The World Wildlife Fund Launched its NFTs Then Had to Retreat Quickly - Environmental Lessons for UNICEF? : The Verge / Tom McDermott
The financial world is now ablaze with hype around new financial instruments using crypto-currencies and NFTs as means of buying, selling and securing transactions outside the reach of governments. With UNICEF already partnering with global crypto-currency companies, supporting crypto-currency startup projects in several countries, and now auctioning off 1,000 NFTs as a means of raising funds, it is worth asking a few questions about the enviromental impacts these investments have on the world.
It seems useful to look at the recent experience of the NFT launch by the World Wildlife Fund. WWF came under heavy fire recently for the environmental impacts connected with sales of its own NFTs, and ultimately was forced to drop their launch.
What struck me most, however, was reading that the Ethereum blockchain by which most crypto-currencies and NFTs are secured, has a carbon footprint equivalent to the entire nation of Singapore.
Note that Ethereum is a UNICEF partner and provided the first funds allowing UNICEF to launch its cryptocurrency fund in 2019. This contribution allowed UNICEF to the first three 'startup' projects in programme countries. There are now 14 such projects funded by UNICEF's crypto-curency fund.
WWF tried to sidestep the problems posed by Ethereum's energy consumption by using a less energy consuming platform called Polygon. The article below, however, concludes that there really is little if any diffence in the carbon footprint, since in the end most transactions still depend on Ethereum.
Perhaps time for UNICEF to do its own environmental impact study?
Tom
Within a few days last week, the World Wildlife Fund hyped up and then quietly canceled plans to raise money for conservation efforts by minting its own NFTs. The UK chapter of WWF unleashed a firestorm on itself by releasing “Tokens for Nature depicting 13 endangered species. The tokens look like glass cubes encasing each animal: a giant panda, Javan rhino, and Galápagos penguin, to name a few. And they really pissed off other environmentalists.
“My initial response [to World Wildlife Fund’s NFTs] was they must be joking … They’re supposed to be all for sustainable innovations, and they’re getting involved with one of the least sustainable things on the planet,” says digital currency economist Alex de Vries, who has been outspoken about the risks some cryptocurrencies pose to the environment.
“They must be joking”
The World Wildlife Fund seemed to believe it had found a solution to the climate controversy swirling around NFTs by working with the Polygon, a so-called Layer 2 blockchain that’s tied to the Ethereum network. But while Polygon claims transactions on its blockchain use very little energy, de Vries told The Verge that Polygon is responsible for some of the pollution generated by the notoriously energy inefficient Ethereum and isn’t counting it. Factoring in its relationship with Ethereum, de Vries estimates that a single transaction on Polygon is a whopping 2,100 times higher what WWF estimated.
At the heart of the discrepancy is whether — and in what circumstances — Layer 2 blockchains reduce energy use. While most NFTs are part of the Ethereum blockchain, the way Ethereum verifies transactions is slow, expensive, and energy-intensive. As Ethereum gets more crowded, companies are looking for new ways to scale it up. You can think of a Layer 2 blockchain like Polygon as a sort of carpool lane added to the Ethereum highway.
Like a carpool lane, Layer 2 networks are supposed to be able to fast-track transactions. This ostensibly saves time, money, and — crucial for Polygon’s environmental claims — energy. In one blog post explaining its energy use, Polygon calls itself “the eco-friendly blockchain scaling Ethereum.” Because Ethereum uses an energy-hungry system to validate transactions, it has an annual carbon footprint comparable to Singapore, by de Vries’ estimate. Polygon says its own energy and environmental footprint is just a tiny fraction of that because it uses a different process for validating transactions.
Think of a Layer 2 blockchain like Polygon as a sort of carpool lane added to the Ethereum highway
But while passengers in the carpool lane might be individually responsible for fewer emissions than people driving alone on the rest of the highway, adding a new lane still makes room for more polluting cars on the highway. Likewise, Layer 2 solutions still work in tandem with their main blockchain, and when that blockchain is energy inefficient, that creates more pollution, according to de Vries.
And Ethereum is wildly inefficient when it comes to energy use. To validate transactions and mint new tokens, Ethereum “miners” race to solve ever-more-complex puzzles. All the computing required to solve those puzzles is what makes the blockchain’s energy use skyrocket. Bitcoin uses the same kind of process, called “proof of work.”
In contrast, many newer blockchains, including Polygon, use a process called “proof of stake” to validate transactions. Rather than solve complex puzzles, people need to lock up tokens they already have as collateral in order to be in the running to validate transactions and mint new tokens. No puzzles, no skyrocketing energy use. Experts critical of Ethereum’s and Bitcoin’s environmental impact have generally been much more optimistic about independent cryptocurrencies using proof of stake.
