Beat lipstick on a pig

It may come as a surprise that one of crypto’s biggest “utility issues” has been in combating climate change, given the general sentiment surrounding blockchain’s environmental footprint and large energy consumption.

In the last three months of 2021 alone, tokenized carbon credits were traded for around $ 3 billion, representing hundreds of millions of metric tons of greenhouse gases, according to The Wall Street Journal, citing ClimateDAO data.

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During the first six months of this year, at least 23 million carbon credits were transferred to the chain from centralized registries, representing about a quarter of the credits listed at the time, according to data provider Trove Research.

Then there is the $ 423 million that venture capitalists have invested in crypto-based carbon tracking initiatives over the past 18 months.

See also: Crypto Carbon: Can Blockchain Networks Fix Carbon Compensation? | Opinion

Despite this measurable market growth, a major gain for those who want to disrupt and democratize the sclerotic world of carbon offsets, the industry is facing something of an existential crisis. And maybe it’s better to let it die.

This weekend, WSJ reported that Flowcarbon, the busy blockchain project founded by discredited ex-WeWork boss Adam Neumann and backed by cryptocurrency center Andreessen Horowitz just two months ago, has delayed the launch of its product line indefinitely.

The Journal placed this news among a larger trend of high-profile crypto-climate startups that have “either reduced operations or delayed product rollout” in recent months. These are perhaps just deserts for those who saw Nuemann – who tried to brand the word “we” – reinvent themselves as a proponent of cryptocurrency and thought “it must be a scam”.

Speaking to the Journal, Flowcarbon CEO Dana Gibber said Neumann was not involved from day to day, pointing to the downturn in the crypto market for the break. (The Celo blockchain-based effort hoped to launch its Goddess of Nature (GNT) by the end of June, having raised around $ 70 million in a private pre-sale advertised on the site.)

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But there is a bigger problem on foot than a market route: In May last year, the standard bearer of carbon credits, Verra, announced that it would ban the conversion of retired credits into crypto tokens after finding that crypto upstarts were less than responsible. Although this has not affected all cryptocurrency projects, it has been a major roadblock for many, and it casts doubt that blockchains can ever surpass the problems on a human scale that plague the climate activist.

In theory, crypto provides a way to bring transparency and liquidity to largely unregulated and voluntary carbon credit markets. There is no doubt that some of these claims are true, given how fragmented the current carbon credit industry is. But the general effect is one of beating lipstick on a pig.

Carbon credits are issued by companies that claim to remove carbon dioxide from the atmosphere, either through their business practices or more active conservation work such as planting trees. While they can help stimulate or fund sustainable efforts, these assets are really just “compensations” that allow others to pollute.

As consumers demand more sustainable practices, companies resort to carbon offsets for an easy PR win. Crypto exchanges Gemini and FTX, for example, voluntarily buy credits because they benefit indirectly from the energy-intensive proof-of-work process used by the two largest blockchains, Ethereum and Bitcoin. But they are hardly alone in greenwashing.

No amount of market efficiency magic can fix this high-level problem. Crypto can certainly help prevent “double consumption” of carbon credits, increase access to these markets and even help solve some of the “governance” problems that have plagued the industry for decades. But does not what Greenpeace called “a distraction from the real solutions to climate change” accelerate?

At worst, cryptocurrencies are a waste of effort and, literally, energy. One of the projects affected by Verra’s hardstop, KlimaDAO, demonstrated this after “sweeping the floor” with old carbon credits in the hope of raising the price of pollution.

See also: Will reality take revenge on Andreessen Horowitz’s gigantic new crypto fund? | Opinion

The strategy actually worked; it took 5% of Verra’s carbon credits out of circulation by locking them in a treasury (what it called a “black hole”), thus increasing the cost of carbon credits. However, critics were quick to point out that many of the credits it bought were from retired or dormant projects – so they did not actually suck carbon out of the atmosphere.

It’s not quite as wasteful as restarting former coal power plants with coal power plants to extract bitcoin, but at least indirect carbon is re-emerging.

Again, many of the problems that plague cryptocurrencies are simply inherent to the overall market. There is no consensus on how to value these assets or what makes a green project green. There is also little supervision that ensures that projects do what they promise.

“Blockchain supporters celebrate its ability to be transparent. But if this power is only used to track transactions, not the details of what is being traded or by whom, we have missed a trick – especially in such a heterogeneous market,” Sarah wrote. Leugers from Gold Standard in a Carbon Pulse edition.

It is also difficult to see how some of the promises of the blockchain will play out, as the hope that it can make these assets “interoperable”. The problem here is that carbon credits are usually issued by individual companies or projects and sometimes brokers, making a uniform standard difficult.

Although it is possible for “nuclear swap agreements” and assets across chains, at this time there is little indication that these crypto projects alone will be interoperable, let alone harmonize the entire market.

In fact, a major criticism of the role of crypto in carbon markets has been increased market confusion – stemming from the growing number of players and having to check if an asset is alive on the chain.

That said, Verra has not completely soured on crypto-based carbon credits, and aside from the most ardent critics, many see the potential for the blockchain’s openness to this industry. Both crypto and the fight against climate change are decades-long processes, and it is likely that innovation and reinvention will come.

But at this stage, much like Adam Neumann’s reinvention of real estate / office / climate advocates, this is a hollow effort.