Changing Climates in Crypto

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Expectations were high for the Merge, the Ethereum blockchain’s long-planned transition from Proof of Work (PoW) to Proof of Stake (PoS) in September 2022. A few weeks later, it seems it may have already exceeded those expectations in one regard: sustainability. The Ethereum Foundation had estimated that removing the need for processing-intensive mining operations would cut the Ethereum network’s energy consumption by 99.5%. By at least one estimate by the Crypto Carbon Ratings Institute, actual consumption has dropped from a peak rate of 22,900,320 kwH/Year to just 2,600, savings of over 99.9%. 

 

According to Matt Maximo from Grayscale’s research team, Ethereum’s energy efficiency has been part of the conversation from the very beginning. “Back in 2015, there wasn’t really a Proof of Stake consensus mechanism that worked yet,” he says. “The plan was to use a proven consensus mechanism that has worked really well for Bitcoin while we figure out how to do it.”

 

While the transition carried tradeoffs in decentralization, among other risks, Maximo explains that the choice was supported by the successful debuts of other PoS projects like Cardano, Avalanche, and Solana, as well as the scale of the energy savings. “You could run the equivalent of an entire Proof of Work mining farm, thousands of computers, on a single Raspberry Pi,” he says. And further improvements might be possible through innovation in areas such as light nodes.

 

It runs contrary to typical narratives around impact and sustainability in crypto, and it turns out that the Merge isn’t an anomaly in that regard. Blockchain sustainability is not an oxymoron. The ambitions of founders and other market participants align with broader market trends in environmental, social, and governance (ESG) investing to drive innovation (and maybe even do some good).

 

Brooke Stoddard, Director, Investor Relations at Grayscale believes that in an increasingly crowded and scrutinized ESG investing landscape, the potential for further impact-oriented innovation could help the digital asset sector stand out. “Crypto is a new technology. The longer the industry is around, it’s naturally going to evolve in response to attention from regulators, investors, and the general public,” he says. 

 

 
Brooke Stoddard speaks at the 2022 BNY Wealth Management Conference 
Source: Grayscale

 

“As millennials enter their prime earning years and take on more senior decision-making positions, ESG is certainly of increasing importance,” he says. “Even more than for individuals, this has been a sticking point for investment banks and other institutions which often have very public and very broad ESG mandates and commitments.” He points to recent research from Bank of America which notes that transitioning to Proof of Stake could help digital assets associated with Ethereum to attract interest from institutions previously restricted from owning Proof of Work tokens. 

 

Provenance

 

Of course, portfolios are far from the only place people express their values. A poll commissioned by Google found that 82% of shoppers want to buy products from brands that align with their values, but 72% think that brands overstate their commitment to sustainability.

 

“If you’re shopping on a brand’s website and they make a sustainability claim, you shouldn’t just have to take their word for it,” says Jessi Baker, founder and CEO of Provenance. As an early Ethereum developer and self-proclaimed “ecommerce-first shopper,” she’s using blockchain to help brands build trust with discerning consumers.

 

 
Source: Provenance

 

It starts with verification by a third-party authority through Provenance’s software. Whether a product is vegan, fair trade, organic, cruelty-free, or anything else a company might want to demonstrate, Provenance enables verification from the supply chain to reach the point of purchase. “A blockchain is a really great facility for that because you’ve got this immutable record. No one can screw around with it. It’s open source. It’s independently brokered between the verifier and the brand that’s making the claim and the shopper looking to know the facts,” says Baker.

 

With 200+ brands and retailers signed on and investors including Grayscale’s parent company DCG, Provenance aims to build beyond credibility and transparency. Future plans include a cross-brand loyalty token to incentivize deeper engagement. “At the moment we rely on shoppers just wanting to shop with their values, to buy organic cotton versus not,” Baker explains. “There’s no incentive to do so other than just being a good person. That’s enough for some people but it’s not enough for everyone.”

 

Anode and the React Network

 

Meanwhile, using tokenomics to incentivize sustainability is central to the React Network, a project of Anode Labs. Cofounders Jason Badeaux and Dallas Griffin aim to build “intelligent flexibility to decarbonize power grids” by linking energy producers and consumers. Token rewards will help coordinate and incentivize small adjustments through connected smart thermostats, battery storage systems, and other digital energy-saving devices. “There’s a negative bias against crypto energy use. But we believe we can actually accelerate the rate of deployment of renewables in our power grid and reduce the emissions that it produces,” says Griffin.

 

Source: Anode Labs

 

While the utility of such a project may be most apparent during periods of high stress, such as the 2021 blackouts in Texas, Badeaux also predicts that the React Network could help grids benefit from greater efficiency during everyday power consumption. “Small adjustments end up being large in the aggregate and that can make a huge difference,” he says. “It’s just people taking up a more active role in the energy economy and our goal is to make that exceedingly easy.”

 

Their ideas have been well-received by energy investors and crypto investors alike, including Grayscale’s parent company DCG, and the Anode team is gearing up for a public launch by the end of the year. “We obviously very much believe in the power of this approach via the economic incentive of what crypto can do and the different techniques from a climate perspective. We think this is the only way that a business like this could be effectively built,” says Badeaux. 

 

Griffin, a Louisiana native, describes the region as “ground zero for climate change in the US” and cites his firsthand experiences with coastal erosion and extreme weather as evidence of “the seriousness of the problems” that Anode is trying to solve. Jessi Baker was inspired to create Provenance by her frustrations with greenwashing as an online shopper. “As people globally figure out more use cases for crypto, the growing potential for long-run benefits makes the underlying asset or the crypto asset class attractive today,” says Brooke Stoddard from Grayscale Investor Relations.

 

“As the world gets more decentralized, in the sense that people are working remotely, in different countries and different time zones, building something with a token could start to look like an attractive option for founders compared to traditional funding,” says Matt Maximo from Grayscale Research. Ultimately, it’s important to remember that blockchain is a tool, albeit a powerful one. Whatever it’s used to build is going to reflect the values of the people who build it.

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