But since Polygon isn’t independent, its claims that it is an “eco-friendly blockchain” are fraught at best. De Vries points out that Polygon has contracts on the Ethereum network representing millions of transactions. Those contracts are necessary to move assets back and forth between Polygon and Ethereum and perform other critical functions for Polygon. De Vries takes those contracts, which are verified using proof of work, into account in an analysis of Polygon’s carbon footprint he published Friday on his blog. While WWF UK said in its NFT announcement that a single transaction on Polygon produces just 0.207 grams of CO2, De Vries calculated those same transactions produce close to 430 grams of CO2.
Ulrich Gallersdörfer, CEO of Crypto Carbon Ratings Institute, agrees that calculating the energy consumption of Polygon’s blockchain in isolation offers an incomplete picture. “While Layer 2 solutions can be seen as independent networks, they still rely on the security of the underlying Layer 1 network and therefore its electricity consumption and carbon footprint,” Gallersdörfer said in an email to The Verge.
Calculating the energy consumption of Polygon’s blockchain in isolation offers an incomplete picture
Another argument for moving transactions to Layer 2 networks is that energy savings can be achieved by bundling several transactions together — say, two people exchanging several NFTs. But ultimately, those bundles are brought back to Ethereum’s ledger as a single transaction recorded on Ethereum’s energy inefficient blockchain.
On a more basic level, Layer 2 solutions help polluting blockchains get bigger. Polygon allows users to store, spend, and trade Ethereum-compatible tokens more cheaply. As one of the more advanced Layer 2 solutions, it also connects other Ethereum-compatible blockchains and apps to each other and to the main chain. All those capabilities might persuade someone to stick with Ethereum and Polygon rather than turn to a truly independent blockchain that runs on proof of stake. Ethereum says it will transition to proof of stake, but that move has been delayed for so long that de Vries and others are skeptical it will ever happen.
WWF sang Polygon’s praises when its Germany and UK arms first decided to mint NFTs. “After extensive research and appropriate due diligence, we firmly believe that the benefits to our organisation and to our work brought about by entering the NFT space are worth the limited environmental impact of minting NFTs on Polygon,” WWF UK wrote on a now-defunct webpage breaking down how it calculated energy use and emissions from its NFTs. Polygon didn’t respond to multiple requests for comment from The Verge, and WWF UK declined to be interviewed.
On Friday, just a day after releasing “Tokens for Nature,” WWF UK decided to “bring this trial to a close.”
“We recognise that NFTs are a much debated issue and we all have lots to learn about this new market,” the environmental group said in a statement. WWF Germany’s “Non-Fungible Animals,” on the other hand, which launched in November, are still raising money for conservation, although the organization says this isn’t the ultimate goal. “For us it was never about the funds. It was about raising awareness regarding the species extinction,” a spokesperson for WWF Germany said in an email to The Verge.
How the World Wildlife Fund tried — and failed — to create an eco-friendly NFT
“My initial response [to World Wildlife Fund’s NFTs] was they must be joking … They’re supposed to be all for sustainable innovations, and they’re getting involved with one of the least sustainable things on the planet,” says digital currency economist Alex de Vries, who has been outspoken about the risks some cryptocurrencies pose to the environment.
“They must be joking”
The World Wildlife Fund seemed to believe it had found a solution to the climate controversy swirling around NFTs by working with the Polygon, a so-called Layer 2 blockchain that’s tied to the Ethereum network. But while Polygon claims transactions on its blockchain use very little energy, de Vries told The Verge that Polygon is responsible for some of the pollution generated by the notoriously energy inefficient Ethereum and isn’t counting it. Factoring in its relationship with Ethereum, de Vries estimates that a single transaction on Polygon is a whopping 2,100 times higher what WWF estimated.
At the heart of the discrepancy is whether — and in what circumstances — Layer 2 blockchains reduce energy use. While most NFTs are part of the Ethereum blockchain, the way Ethereum verifies transactions is slow, expensive, and energy-intensive. As Ethereum gets more crowded, companies are looking for new ways to scale it up. You can think of a Layer 2 blockchain like Polygon as a sort of carpool lane added to the Ethereum highway.
Like a carpool lane, Layer 2 networks are supposed to be able to fast-track transactions. This ostensibly saves time, money, and — crucial for Polygon’s environmental claims — energy. In one blog post explaining its energy use, Polygon calls itself “the eco-friendly blockchain scaling Ethereum.” Because Ethereum uses an energy-hungry system to validate transactions, it has an annual carbon footprint comparable to Singapore, by de Vries’ estimate. Polygon says its own energy and environmental footprint is just a tiny fraction of that because it uses a different process for validating transactions.
