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A collaboration between BITKRAFT Ventures and Naavik
If you follow the crypto space even remotely, you may have seen one particular topic come up a lot in recent months: the environment. Though cryptocurrencies are no strangers to ecological controversy, the sudden rise of NFTs and the attempt of a number of gaming publishers to implement them inside their properties have brought new grist to the mill of the cryptosceptic crowd.
Reports upon reports aim to remind us that crypto is following an environmentally worrying path. As the historical pioneer and the coin with the largest market cap today, Bitcoin remains the main culprit. In 2018, the network’s consumption was “roughly the same as Ireland’s.” In 2021, it was said to be around 91 terawatt-hours, more than is used by Finland. In 2022, it could reach 138 terawatt-hours, “more than a country like Norway.” You get the gist: Bitcoin is energy-intensive, and increasingly so. The global distribution of the industry complicates things even more, as the negligence of a few bad students undermines the efforts of a well-meaning majority.
Some of these concerns do have some weight to them. Critics often put forth the industry standard of “energy consumed per transaction,” a metric that would appear to put Bitcoin at a clear disadvantage (which we will evaluate later in the article) considering the relatively low number of transactions it’s able to handle despite its aggregate energy consumption.
Still, the outcry seems unwarranted. Last year, New York Digital Investment Group (NYDIG) compared Bitcoin’s energy consumption with that of other innovations and found it to be considerably lower. Overall, Bitcoin mining represents an estimated 0.1% of global carbon emissions and could still contribute to only 0.9% of emissions by 2030. As the World Economic Forum writes:
There has not been any sort of moral debate regarding the energy impact of household refrigeration or tumble driers, because they fulfill useful functions in our lives. The difference is that crypto has not yet become a socially-accepted tool performing an essential function […] The majority of those who write or speak to the crypto-energy debate from a privileged market perspective are not users of this technology and do not understand its inherent purpose.
We tend to agree with this statement. Indeed, both Naavik and BITKRAFT have been proponents of blockchain technology and what it can bring to gaming, from enabling cross-IP interoperability to coordinating communities. As such, we’d like to showcase what are some of the most promising responses to the technology’s overblown environmental impact, including Proof of Stake, scaling solutions, greener energy sources, and offset partnerships. We believe that, combined, these solutions can do a lot to mitigate current concerns.
Where does Blockchain Energy Consumption Come From?
Before we dive in, it’s important we understand exactly where these emissions come from. And in order to do that, we need to cover some basics.
Most of the blockchain’s environmental impact today stems from its original consensus mechanism, called Proof of Work, or PoW for short. As you may have guessed, the aptly named blockchain is, essentially… a chain of data blocks, each of which stores a certain amount of information permanently recorded and publicly readable in an open, decentralized ledger. To add new blocks to that chain, PoW requires network nodes — the miners — to solve complex mathematical puzzles using their computing power. The miner who solves this puzzle first gets to confirm the most recent block of transactions and broadcast it. Once that data has been collectively validated by the network, a new block is added to the chain, and the miner receives a reward typically paid out in the network’s native currency — for example, Bitcoin or Ethereum.
(Though having a minimum understanding of the mechanism is important, we know the nitty-gritty of it can be hard to grasp! If you feel like you need a more dynamic primer on the technology, we recommend this video.)
All this has a (computing) cost. The calculations needed to produce new blocks take substantial power, meaning not only hardware but electricity, too. That energy isn’t just used for the actual mining, either; it’s needed to continuously cool down the rigs as they run.
Of course, producing these rigs in the first place means miners indirectly impact the environment well before the actual cryptocurrency mining even begins. If Bitcoin mining is the “bottom of the funnel” cost, then the production of the hardware required to perform that computation is the “top of the funnel,” and less visible, cost. Resource extraction and the manufacturing of these rigs produce waste locally, while transporting them to buyers across the world contributes to gas emissions.
What’s more, the amount of computing power needed for mining is programmed to only grow over time as the network itself grows. This is because as mining becomes more profitable (usually when the Bitcoin price goes up), more miners start dedicating computing power, or hash power, to validating transactions in the network. To avoid new blocks being created, and new coins minted, too quickly, the network then automatically increases the mining difficulty. Therefore, energy inefficiency here is a feature, not a bug, as it contributes to the continued security of the network against those who might seek to gain control of it. As we’ll see later in this piece, this trait still allows for considerable variability at the local level, depending on a country’s or region’s particular energy mix and focus on sustainability.
