Climate change, the giant political hot potato that will probably kill us all, will be solved by blockchain--if the various promises from the industry are to be believed. Energy-efficient cryptocurrencies; coins that reward users for using solar panels by planting trees; decentralized systems that let customers trade excess energy or track carbon emissions are all waiting to help make the world greener, everyone in it richer, and the polar bears happier.
There are now dozens of companies in the eco-crypto space, each claiming that their own way of saving us from ourselves is more economically efficient, more competitive, and altogether better than what’s currently on offer.
This year, green coins are set to grow. SolarCoin, a so-called ‘Green Coin’ that rewards users for producing energy with cryptocurrency, is rolling out their partnership with SMA--a large German solar energy company--this month. Within a few weeks, the owners of 300,000 installations—responsible for roughly five percent of the world’s global solar energy production—will be offered a SolarCoin.
But experts, though impressed by blockchain’s innovation and optimism, aren’t convinced. In fact, some have gone so far to say these projects will have zero impact on climate change. But why are there so many and what’s stopping them from offering a ray of hope in an otherwise bleak era?
Gold to green
The puzzle environmental blockchain companies are trying to solve is one we’re all familiar with: nation states and companies desperately want to reduce how reliant they are on carbon emissions, but are still hugely dependent on carbon-based industries to help keep the wheels of the economy turning. Cryptocurrencies have a similar issue.
Bitcoin now consistently trades up to $40 billion per day. But Alex de Vries, PwC’s resident blockchain expert and CEO of Digiconomist, says that Bitcoin mining consumed more energy than the whole of Portugal (45.84 TWh/yr) as of January 2019, and the demand is only rising. “These figures are on the optimistic side,” de Vries told Decrypt.
It’s getting harder to defend Bitcoin’s profit line: de Vries estimates that, for annualized global mining revenues of $2.5 billion, it costs $2.2 billion to run. That means 88 percent of all mining costs—and the energy it takes to run those mining machines—are wasted.
De Vries says that Bitcoin is particularly bad for the environment compared to other coins because it relies on Proof of Work algorithms, with which every computer mining Bitcoin tries to generate a valid signature for the block it’s working on. It takes a lot of energy to mine Bitcoin, and the machines, often purpose-built for mining, are worthless once miners are finished with them. But is there a better way for blockchains to do business?
“Green Coins” like Bitcoin Green and SolarCoin are tackling the energy problem by using a proof of stake algorithm, which isn’t as energy intensive as proof of work algorithms. Instead of having miners solve (energy-intensive) computational problems, proof of stake algorithms give the right to forge blocks to those who invest their coins in the blockchain.
The risk, then, isn’t your energy bill, it’s about putting your money where your mouth is. If your claim to a transaction is bogus, you’ll lose the coins you stake. Ethereum is also considering implementing the same algorithm, and is the largest coin thinking of doing so. But, as Ethereum recently discovered, there are security issues.
If someone holds the majority of the money, they call the shots. To solve this, eco cryptocurrencies like SolarCoin holds most of its currency in reserves, but that scares some investors away. “The debate is still ongoing and undecided—if it was, everyone would be using a cleaner algorithm,” says de Vries.
These security risks are why Carboncoin--a company that plants trees to offset carbon emissions--still uses proof of work, but doesn’t reward miners according to their computing power. As a result, it uses the electricity of just a few light bulbs to keep it going, and CarbonCoin says that using the currency funds the planting of millions of trees worldwide. But the core idea—rewarding users for using their service with something environmentally friendly—is a common theme among green crypto companies. SolarCoin rewards users for using solar panels to mine their coins, as does the Solar Bankers Coin.
SolarCoin’s CEO, Nick Gogerty, tells Decrypt he’s banking on the surge of solar panel installations to help grow the business. According to a research paper written by Solar Power Europe and published by IFLScience, 89 percent of all solar panels were installed in the last seven years, and growth is exponential. Currently, SolarCoin is traded among less than 5,000 users, but Gogerty tells Decrypt he’s set to offer a free SolarCoin to the owners of around 300,000 energy installations monitored by SMA—a large German solar energy company—over the next couple of months. “It’s essentially free money,” Gogerty says.
In Gogerty’s dreamland, when energy production costs the same as the amount SolarCoin would pay out, energy production becomes free. ACWA—a $30bn dollar energy company that’s adopted SolarCoin—produces solar energy at 23$ per megawatt hour, and the price is set to drop as solar panels become more efficient. SolarCoin hit a high of $2 at the height of the cryptomarket back in 2016, but at the time of writing, SolarCoins are valued at around two and a half cents. But Gogerty’s theory is that, if he could incentivize every solar-friendly state to invest in SolarCoin, the value of one SolarCoin would rise to between $7 and $30.