Think of a Layer 2 blockchain like Polygon as a sort of carpool lane added to the Ethereum highway
But while passengers in the carpool lane might be individually responsible for fewer emissions than people driving alone on the rest of the highway, adding a new lane still makes room for more polluting cars on the highway. Likewise, Layer 2 solutions still work in tandem with their main blockchain, and when that blockchain is energy inefficient, that creates more pollution, according to de Vries.
And Ethereum is wildly inefficient when it comes to energy use. To validate transactions and mint new tokens, Ethereum “miners” race to solve ever-more-complex puzzles. All the computing required to solve those puzzles is what makes the blockchain’s energy use skyrocket. Bitcoin uses the same kind of process, called “proof of work.”
In contrast, many newer blockchains, including Polygon, use a process called “proof of stake” to validate transactions. Rather than solve complex puzzles, people need to lock up tokens they already have as collateral in order to be in the running to validate transactions and mint new tokens. No puzzles, no skyrocketing energy use. Experts critical of Ethereum’s and Bitcoin’s environmental impact have generally been much more optimistic about independent cryptocurrencies using proof of stake.
But since Polygon isn’t independent, its claims that it is an “eco-friendly blockchain” are fraught at best. De Vries points out that Polygon has contracts on the Ethereum network representing millions of transactions. Those contracts are necessary to move assets back and forth between Polygon and Ethereum and perform other critical functions for Polygon. De Vries takes those contracts, which are verified using proof of work, into account in an analysis of Polygon’s carbon footprint he published Friday on his blog. While WWF UK said in its NFT announcement that a single transaction on Polygon produces just 0.207 grams of CO2, De Vries calculated those same transactions produce close to 430 grams of CO2.
Ulrich Gallersdörfer, CEO of Crypto Carbon Ratings Institute, agrees that calculating the energy consumption of Polygon’s blockchain in isolation offers an incomplete picture. “While Layer 2 solutions can be seen as independent networks, they still rely on the security of the underlying Layer 1 network and therefore its electricity consumption and carbon footprint,” Gallersdörfer said in an email to The Verge.
Calculating the energy consumption of Polygon’s blockchain in isolation offers an incomplete picture
Another argument for moving transactions to Layer 2 networks is that energy savings can be achieved by bundling several transactions together — say, two people exchanging several NFTs. But ultimately, those bundles are brought back to Ethereum’s ledger as a single transaction recorded on Ethereum’s energy inefficient blockchain.
On a more basic level, Layer 2 solutions help polluting blockchains get bigger. Polygon allows users to store, spend, and trade Ethereum-compatible tokens more cheaply. As one of the more advanced Layer 2 solutions, it also connects other Ethereum-compatible blockchains and apps to each other and to the main chain. All those capabilities might persuade someone to stick with Ethereum and Polygon rather than turn to a truly independent blockchain that runs on proof of stake. Ethereum says it will transition to proof of stake, but that move has been delayed for so long that de Vries and others are skeptical it will ever happen.
WWF sang Polygon’s praises when its Germany and UK arms first decided to mint NFTs. “After extensive research and appropriate due diligence, we firmly believe that the benefits to our organisation and to our work brought about by entering the NFT space are worth the limited environmental impact of minting NFTs on Polygon,” WWF UK wrote on a now-defunct webpage breaking down how it calculated energy use and emissions from its NFTs. Polygon didn’t respond to multiple requests for comment from The Verge, and WWF UK declined to be interviewed.
On Friday, just a day after releasing “Tokens for Nature,” WWF UK decided to “bring this trial to a close.”
“We recognise that NFTs are a much debated issue and we all have lots to learn about this new market,” the environmental group said in a statement. WWF Germany’s “Non-Fungible Animals,” on the other hand, which launched in November, are still raising money for conservation, although the organization says this isn’t the ultimate goal. “For us it was never about the funds. It was about raising awareness regarding the species extinction,” a spokesperson for WWF Germany said in an email to The Verge.
I have a colourful drawing from my four-year old grandson. Absolutely non-fungible. I will give it away for the bargain price of 1000 Euro. You don't need bitcoins to pay me, Dollar or Euro is fine.
ReplyDeleteInteresting review, but also difficult to understand. How can a cyber "product" require electricity? And are there actual Tokens (like for a bus or old telephone) and what does it mean that it has to be minted?
ReplyDeleteCrypto currencies depend on a network of thousands of 'miners' using energy intensive computers 24/7 to verify transactions. A single bitcoin transaction consumes 1,173 kw hrs of electricity, according to a report in the UK financial site Money Super Market. This transaction could be as simple as buying a coffee and paying with bitcoin. The report suggests that this amounts to $100 to $176 in energy - enough to power a US home for six weeks. See https://fortune.com/2021/10/26/bitcoin-electricity-consumption-carbon-footprin/
DeleteOn the second question, 'minting' is the final step in the process of creating a 'crypto coin' or in the case of an NFT, turning a digital file into an 'asset' for which you can prove ownership. 'Mining', 'minting', 'coins' etc are taken from their real world equivalents and applied to this weird new financial world - how I create something, prove that I own it, and sell it to someone else.