As the productivity of a given mining rig decreases, miners can either replace them with the latest generation of hardware, or see their rewards inevitably drop. This has consistently pushed miners towards more and more efficient hardware over time, from CPU to GPU, to FPGA and, most recently, ASICs (Application-Specific Integrated Circuits, whose sole purpose is to mine cryptocurrencies), driving prices up and fostering a flourishing black market.
One of the industry’s main players, Nvidia, notably struggled to meet this surge in demand, due to COVID-induced supply chain bottlenecks that the company’s CEO expects will linger for years. This led Nvidia to deliberately nerf the capabilities of its GeForce GPUs in February 2021, stating it was “an important step to help ensure [they] end up in the hands of gamers,” that is, not in the hands of miners. It also announced the NVIDIA CMP (Cryptocurrency Mining Processor), a new product line made specifically for professional mining.
As you’ve probably guessed, this form of built-in economic obsolescence generates a lot of e-waste: in May 2021, Digiconomist’s Alex de Vries estimated Bitcoin’s average annual e-waste generation to be at around 30.7 metric kilotons, or about 272 grams of e-waste for every Bitcoin transaction — a level “comparable to the small IT equipment waste produced by a country such as the Netherlands.”
Blockchain Gaming’s Environmental Impact
Of all the industries that have dabbled with blockchains, not one has been immune to controversy. Yet gaming has seen perhaps the most vocal instances of it. From GSC Gaming World to Ubisoft, developers big and small have attracted gamers’ ire as they started experimenting with the technology. Each time, detractors were prompt to react, coordinating their efforts on social media to make their voices heard. Many developers ended up caving to these demands.
Criticism hasn’t just come from players, either. Bungie Senior Tech Designer Max Nichols has criticized NFTs for being “environmentally devastative.” Only one day after Worms developer Team17 announced it would debut a collection of NFTs, partner studios Aggro Crab and Playtonic Games publicly condemned the decision.
So what is it about blockchain gaming that consumes energy? To answer that question, it’s worth remembering that a blockchain game is an interface: a fun-packed front-end for the back-end that is the underlying blockchain. Any blockchain-enabled minting or burning, purchase or transfer, or any financial interaction conducted inside that game generates emissions the same way it would outside of it. Therefore, exactly “how much blockchain” you decide to integrate inside your title has a direct impact on its energy consumption. To date, this has come in three forms:
- Most blockchain-related gaming initiatives have had to do with NFTs. Because gamers are already familiar with the idea of collecting virtual items — Fortnite‘s time-exclusive skins build on the concept of rarity, as does Pokémon‘s whole gameplay — Web2 publishers saw NFTs as the easiest way to experiment with Web3. The minting and trading of these assets, including on proprietary marketplaces, is now a driving factor of emissions.
- On-chain gameplay is another one. The more your game’s story and play experience rely on mechanics like minting, farming, mining, and crafting either fungible or non-fungible tokens, the more state changes are actually registered on the blockchain, the more energy-intensive your game is likely to be.
- Closely related to this is the rapid financialization of games. With features like swaps, staking, and liquidity pools, the most successful blockchain games handle myriads of financial transactions that need to be accurately recorded on-chain. DeFi Kingdom integrated these capabilities directly into its gameplay, with bridging between AVAX and DFK done through an actual bridge within the game.
Pinning down blockchain gaming’s exact energy consumption and emissions isn’t easy. But one thing is certain: this particular segment has taken off. According to DappRadar, in the last week of April, gaming accounted for 112 million, or 75%, of a total 150 million weekly blockchain transactions (while only accounting for 0.3% of the industry’s total volume in that same week). Furthermore, according to DappRadar, there were 398 active blockchain games in January 2022, up 92% from one year ago; as of April 2022, that number had jumped to 455 active games. Some of those are now processing millions of transactions every month, with Sky Mavis’s sidechain Ronin handling 560% more than Ethereum in November last year.
While it’s true many of those transactions are now happening outside of Ethereum mainnet, and therefore come with a lower environmental impact, the sheer increase in volume is something that the industry as a whole should take into account now if it wants to keep future emissions under control.
Evaluating Potential Solutions
To be sure, it would be convenient for developers to ignore criticism and just race ahead without addressing these concerns. At the same time, it would also be misguided: 66% of gamers say they are more likely to play games that are socially and environmentally responsible. All other things being equal, aiming for greener solutions isn’t just good for the planet; it’s also good for business.
