This article is the second in a two-part series on cryptocurrency and climate change. Read the first part, “Can cryptocurrency be climate conscious?”, here.
Bitcoin has surged in value since the beginning of the COVID-19 pandemic, fueled by first-time investors and billionaires alike. With investments rocketing five-fold since October, a lot of people are making a lot of money in Bitcoin.
But, given that climate change is forecast to reduce average global incomes roughly 23 percent by 2100, making a fast buck by gambling on Bitcoin is exactly the kind of short-term thinking that caused environmental catastrophes in the first place.
In the first article of this two-part series on cryptocurrency and climate change, we zoomed in on Bitcoin specifically and found that not only does the world’s biggest cryptocurrency have a shockingly high carbon footprint, but its environmental impact is getting worse over time.
This second article looks at some innovative alternatives to Bitcoin and explores how cryptocurrencies and blockchain technology redefine what money is and how it can help us create a fairer financial system for people and the planet. Stand by for optimism!
Stephen Reid, selected as the Green Party candidate for Totnes, U.K. at the last General Election, is one of the teachers of Tools for the Regenerative Renaissance, a course that combines technology and blockchain education with climate consciousness.
“If we don’t change the perverse incentives that are built into existing financial systems,” Reid says, “then we are going to continue to liquidate the planet in search of this pretend wealth that we call ‘money’.”
One example of a “perverse incentive” is government subsidies for fossil fuels. According to a study published last year by Rice University’s Baker Institute for Public Policy, advanced countries spent USD 800 billion in 2018 to subsidize purchases of fossil fuels, compared to only USD 140 billion spent worldwide on subsidizing renewable power generation.
“Even with ongoing subsidies, solar power has reached price parity with fossil fuels in much of the world,” Reid says. “How much earlier could that have happened if we had been subsidizing renewable technologies and not fossil fuels?”
Ending subsidies for fossil fuels could bring about an immediate 28 percent reduction in global carbon dioxide emissions– but even the limited G7 promise to phase out subsidies by 2025 is falling behind schedule. The lack of progressive leadership by governments around the world is not only frustrating, but immensely damaging.
“These are decisions of existential importance for our species, and the evidence is that the people in charge of making and directing money have not been making good decisions,” Reid says.
Cryptocurrencies are one way for activists and citizens to take control of public spending. Every time we use the Pound Sterling, the Euro or the U.S. Dollar, we are inadvertently supporting financial institutions that subsidize the purchase of fossil fuels. Cryptocurrencies give us the opportunity to create new financial instruments that do not support industries that are destroying the environment.
“Now, with the advent of cryptocurrency, we have a totally different option,” Reid adds. “We’re not just asking the state to do things differently; we can create entirely new forms of money that are radically different to anything that central banks and states have tried.”
One example of such a project is SEEDS, a cryptocurrency where any new wealth created is held by a democratically governed cooperative, composed of everyone who uses SEEDS, that funds regenerative projects through grants and interest-free loans. Instead of banks growing rich on the financial transactions of everyday folk, SEEDS puts the money back into the community. It is a radical reimagining of who gets to print money and for what purpose.
Instead of banks growing rich on the financial transactions of everyday folk, SEEDS puts the money back into the community. It is a radical reimagining of who gets to print money and for what purpose.
“In many regions, particularly the Global South, you have to pay a lot more money to have a bank account if you’re a high-risk client due to not having a banking history,” says Susanne Köhler, a sustainable blockchain researcher at Aalborg University. “[Cryptocurrencies] can make financial services available to people who are currently too expensive for the banking system.”
There were 1.7 billion adults in the world without a bank account in 2017. Celo is a project that aims to serve these “underbanked” people by providing a suite of financial services accessible on a basic smartphone.
In 2019, for example, Celo partnered with GiveDirectly to facilitate no-strings-attached cash transfers to the extreme poor in West Africa. These are people excluded from the conventional banking system and therefore frequently sidelined from the processes that decide what happens to charitable donations intended to help them.
