Will Crypto Carbon Offset Make Blockchains Sustainable?

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May. 12 2021, Published 10:53 a.m. ET

Non-fungible tokens (NFTs) and other blockchain-based assets have been under fire recently for the massive amount of energy it takes to conduct trades. Cryptocurrency companies and fund managers have speculated on what it will take to shrink their footprint. Some are opting for crypto carbon offset.

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Is offsetting your carbon footprint as impactful as reducing your emission output? Is this the most effective way for crypto industry leaders to make a change? 

Ninepoint is in the news for its new crypto carbon offset program

Canadian investment firm Ninepoint Partners LP manages a variety of funds with a focus on alternative strategies. Some of its portfolio is only available to accredited investors with a minimum of $150,000, but others are open to retail investors of all kinds. The portfolio includes private debt funds, senior debt funds (ETNs), and a bitcoin ETF called the Bitcoin Trust (TSE:BITC.U).

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Ninepoint says that its bitcoin ETF is now carbon neutral. The company's website reports that the fund is "an environmentally-friendly way to buy Bitcoin" and that it will "use a portion of its management fee to offset the carbon produced by the Bitcoin held in this ETF."

The management fee for the $8 billion fund is 0.7 percent, which is on the higher end but not wildly beyond the norm. Ninepoint's offset program includes Amazon forest conservation projects. Planting trees will help rehabilitate the ecosystem and release more carbon dioxide into the atmosphere (hence the offset).

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This will help contribute to the United Nations' sustainability goals and paves the way for other cryptocurrency operations to do the same. 

Why cryptocurrency trading has a hefty carbon footprint

Different blockchains that run cryptocurrency (like Bitcoin and Ethereum) function as computers performing complex puzzles. Because of this, the technology that runs the servers uses a lot of energy. This is especially true for NFTs, which tie a digital asset to a specific blockchain ID. However, Bitcoin isn't immune from this.

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As a whole, Bitcoin produces 36.95 megatons of carbon dioxide each year. This is about the same energy usage level as the country of New Zealand, and slightly more than the Netherlands.

People are already talking about how to make Ethereum more sustainable using renewable energy. However, experts are trying to weigh the pros and cons since the blockchain is currently so secure.

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As some businesses transition to a partially Bitcoin-based payment structure, they'll have to consider whether the carbon emissions align with their own sustainability goals. 

Crypto carbon offset versus emission reduction

As Ninepoint works to offset its carbon emissions for its bitcoin ETF, one debate comes to mind. Carbon offset compensates for emissions made elsewhere, but it doesn't eliminate them.

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There are two types of carbon offset—voluntary and compliance. Ninepoint has developed a voluntary program, which is better than nothing. Voluntary offset programs as a whole amounted to 100 million metric tons of carbon dioxide equivalent in 2018.

As long as funds and cryptocurrency companies continue to work toward more sustainable options (like reducing emissions by transitioning to a renewable foundation), crypto carbon offset isn't inherently bad. In the long term, it just might not be enough. 

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