Should they decide to make these matters integral to their vision — as we suggest they do — developers will have at their disposal a variety of potential solutions. Let’s work through some of them.
#1: Moving to Proof of Stake
As the blockchain’s original consensus mechanism, and the one securing the main two networks in existence, Proof of Work remains vital to the broader ecosystem. But all eyes are now on Proof of Stake (PoS), an alternative and, according to some, a potential successor.
While the compute-heavy calculations inherent to PoW call for high-end hardware and substantial power consumption, PoS works differently. Instead of miners competing to solve mathematical puzzles, PoS has node operators stake — essentially, lock — some of their native tokens as collateral to become eligible as validators. The prerequisite to contribute moves from computing resources to token ownership.
The model isn’t new: it was first proposed for Bitcoin… in 2011, and Ethereum’s 2013 whitepaper already mentioned it as a likely replacement “in the future.” This transition is still a work in progress. Put forth in 2016, and originally planned for 2019, it was then pushed back to June 2022. After suffering another delay in April, the move, now known as the Merge, is expected to happen in Q3 or Q4 this year instead of June. But despite these setbacks, the potential of the Merge can’t be overstated. For example, the Ethereum Foundation expects PoS will reduce the network’s energy consumption by 99.5%. Scalability will be enhanced too (that’s the primary goal after all!): according to the Foundation, “a realistic estimate for post-merge, sharded Ethereum with rollups is 25,000 – 100,000 transactions per second,” up from ~15-45 currently.
Critics may deem these figures overly optimistic — understandably so, considering Ethereum co-founder Vitalik Buterin himself is on the board of the Foundation. But looking at the rest of the PoS ecosystem can give us a sense of how much savings we can look forward to after the Merge.
Indeed, other Layer 1 chains didn’t wait for Ethereum to make good on its promises. The Cosmos ecosystem, Tezos, and Avalanche all launched with PoS in place from day 1. This enables them to operate using considerably less hardware power and energy — Ubisoft, which went with Tezos, made sure to mention these merits to appease gamers. If you’d like a better sense of how much of a difference PoS could make, consider this: in February, research from the Crypto Carbon Ratings Institute (CCRI) found the energy consumption of the Avalanche network to be 0.0028% of Ethereum’s and… 0.0005% of Bitcoin’s. As new chains emerge with PoS as their default model, the historical PoW will continue to lose its dominance, which bodes well for the space’s overall consumption.
Not all PoS are made equal, though. Different architectures, transaction throughputs, and hardware and electricity requirements lead to disparities between these networks’ performances in node, transaction, overall consumption, and emissions. For example, the CCRI estimates the energy consumption per transaction on Avalanche at around 4.76 Wh, as opposed to 41.45 Wh on Tezos. Yet looking at these networks’ respective yearly carbon footprints, the institute found that Avalanche’s impact far exceeded Tezos’s. This should serve as a warning that aiming for greener solutions isn’t exactly a one-and-done process, but rather requires thoughtful consideration.
To complicate things even more, PoS isn’t the only alternative to PoW out there. Solana, for example, uses Proof of History, while Binance Smart Chain (BSC) uses Proof of Staked Authority, a combination of PoS and Proof of Authority (PoA). We can expect more chains to experiment on that front, each of them drawing from what it thinks are the best aspects of multiple validation mechanisms. While each chain’s “maximalist” camp would have us believe in a one-size-fits-all solution, each option likely comes with its own trade-offs. PoA’s reliance on a limited number of block validators exposed Sky Mavis’s Ronin network to what was the largest crypto hack in history. Such events only exemplify the importance of blockchain architecture.
Which one you adopt from here is entirely up to you. Launching a blockchain game today, you’re fortunate to have access to a variety of options, each with its own technical merits and set of incentives — including financial ones. In any case, and considering gamers’ repeated backlash against NFTs and the blockchain overall, developers would do well to carefully consider their network of choice.
#2: Adopting Scaling Solutions
Congestion on Ethereum mainnet, and its associated gas costs, have led developers to explore new options.