I see bitcoin as a highly speculative store of value - a digital gold - not suited to use for large volume transactions. Ethereum, with whom UNICEF Innovation Office has partnered, is different in that it is more an application platform that uses the crypto currency Ether. To process transactions Ether presently uses about 1/10 the electricity per transaction that Bitcoin uses. That's still a lot and definitely of ethical concern. The intense use of electricity is because presently both Bitcoin and Ether validate transactions with proof-of-work (the solving of complex mathematical problems). This year Ethereum plans to transition away from proof-of-work towards proof-of-stake where large holders of Ether (validators) stake a portion of their holdings to validate transactions. Ethereum says this will reduce the use of electricity by over 90%. We will see whether that transpires as planned. In short, I definitely think UNICEF should not touch Bitcoin, and is too out-in-front of developments in respect of Ether, and consequently ethically exposed ... but this picture may look different in a year's time.
ReplyDeleteTo Support Tom's concerns on this, the latest reports advise that:
ReplyDelete> crypto-currency (CC) energy use is growing fast and will continue to grow (source: https://ccaf.io/cbeci/index) because: "The amount of energy consumed by cryptocurrency mining is likely to increase over time, as user adoption of crypto increases and mining efficiency decreases. Cryptocurrency mining is a competitive process, and as crypto blockchains grow longer and the competition to win crypto rewards continues to increase, the required computational power continues to rise in tandem."
> current annual global use is greater than Argentina's (pop. 45.8 vs. Singapore' 5.5m)
> majority of current CC mining is in US and Kazakistan (53%), both heavily energy-dependent on fossil fuels
(all above source: 12/21: https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/)
Given newness of CCs, technical efforts to lessen carbon footprint may have some impact (but enough to counter the growing energy need from more complex mining volumes?) ... sounds suspiciously like the fossil industries efforts to greenwash their expansions with unproven-at-scale carbon capture/storage). Likewise, far more regulatory over-sight is needed to flush out the $$ launderers, hackers and other predators that CCs now encourage ... will this come fast enough to avoid another crash?
In response to Tiger's comment - yes, no doubt, the crypto industry will find ways to handle transactions using less electricity in the future, but this may still leave it far from a 'green' industry. Aside from the environmental impact my bigger worries however have to do with the potential of crypto currencies in circumventing government regulations and laws which protect children and society in teneral. Crypto has become the currency of choice for prostitution, child trafficking, drugs, porn, etc - a way of making transactions difficult to trace. I was glad to see that UNICEF noted concerns about unregulated use of crypto in its 'outlook 2022' report but I have trouble squaring the fact that on the one hand UNICEF's Innovation office partnera with Ethereum and other crypto giants to support to startup crypto projects in some of our key programme countries and now with raising funds via NFTs, while on the other hand noting the dangers that unregulated adoption of these developments may have on children.
ReplyDeleteBTW - Tiger is Tony Bloomberg ... when I did the post I didn't know it would use my Google moniker.
ReplyDeleteNo doubt there are serious ethical concerns regarding crypto - and UNICEF Innovation has moved ahead seemingly oblivious of such concerns. Younger people I talk to - at least in the west - are very skeptical that Government is necessarily always a benign influence including when it comes to use and supervision of fiat currency that also has a dark side. It seems when dealing with money of any kind one has to do some dancing with the devil. Probably the question boils down to whether UNICEF is going too far too soon in its experiments with crypto. At this stage, at the very least, UNICEF could put some minimal ethical constraints on its crypto initiatives eg. Suspend further acceptance of Ether until it upgrades to Ether2 that is expected to dramatically reduce its use of electricity; Not accept Bitcoin that uses about 10 times more electricity than Ether per transaction ... and has no plans to transit away from proof-of-work; Perform an annual ethical review of crypto applications to ensure no harm to children.
Well said, Tony!! (Yes, I figured that there could only be one 'Tony the Tiger'). The suggestions you made above are sensible precautions UNICEF could take without closing the door to what in the future could become an important way of taking in and dispensing funds. Sooner or later (one hopes sooner) governments will sort out how to regulate against abuses, including those which endanger children. UNICEF should be part of the 'conversation' with governments and corporations in setting standards. I understand that UNICEF has, in fact, made some efforts in that direction, although so far there does not seem to be much in the way of outputs. In the meanwhile though, it is important that UNICEF's own efforts at innovation do not get ahead of the safeguards.
ReplyDelete