Author: Maxime Eyraud, Consulting Partner, Naavik, Abhimanyu Kumar, Chief Executive Officer, Naavik, Moritz Baier-Lentz, Partner, BITKRAFT Ventures
- Blockchain gaming and cryptocurrencies are no strangers to ecological controversy with the rise of NFTs putting the issue into the spotlight.
- 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.”
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 publiclycondemned 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…