.
It’s difficult because bitcoin is actually reducing emissions by flared gas mining. It’s actually reducing a small amount of emissions compared to the incentivizing of large amounts of emissions. It’s not a convincing argument, I think. Flared gas mining also has a problem in that it’s occurring in many of the locations where it is happening right now. [local governments are]It might be worth telling oil well operators that they should stop flaring oil, just make sure it is bottled up and sold.
It turns out that the main reason they don’t do this is because it’s too costly. However, if the government allows people to do things that are slightly less expensive, it doesn’t necessarily end their entire operation. It can be a net advantage for everyone.
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I also have to admit that bitcoin is a manageable load resource [CLR]. Yes, it has added capacity to the West Texas grid during winter when they turned it off. But, I still don’t believe it’s the best approach. I think that many of these pro bitcoin arguments are correct. However, there are some positive aspects to bitcoin. I don’t know if this is the best way.
Car batteries for electric vehicles are now possible because bitcoin is a CLR. [EVs]I believe there’s a lot more potential to recharge EVs at the right times of day and in a way that takes advantage more renewables. I believe EVs are more powerful than bitcoin to provide some backup capacity.
I understand that bitcoiners want bitcoin to be something that is useful every day, but it’s hard for me accept that argument when proof-of stake coins seem to operate in a similar manner to proof-of work coins.
Is there a certain cynicism that goes along with the idea that governments shouldn’t be involved in this stuff?
The crypto project, in general, is about being free of regulation and oversight. That is something I can appreciate, and I also understand the feeling of not wanting to be regulated. However, the extreme vision of this leads to a world where everyone is responsible to everybody and we don’t really listen to each other about our future or how we want it to be. It’s just a matter of surrendering to market forces. And I’m not content with that. I believe the only future that is possible is one that we all create together.
We are in the middle of climate changes right now and there is no room for experimentation at this point. We know what we have to do and how massively it must be reduced. [in emissions]. And proof-of work is not helping here right now. There is a way to get rid proof-of-work. It’s not by banning mining. People will simply move to areas where it’s allowed. However, the best way to get rid proof-ofwork is to ban crypto-exchanges that trade proofwork coins and not allow them to exchange between proof-ofwork and fiat coins. If you’re not allowed hold them and are not allowed trading them at the exchange, it will seriously impact the volume and market value of proof-of-work coin.
Would you be willing to advocate for this?
I would support government-imposed restrictions on the trading of proof-of-work coins on exchanges. I’m not sure if I would advocate for restrictions. HoldingProof-of-work coins are important because I believe that the level of surveillance that is required to make this happen is far more than what we currently have. Regulations that are not possible to implement are not something I am interested in.
I think that a lot bitcoiners, Nic Carter being one of them, see proof of-work as the real innovation and proof-of stake as essentially traditional, centralized computing with an crypto sheen. To ban proof-ofwork is to ban all things worthwhile about the project. How do you balance this with the preservation of the environment?
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He doesn’t consider it a thing to balance, because he sees proof-of work as a good and a CLR. This is incentivizing renewables, which he claims is a strange way to be true. It’s not what I want to see incentivizing Renewables. If you really think about it, I don’t know if it’s about the environmental issue at root level. However, you can make some environmental arguments to support proof-of-work.
Is it tied up to a wider culture war around cryptography?
It’s about the conflict between whether we should be able to all figure this out independently, using market forces, or whether we need to work together, interdependent rather than independent. Yes, I have a perspective. Many bitcoiners feel the exact opposite.
My side is currently losing the battle. I don’t know if that will change. But we’ll watch. Canada has placed restrictions on how much proof of work mining can take place there, while Kazakhstan has restrictions on how much proof of work mining can take place there. As we see more restrictions, we will need to ask ourselves: How much do we really want this to happen?
Based on what I know, [crypto]It is the acceleration all of the deregulation. It’s an acceleration that capital always wins.
Artists have what responsibility to reduce their own emissions by using NFTs.
This idea of personal accountability in the context of emission was co-opted in 2005. [advertising firm]Ogilvy was responsible for the BP carbon footprint campaign. This huge oil company knew they were in trouble. People would soon start to realize that climate change was their fault. They decided to say, “OK, well, let’s just look at ourselves.” It could be your problem. This idea of personal carbon footprint was created as an ad campaign. It wasn’t something scientists or economists thought up.
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This ad campaign was so successful, that we still believe that personal responsibility is the most important thing. Culturally, we have lost the ability to hold large polluters and those in power accountable. My personal opinion about artists’ personal responsibility is that you must follow your conscience. There are many things you can do individually to make a difference. It’s not a problem if you allow it to distract from your responsibility for holding power accountable.
I don’t want to concentrate on individual artists working with proof of work. I want to be more focused on the marketplaces, exchanges, and places such as the Ethereum Foundation. [have]You will need to be able to tell whether proof of work was used, and plan around it to allocate resources.
Every dollar that is taken away from proof-of-work support is well spent.
Another problem with decentralized systems, is that it can be difficult to identify who should be held accountable.
Theoretically, yes. But in practice, Infura still exists [the Ethereum APIs developed by the software giant ConsenSys]. There is still the Ethereum Foundation. There are still centralized points, where individuals and organizations keep things running. Web 3 people have not yet achieved the goal of a truly decentralized website. You still have servers and you still have organizations providing API endpoints.
Because so much of the data can be seen, there is an opportunity for accountability in crypto.
It is easy to understand, which is why this topic is so popular. You can only see the ESG of Google and Facebook. [environment, social, governance]Sustainability reports and reports. Then you look through it and realize that although this is theoretically from a third-party, Google hired them to create this. They probably want to make it look great. You have the U.S. Military, which is a completely inaccessible thing. It is intangible. There is no blockchain that can be used for the military to determine how many emissions are.
We must keep the pressure on this issue because it is new and accounts for around one percent of all global emissions. We shouldn’t let this distract us from the bigger issues, such as electricity and transportation.
Further reading from CoinDesks Mining Week
CoinDesks Mining Week
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Don’t Call it a Comeback: The Unexpected Rise of Home Bitcoin Mining
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Are Belarus’ Crypto Miners at Risk in the Russia-Ukraine War, Sanctions and Other Measures?
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