But de Vries isn’t convinced by their incentive. He says that mining with a solar panel isn’t as profitable as other sources of power, mainly because users can only mine during daylight. Nor is Dr. Delton Chen, an academic who authored a paper that investigated the use of blockchain for climate change. He tells Decrypt that SolarCoin’s price is too low to incentivize people to build solar panels, which cost around $4,000 a pop and produce solar energy at $23 per megawatt hour.
Stuck at two and a half cents, SolarCoin is almost worthless as an incentive for producing energy. Currently, that’s almost a thousand times less than the price it costs to produce a megawatt hour of solar energy using ACWA’s energy efficient panels. "It's just trivial,” says Chen. "Its effect on carbon emissions is so small that it wouldn't even register.” Gogerty says that investors would only invest in SolarCoin if the market was stable, or if that the price of SolarCoin is so in excess of the cost of a solar panel that they’d make a profit quickly.
But linked to the volatile cryptocurrency market, SolarCoin is prone to major price fluctuations. This isn’t surprising: SolarCoin isn’t backed by any assets, nor is it regulated by a central bank. "It's a dumb market. The market doesn't care if it's a Solarcoin or a bitcoin,” Chen tells Decrypt. And nobody knows when the crypto market will stabilize. “The technical risks (quantum computing) and 51% attack thresholds may mean it never does”, Gogerty points out. Chen also questions how much we can trust public-interest companies like SolarCoin. CarbonCoin, for instance, won’t even reveal the name of its founder.
And the developers behind SolarCoin currently hold almost 98 billion SolarCoins, or 99.95 percent of the total supply. Most of that’s held in reserves, and only around 50 million is in circulation, but much of the circulating SolarCoin is held in just a few privately owned wallets. Gogerty says spare cash is invested back into the network, but if SolarCoin even goes up just to one dollar, Gogerty and his co-founder, Joseph Zitoli, would be millionaires—or if they introduce enough of the reserve currency into circulation, billionaires.
They'll cash it in,” says Chen. Without clearly defined goals (apart from save the world), Nick Gogerty and his friends could be obscuring their motive: profit. Gogerty tells Decrypt he wants to decentralize the coin as soon as possible, but says that he doesn’t have the funds to implement good governance. SolarCoin has a board of directors in place and a ‘SolarCoin Council’, but it’s ultimately Gogerty and his team who call the shots on SolarCoin. Gogerty admits there is currently no recourse or means to punish abuse. “Which is terrible,” he tells Decrypt.
Luckily, green coins aren’t all that blockchain has to offer. Climate Coin Foundation has made it easier to trade internationally certified carbon credits that offset carbon dioxide production. Its decentralized platform, Climatetrade, does away with intermediaries (apart from, of course, Cimatetrade itself), so credits are paid directly to the source of the projects. Co-Founder Francisco Benedito is optimistic about his platform’s ability to disrupt the carbon market: “Climatecoin is becoming the reference [for] green financing,” Benedito tells Decrypt in an interview.
But Josh Brown, a manager at Carbon Trading Exchange, a large online spot exchange that trades carbon offset credits, says that blockchain’s ambitions are too much to swallow for governments and large companies. “You’re talking maybe ten years before they choose to implement a [non-blockchain] carbon trading system in a region, so imagine how long it would take if they were to switch all that electronic infrastructure to the blockchain—it’s a massive undertaking,” Brown tells Decrypt.
According to Chen, “selling carbon offsets to the public is like trying to convince the public to voluntarily pay higher taxes,” Chen writes in his article. Blockchain or no, “It makes absolutely no sense,” Chen tells Decrypt in a later interview.
Off the Grid
But blockchain charges on, undeterred. Blockchain ledgers could also be used to manage power grids more efficiently, keeping the lights on for less. In 2016, LO3 Energy launched a decentralized microgrid in Brooklyn, New York, creating an energy supply Brooklynites can share and trade among themselves.
But de Vries says that a lot of this work takes place outside of the blockchain. He says these models require “oracles”—trusted third-parties you rely on to feed correct “real world” information to the blockchain. “Who is going to confirm the amount of energy that has been delivered to their neighbor? That's not going to be the blockchain—we’re talking about trusted entities again… you’re taking away what blockchain is delivering,” says de Vries.
Like Icarus, blockchain’s inflated self-confidence has flown too close to the Sun, and melted. Researchers like Chen are not out to make enemies in the blockchain space. But for Chen it feels necessary to point that blockchain is “certainly not going to solve our climate crisis on its own”. In fact, he tells Decrypt “it's not a serious policy for climate mitigation, in any sense."
The real value, says de Vries, isn’t so much in these incentives these schemes have to offer—they’re more like cheap toys in a cereal box—but the move towards proof of stake coins. “The impact of these environmentally beneficial projects right now is very limited, and the impact of proof of work based blockchains is very large,” he says.
Solar Bankers, another blockchain company working against climate change, perhaps best sums up the state of the market on their website: “Solar Bankers does not guarantee any profit, but offers instead a set of entrepreneurial opportunities to Solar Bankers coin holders to make money from the Sun."