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Carbon offsets are a nuisance for crypto

6 min reading

BitMEX a derivatives exchange situated in the Bahamas is making an effort to eradicate its environmental footprint through carbon credits but this seems to be an issue for crypto.

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BitMEX, a derivatives exchange based in the Bahamas, is trying to reduce its environmental footprint by buying $100,000 worth of carbon credits. These credits represent 7,110 tonnes of carbon emissions, an amount BitMEX believes online through its Bitcoin-based business. This is a good effort, especially since, as far as I know, no one has criticized BitMEX for its energy consumption. The move that would offset BitMEX's share of Bitcoin transactions and its corporate servers would make it one of the first "carbon-neutral" crypto exchanges, according to a blog post. (Competing FTX-derived platforms make similar bets.)

There's a problem: carbon credits don't work as advertised, are often fraudulent and ineffective. While BitMEX's promise of "net zero" is commendable, it follows the well-known business book on moving sun loungers on sinking ships.

As I write, more than 130 heads of state and thousands in Glasgow, Scotland, are attending a two-week conference on preventing dangerous climate change. By February 2020, nearly a quarter of all Fortune 500 companies had committed to being climate neutral by 2030. And carbon offsetting is a big part of the trend to go green. As a general term for various assets and activities, compensation is essentially a promise to reduce environmental degradation in one area to offset environmental degradation in another. One company can make an environmentally sound promise to be “carbon neutral” by buying loans from other companies that are less polluted this year.

In short: compensation allows normal economic activity to resume quickly. You work with the understanding that an "x" number of emissions is released regardless of anything, and that heavy pollutants can work better with other companies that reduce pollution. A new study by Ecosystem Marketplace found that the market for voluntary carbon offsets will surpass the $1 billion mark for the first time, as the market value reaches $6.7 billion forever. Error distributed.

“Collecting basically means that for every trash we throw away, we put a trash can somewhere else,” said Kate Dooley, a researcher at the University of Melbourne who studies the effects of carbon accounting, in a recent interview. “We now have no more room for persistent carbon dioxide emissions. Emissions must reach zero within a few decades, and we must also eliminate them to reduce concentrations in the atmosphere.

Compensation is the worst financial development: reducing activism to arbitrary economic activity. While carbon credits can help fund renewable efforts – usually reforestation, but also solar fields and the like – the effort may be less than advertised. Greenpeace points out that carbon sinks have a short shelf life: as soon as a forest is burned, logged or naturally killed, the carbon trapped within it is released again.

The only solution recognized by truly active climate activists is to reduce consumption and the amount of carbon released into the environment. This is ridiculous because BitMEX researchers would likely agree on all of this. In their report, they note the limited application of CO2 offsets. The crypto industry needs to face its problems and avoid “empty promises and unclear ESG promises,” said BitMEX.

Crypto has a target behind it precisely because of its energy consumption. Bitcoin has no choice but to burn huge amounts of energy to protect its network. It turns a common good - electricity - into a rare digital good, money, which is guaranteed by its supporters, not by the state, through "proof of work". You can argue (and I wouldn't agree) that it's a complete waste of energy, but you can't really stop it, that's what decentralization is all about. There is also controversy about how to measure Bitcoin's energy footprint. Although the network is heard in public, no one can guarantee what it is powered by. It could be argued that Bitcoin is more environmentally friendly money than others, as miners are encouraged to look for cheap sources of energy (renewables are often subsidized or, of course, cheaper) or to use "stalled" energy (such as from gas flares).

Let’ s look into what BitMEX has chosen:

  • BitMEX has chosen a somewhat heterodox approach to measuring Bitcoin's carbon footprint and decided to measure transaction volume by kilowatt numbers. (Many industry activists say that Bitcoin, the core money network, cannot compare to Visa, the rail payment system, in terms of transactions and energy use; Visa has significantly less energy use based on the number of transactions.)
  • BitMEX estimates that every dollar spent on BTC transaction fees can cause up to 0.001 tons of CO2 emissions. "Assuming a price of $50 per tonne of CO, [the exchange] would have to spend 5 cents for every dollar spent on transaction fees to offset the 5% carbon fee," BitMEX wrote. The money is better put elsewhere.
  • BitMEX notes that its consumption patterns are "imperfect" and "contradictory". I would say it's not a solution. But there is still hope. Bitcoin and crypto in general can stimulate investment in renewable energy. We have developed network scaling solutions such as SegWit, Transaction Packing, and Lightning Network that reduce Bitcoin fingerprinting.

There are also crypto-based systems for tracking or trading carbon credits with the idea that blockchain can make this market less opaque and liquid. This is a great effort, but not a real solution. If crypto companies want to make a difference, they have to invest their huge profits in building real infrastructure: large-scale distribution, building solar and wind parks, funding carbon capture research. Real solar punk stuff, no more financialization. Crypto can calmly work on solutions to fix the climate crisis. We are not responsible for the worst that is in front of us. But it's an industry that's not afraid to experiment and build from scratch. It is very likely that Bitcoin will become CO2-neutral in the near future (social pressure is good for that).

But we must admit that carbon credits are nothing more than a nuisance.

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