Another ambitious project is Circles, a network of personal cryptocurrencies that collectively build a Universal Basic Income from the bottom up. The idea is that everyone who joins Circles is issued with their own personal cryptocurrency – in my case, DaveCoin. One DaveCoin is automatically added to my account every minute, generating my Universal Basic Income that I can spend on anything I want. It will never make me a fortune, but one day my DaveCoin might cover my food and shelter.
But, just like any other currency, DaveCoin only has real value insofar as it is trusted by the rest of the Circles community. The more people who trust and accept DaveCoin for payment, the more valuable it becomes – not only for me, but for the whole community. I have to play by the rules, otherwise my Universal Basic Income is worthless.
If you are finding this all a bit hard to understand, perhaps that is because projects like Celo and Circles are completely rewriting the rulebook of conventional finance and, by empowering individuals and communities, taking a step towards reducing global financial inequality.
Cryptocurrencies are built using something called blockchain technology, which is a sort of “distributed ledger” that keeps track of financial transactions (learn more about that here). However, blockchain technology can be used as the basis for all kinds of applications. In fact, anything that can be imagined and programmed can be turned into a highly trusted, decentralized platform using blockchain.
Regen Network is a decentralized carbon credit blockchain that helps land stewards sell ecosystem services like carbon sequestration, soil health, water quality and biodiversity directly to buyers anywhere in the world. Just as blockchain technology fosters trust in cryptocurrencies, it can also foster trust in the scientific data that is the foundation of any successful carbon credit system.
Regen Network hasn’t fully launched yet, but two trial grassland projects in Australia have reportedly increased soil organic carbon concentration through rotational grazing to 4.5 percent and 3.4 percent respectively. The carbon credits issued for these two projects have been sold to Microsoft to help the tech company reach its ambitious goal of being carbon negative by 2030.
This is where we put aside our day-to-day currency concerns and delve into the murky world of global finance. Because the world has never had a single official global currency, central banks have to keep a supply of “reserve assets” suitable for trading across borders. Gold is the classic reserve asset, but the dominant reserve asset since 1971 has actually been the U.S. dollar.
“The global reserve asset has always been the currency of a country,” Stephen Reid says. “You’ll notice that the global reserve currency at any point in time also corresponds to the country that had the greatest military might.”
In the 17th century, after the establishment of the world’s first central bank in Amsterdam and powered by the colonial gains of the Dutch East India Company, the Dutch guilder become the dominant reserve asset for international trade. As French imperial power grew in the 18th century, the franc took precedence, before the military might of the British Empire propelled the pound sterling to the fore.
“We could say that the reason why the U.S. dollar is the global reserve currency today is due to the fact that the U.S. is an innovative country that has inspired the world,” Reid says. “We could also, more cynically and maybe more realistically, say that it’s also because it’s got the biggest military – and that military is based on oil.”
According to data from 2017, the U.S. military has a carbon footprint larger than the whole of Sweden. In an imaginative and optimistic future, decentralized cryptocurrencies, founded on trust in the blockchain rather than force of arms, could take over as the world’s dominant reserve asset and completely revolutionize the historical relationship between money, the military and fossil fuels.
Whatever the future holds, it is clear that cryptocurrencies and blockchain technology offer so much more than gas-guzzling Bitcoin and that many people are justifiably excited about the possibilities of a decentralized “ecosystem of money.”
As Reid concludes: “It’s important that people realize how significant this technology could be and don’t just dismiss it on the basis of the very earliest experiment.”
So, rather than making a fast buck with the Bitcoin bubble, consider exploring proof of stake cryptocurrencies and investing in community-driven projects that also help heal the planet, projects like SEEDS, Celo, Circles, Regen Network and the many more that are sure to come. Together, we can create a fairer financial system for the future.
Read part one of this series on cryptocurrency and climate change: Can cryptocurrency be climate conscious?
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