As discussed in the previous section, some of these are competing L1s — each with its own hardware requirements, transaction throughput, security architecture, and value capture mechanism. Yet despite their claims of greater scalability, several of these chains have faced severe drawbacks — as pointed out by Polygon Studios CEO Ryan Wyatt in a recent conversation. As of May 2nd, Solana had been halted no less than 7 times in 2022; the network faced over 29 hours of downtime between the 21st and 22nd of January. Avalanche faced a similar issue in February, as an unusually high volume of transactions stalled the network’s C-Chain. Recent events seem to indicate that a higher throughput can be put to the test.
Meanwhile on the Ethereum front, a growing number of Layer 2 scaling solutions (L2s for short) now promise to bring much-needed scalability to the network.
As defined by Gemini, L2s are “protocols that integrate into blockchains like Bitcoin and Ethereum as separate, secondary layers built to increase transaction throughput and reduce transaction costs.” By “abstracting transactions and data processing” away from the main chain, they’re able to ease transaction bottlenecking. Although Bitcoin does have L2s of its own (e.g., Lightning), covering gaming logically points us to Ethereum-focused ones for now.
Leading the way today is Polygon, formerly Matic Network. With its PoS Commit Chain and More Viable Plasma, the network is able to “bundle together batches of transactions and confirm them en masse before returning data to the main chain,” while leveraging Ethereum’s inherent decentralization and security capabilities. The potential for time- and cost-saving has convinced numerous games to adopt it, including Skyweaver, Zed Run, Cometh, and Aavegotchi, as well as gaming-focused companies like 100 Thieves.
So how efficient is it at reducing emissions? As always, it depends on who you ask. In December 2021, Polygon claimed that a transaction on its network resulted “in just 0.0003 kg of CO2 emissions,” or “99.95% less in electricity consumption than a Proof-of-Work counterpart.”
A few months later, Digiconomist’s Alex de Vries suggested that those numbers failed to encompass the network’s total emissions, writing: “as [Ethereum-connected] contracts are required for Polygon to function, their carbon footprint should be included when considering Polygon’s total carbon footprint.” Doing so, he said, brought the carbon footprint of a Polygon transaction to “close to 430 grams of CO2.” But in March, analysis by Offsetra and KlimaDAO stated instead:
This activity on Layer 1 is not critical to Polygon’s functioning. Rather, this token exists independently for users of Ethereum and therefore any emissions from the use of this token on Ethereum should be attributed to the users of those tokens or to the Ethereum network itself. Put another way, the Digiconomist approach is akin to attributing all wETH emissions on Polygon to the Ethereum network.
As reminded by Polygon’s own Ryan Wyatt, 99% of the network’s emissions today come from key Ethereum features like bridging and checkpointing. Polygon’s normal operations, on the other hand, remain highly efficient.
This back-and-forth exemplifies the industry’s current lack of consistent evaluation methods. While assessing the impact of any particular chain requires a deep understanding of its architecture, it’s especially true of L2s, whose reliance on Ethereum tends to complicate things for outsiders. Over time, and through debate, the crypto community gets to refine its methods.
Polygon isn’t the only solution out there though. Zero-Knowledge Rollups (zk-Rollups), a technology pioneered by StarkWare that batches transactions and returns only a “proof” to the mainnet for verification, have been gaining significant traction. For example, Immutable X leverages the technology to enable the minting and trading of Ethereum-based NFTs with instant transactions and zero gas fees.(Disclaimer: Immutable is a BITKRAFT portfolio company.) Here’s what Immutable’s Co-Founder & President Robbie Ferguson had to say on improving blockchain gaming’s environmental performance:
A carbon-neutral NFT platform is not a ‘nice to have’, it’s table-stakes in order to get Web3 gaming adopted by mainstream gamers and gaming giants. Immutable offers a completely carbon-neutral layer 2 platform for scaling. We believe it’s not enough to offset significant carbon, Immutable is able to reduce the footprint of every transaction to less than 1/600,000th of the original. Any remaining impact is certifiably offset with our authentication partners Trace and Cool Effect.
The Web3 gaming revolution is coming – and we’re proud to be driving this growth in an environmentally sustainable manner.
Meanwhile, Optimistic Rollups such as Arbitrum and Optimism, which only publish “the bare minimum of information to the mainchain” when bundling transactions, are also showing promise, and attracting entire gaming ecosystems like Treasure.
