Finance & Investment Organizational Governance

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.

Brand Provided | By Andrew Blauvelt and Joël Désiré | Published 2 years ago | About a 4 minute read

Image: Rodnae Productions/Pexels

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.

The Future of Scope 3: Mastering Value Chain Sustainability with Insetting

Join us for a free webinar on Thursday, April 17, when leaders from ClimeCo and LSB Industries explore insetting as a tool to tackle Scope 3 emissions. Learn how to align sustainability initiatives with business goals, avoid compliance pitfalls, and gain a competitive edge.

Tell me more!

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.

Andrew Blauvelt

Andrew Blauvelt is Senior Product Director at Atrius® — part of the Intelligent Spaces Group, a division of Acuity Brands revolutionizing spaces to sense, think and act.