We expect these solutions to find increasing success in the coming months and years. Vitalik Buterin himself wrote last year that “rollups are a powerful new layer-2 scaling paradigm, and are expected to be a cornerstone of Ethereum scaling in the short and medium-term future (and possibly long-term as well).” This is likely to encourage Ethereum developers to dabble with the technology sooner rather than later. For those still wary of forgoing liquidity as they move away from mainnet, Immutable’s newly-launched cross-rollup tech could be an interesting solution. Finally, several L2s, including Polygon, Immutable, StarkWare, and Optimism, are now well-capitalized, which means they can entice developers to build on top of their platforms with dedicated funds. As Ethereum’s own improvements such as PoS come online, they will pass along multitudes of energy savings to the L2s building on top of them.
While we’ve focused on the efforts of infrastructure players, individual developers can contribute to the cause of greater scalability and carbon neutrality, too. One notable example of this is the ERC-1155 multi-token standard, which was co-authored by Horizon Blockchain Games’ Director of Product Philippe Castonguay. (Disclaimer: Horizon is a BITKRAFT portfolio company.) Because ERC-1155 tokens can represent NFTs, semi-fungible tokens and fungible tokens alike, they are ideal for collectibles and in-game items. According to Horizon, ERC-1155s substantially reduce both the gas costs and storage space needed when transacting, which could ultimately help limit the impact of the Web3 ecosystem as a whole.
Horizon’s smart wallet and developer platform Sequence could play a similar role. Its overarching goal is to make more environmentally-friendly networks (i.e., L2s, sidechains, and eventually supernets and subnets, too) easier to use for both end users and developers.
One aspect of this is how it allows users to stay connected to multiple networks at once, by contrast with the “either / or” menus offered by most wallets. This, combined with built-in bridging and the ability to batch transactions and send multiple types of tokens simultaneously, saves users time, fees, and energy. Sequence also lets developers bundle and parallelize large amounts of transactions, reducing the load on the blockchain and thus the associated carbon footprint. This kind of infrastructure-led approach to improving scalability can bring great value, by removing the friction that today prevents most users from leveraging the blockchain’s greener options.
So what can developers make of all this? If anything, moving to an L2 now seems non-negotiable for most games. The reliance on frequent NFT drops for continued engagement, the sheer volume of blockchain transactions handled by successful titles, and the need to attract diverse crowds of players, many of whom might dread Ethereum’s standard fees, all suggest that scalability should be made a priority in the months and years ahead. Despite technical challenges, it’s certainly an auspicious trend for blockchain gaming as a whole.
#3: Launching Your Own Net
Another way of scaling up transactions appeared recently in the form of net-powered solutions.
In April, Polygon introduced Supernets, blockchain networks built upon its customizable blockchain stack, Polygon Edge. Supernets enable developers to launch application-specific blockchains — “from sovereign and enterprise EVM (Ethereum Virtual Machine) chains to full-blown Layer 2 solutions” — without having to bootstrap their own validator networks. Though Supernets for now only support sovereign and MATIC-staked chains, Polygon plans to welcome any and all scaling architecture, including rollups. As an application-agnostic scaling infrastructure, Supernets therefore could greatly facilitate the adoption of high-performance, and more energy-efficient, networks.
A similar concept can be found in Avalanche’s Subnets, or Subnetworks. As described by Avalanche’s documentation, Subnets are “a dynamic set of validators working together to achieve consensus on the state of a set of blockchains.” Avalanche’s own approach to horizontal scaling, subnets allow developers to create their own custom, application-specific blockchains, use their token of choice to power internal activity, and require validators to have specific properties. For example, validators for DeFi Kingdom, which recently leveraged these capabilities to launch the DFK Chain, have to stake JEWEL, the game’s proprietary token.
This architecture has several benefits. Because Subnets are independent, they “don’t share execution thread, storage, or networking with other Subnets or the Primary [Avalanche] Network, effectively allowing the network to scale up easily while enabling lower latency, higher transactions per second (TPS), and lower transaction costs.” This ensures performance isolation, meaning your chain’s activity, and your users’ experience on it, are “not affected by unrelated high activity on the network,” for example, some massively anticipated NFT mint. (Inversely, that same isolation also protects the rest of the ecosystem from any surge on your network!) And, as discussed with regard to scaling solutions, better scalability means lower emissions.
We can expect net-powered solutions to garner significant interest in the coming months, if only because of incentives: Polygon committed $100M to accelerate adoption among developers, while Avalanche is routing part of its $290M Metaverse fund toward these efforts. Though relying on a limited number of validators might not be a good fit if you consider decentralization paramount, a net is certainly worth looking into if you believe your game calls for its own environment.
#4: Tapping into Greener Energy
If every blockchain transaction consumes so much energy, but we are not ready, or willing, to reduce how many of them we process, one way to mitigate the expectable damage is to at least more carefully consider how we use that energy.
According to Cambridge University’s 3rd Global Cryptoasset Benchmarking Study, about 39% of PoW mining is powered by renewable energy — other estimates put that figure at almost 75%. Of that, hydropower is listed as the primary source, with 62% of surveyed miners saying they use it, before coal and gas (respectively at 38% and 36%). While 76% of miners say renewables are part of their energy mix, only 30% of them named energy requirements as a criterion for selecting which coin to mine.
The reason why renewables aren’t more prevalent is simple: Bitcoin production historically was “mainly located in areas using the least environmentally-friendly source, coal.” Since mining requires vast amounts of electricity, miners favored cheaper options, sometimes even moving around to make use of seasonally cheap sources of energy in a kind of geographic arbitrage. Meanwhile, countries like Iran made use of their domestic resources of crude oil, with the associated environmental cost. The economic and environmental costs of mining therefore vary greatly from one place to another. However, the network’s overall consumption has been getting greener, as China’s and Kazakhstan’s recent bans on crypto have pushed miners to places like Texas, whose default energy sources show a more eco-friendly profile.
The industry is increasingly taking responsibility. Part of the solution may lie in better load management. For example, Digital Power Optimization helps owners and developers of power-generating assets value their energy surplus in times of low demand, using mining rigs as “highly profitable load-sinks.” Layer1 does pretty much the opposite: its turnkey mining data centers serve as “Bitcoin batteries” that can respond to demand in real time by flowing more of their own stored electricity into the grid.
Innovation is also coming in the form of novel energy sources. Less than a day after El Salvador made Bitcoin legal tender, its crypto-friendly president Nayib Bukele announced the country would be using its volcanic resources to mine it with “very cheap, 100% clean, 100% renewable, 0 emissions energy.” Other initiatives are now tapping otherwise unused resources like stranded gas.
Granted, these matters may seem somewhat foreign to game developers, whose business and impact seat further down the “environmental value chain.” Yet as a group, those same developers are the first witnesses and, sometimes, victims, of gamers’ expectations. As such, they are well positioned to pass those demands along to other stakeholders in the industry and make sure they’re taken seriously.
#5: Striking Partnerships
One final option is to partner with organizations that specialize in balancing out the industry’s environmental impact.
We’ve seen more and more such examples in recent months. Vulcan Forged partnered with decentralized carbon credit exchange Coorest to preemptively offset the CO2 emitted by its upcoming Elysium blockchain by planting “tokenized trees” over nearly 70,000 acres of land. Planet Mojo developer Mystic Moose joined forces with One Tree Planted to offset NFT energy costs for its upcoming game.
While these moves are commendable, their impact remains limited, as they’re only offsetting the emissions from individual developers; to achieve sizable results, greater scale is needed.
One promising example in that regard is Polygon’s $20M pledge to offset its network’s carbon footprint in 2022 via a partnership with KlimaDAO. The funds will be used for “community initiatives such as encouraging Polygon ecosystem partners to make the pledge as well, providing resources for ecosystem partners who want to offset their carbon footprint, and making donations easy for NGOs that fight climate change.” Further down the line, Polygon is aiming to be not just carbon-neutral, but carbon-negative — and hopes the rest of the industry will follow.
Another, cross-industry example are BITKRAFT’s plans to provide “a framework for [its] Limited Partners, Founders and portfolio companies to participate in” via its recently announced Foundation. We think this kind of initiative can have a prescriptive effect that spreads across the industry.
These kinds of partnerships can bring valuable measurability and, ultimately, accountability to the developers that are most serious about limiting their impact. In a few years’ time, having a granular understanding of one’s own emissions over time, or even on a per-NFT basis, could be table stakes across the space.
What’s the Blockchain’s Environmental Impact?
According to Digiconimist, the cumulated impact of the two largest blockchain networks, Bitcoin and Ethereum, now amounts to an annualized carbon footprint of over 173 Mt CO2, ahead of what’s currently generated by a country like the Netherlands. In addition, Bitcoin mining alone produces some 37+ kt of electronic waste yearly, which is “comparable to the small IT equipment waste of the Netherlands.” Both the industry’s emissions and its e-waste have been growing consistently since inception, and show no sign of slowing down if nothing is done to mitigate them.
Here, we should reiterate that these numbers need to be put into perspective. While it’s true that Bitcoin’s impact exceeds that of some countries, a more adequate category to compare it with would be global monetary systems. In that respect, research from Galaxy Digital’s mining arm in May 2021 (in a report aptly titled “A Quantitative Approach to a Subjective Question”) showed that Bitcoin’s energy consumption at the time was still far below that of both the banking system and gold.
Still, intellectual honesty commands us to bring up a possibly more “apples to apples” comparison. If energy consumed per transaction is the industry standard, considering Bitcoin’s energy consumption only in aggregate might not be enough. Indeed, despite its current energy consumption, the Bitcoin network overall still handles only a limited number of transactions, standing at roughly 250K per year as of June 2022. Contrast that number with VISA’s reported 232.5B transactions over its networks last year. In other words, the network’s annual consumption apparently supports a utility whose reach is far lesser than that of legacy payment infrastructure. This has prompted critics to point out that the environmental cost of a single Bitcoin transaction far outweighs that of not just one, but 100,000 VISA transactions.
Yet — as you probably expected by now! — even that comparison can be, and indeed has been, disputed. Most so-called “per transaction” estimates of Bitcoin’s energy consumption actually consider the impact of mining, not that of actually transacting over the network. And, as we’ve demonstrated earlier, mining alone accounts for the vast majority of the network’s total impact. In addition, one “transaction” doesn’t mean quite the same thing depending on whether we’re talking about Bitcoin or legacy networks. As noted by the Cambridge Center for Alternative Finance,
a single Bitcoin transaction can contain hidden semantics that may not be immediately visible nor intelligible to observers. For instance, one transaction can include hundreds of payments to individual addresses, settle second-layer network payments (e.g. opening and closing channels in the Lightning network), or potentially represent billions of timestamped data points using open protocols such as OpenTimestamps.
This makes comparing “transactions,” and therefore the cost of an individual one on two different networks, much less relevant — and, some argue, misleading.
As Nic Carter notes:
It’s undeniable that Bitcoin not only consumes a lot of energy but produces externalities in the form of CO2 emissions. This is not under debate. What Bitcoiners are often confronted about is whether Bitcoin has a legitimate claim on any of society’s resources. This question relies on a kind of utilitarian logic about which industries should be entitled to consume energy.
Under that “utilitarian logic,” the blockchain is essentially being asked to prove itself “worthy” of its externalities. While we tend to think it already is, it’s important to remember that this worthiness can still feel too costly to crypto outsiders. Consequently, environmental concerns are likely to only grow more vocal in the coming years.
Ultimately, rising energy usage isn’t necessarily bad. After all, it’s been the defining trend across all of human history, a requisite behind essentially every significant business or technological innovation from the industrial revolution to the birth of electronics, and a direct enabler of economic growth.
In Bitcoin’s and more generally PoW’s case, as suggested at the beginning of this piece, energy consumption serves a crucial purpose: proving to the rest of the world that the miners have expended a certain amount of energy as fuel for computation to back the security of the network — as Bitcoin advocate Andreas Antonopoulos describes it, “it’s essentially a promise each miner makes.” Verifiably committing an asset that is extrinsic to the system (energy), rather than one intrinsic to it (native tokens, as is the case under the PoS model), ensures greater security of the network, something of considerable value in the context of censorship-resistance. Antonopoulos goes on to say: “We need one planetary-scale proof-of-work system to offer us true energy-dependent immutability.”
What matters, then, isn’t energy usage in itself, but instead the type of energy that’s being used, as well as our considerate efforts as builders in the space to recognize the impact we’re having today — after all, a problem well-defined is a problem half-solved! Although it’s unlikely that even the best initiatives will satisfy hardcore crypto sceptics, making them nonetheless will make future development easier for the industry.
How Far are We from Achieving Carbon Neutrality in Blockchain?
The blockchain’s road toward carbon neutrality or even a carbon-negative future promises to be a winding one.
On the Bitcoin side, the community’s almost overwhelming dismissal of PoS necessarily puts the onus of environmental awareness on other options such as carbon offsets or renewables. This makes the adoption of greener solutions a miner-specific decision, limiting its scale and impact. That being said, the industry is proving increasingly willing to explore these energy sources as a way to reach cultural legitimacy.
Things are looking brighter on the Ethereum side, where the move to PoS through the upcoming Merge will enforce an inherently greener mechanism at the protocol level. Although this change has been delayed multiple times already, it should happen in Q3 or Q4 this year. Considering how optimistic the community has been about the expectable increase in scalability and drop in emissions, a lot certainly rests on Ethereum’s execution.
Finally, the rise of chains like Avalanche will likely provide some valuable insights into the improvements we can expect from the PoS model at large. If these chains are to draw environment-minded Web2 publishers like Ubisoft, being able to demonstrate eco-friendliness may become more and more important.
What can Blockchain Game Developers Do Today to Mitigate their Carbon Footprint?
Despite rapid adoption and the resulting increase in blockchain transactions, blockchain gaming arguably could be considered to be on the greener side of the “emission spectrum.” Since congestion on Ethereum mainnet have made running games there impractical, developers have been forced to consider alternatives. Sky Mavis’s creation of Ronin, Treasure’s move to Arbitrum, Skyweaver‘s and Zed Run’s adoption of Polygon, and Defi Kingdom’s expansion to Avalanche are all strong signals that L2s and “alt L1s” have become attractive places for developers to build from. Should their vision succeed, these games are likely to inspire others to follow in their footsteps. Developers also have a role to play in pushing standards and infrastructure forward themselves, as Horizon is currently doing with Sequence.
Change will also come from the gameplay itself. As mentioned, how much blockchain you decide to implement ultimately plays a huge role in your title’s total emissions. Since each marginal transaction adds to the total, limiting how many of them you process logically decreases that impact. Understanding this should push environment-minded publishers to carefully consider exactly which parts of their games need to be on-chain — in other words, where the blockchain actually adds value for players instead of just being another financial transaction.
As Jens Hilgers, Founding GP of BITKRAFT Ventures, says:
With blockchain technology and crypto striving to achieve broad adoption, it is an inevitability that the issues around the crypto energy footprint will be solved. Not only have we seen effective solutions come live already, which is very encouraging, but we have seen that products and services which are not considering energy efficiency will find neither corporate adoption nor community and customer adoption.
There are certainly more innovations to unlock, more room to scale green solutions, and more skeptics to win over, but we’re optimistic that progress on the energy front can’t be stopped.
Who We Are
BITKRAFT Ventures is a leading investment platform for gaming and Web3 globally, and has been the most active gaming venture capital firm and lead investor in 2020 and 2021, according to research from InvestGame and Drake Star Partners. Founded by industry pioneer Jens Hilgers, BITKRAFT serves a worldwide network that spans many of the industry’s forward-thinking startups and founders—including former executives from the likes of Activision Blizzard, Riot Games, Epic Games, Google, and Apple who are working to build and operate the virtual worlds and economies of the future. BITKRAFT operates six venture funds with a total of over $770M in assets under management and has over 100 companies in its global portfolio as of May 2022.
BITKRAFT’s experienced international team works closely with exceptional entrepreneurs to create significant value through early candid partnerships, unique domain experience, entrepreneurial history, and a global ecosystem of strategic partners.
Find out more about how BITKRAFT and its portfolio companies are pushing the boundaries of Synthetic Reality® by visiting https://www.bitkraft.vc/vision.
Naavik, in Hindi, represents the boatmen who help passengers navigate convoluted waters and reach their desired destinations. We are a research, consulting and advisory firm that works similarly.
Ever since our founding in 2019, we’ve helped 100+ companies across the gaming industry reach their desired destinations of success. Whether it’s market research, strategy consulting, game/economy design assistance, user acquisition expertise, M&A due diligence, or even long-term advisory relationships, we’re here to help games industry professionals better master the business of gaming.
You can learn more about the Naavik team, check out our work, and get in touch through our website.
Special Thanks To
We’d also like to extend our gratitude to three industry leaders. Not only did they take the time to share their valuable opinions and insights with us, but they’re also building many of the solutions referenced above, so as to enable a carbon-neutral future for blockchain gaming. Many thanks to:
- Robbie Ferguson, Co-founder & President at Immutable
- Ryan Wyatt, CEO at Polygon Studios
- Michael Sanders, Co-founder & Chief Storyteller at Horizon Blockchain Games