What's the Point of Crypto?

Earlier this week, pre-crypto-crash, I had a fun conversation about ideas at the intersection of climate and crypto. But there was a telling refrain: “Interesting business, but does it need to be built on a blockchain?” And, honestly, nearly all of the opportunities we were discussing could be built without leveraging blockchain technology. So what are blockchains good for?

This is a question that will surely be asked again in the wake of this week’s cryptocurrency meltdown. Cryptocurrencies have been the showcase use-case for the blockchain. Bitcoin has served as a pretty good store of value, a digital version of gold. Take that away, and what have you got? (Or don’t take it away, because Bitcoin will probably continue to thrive as a store of value. The question from blockchain skeptics remains: what else have you got?)

Chris Dixon at A16Z talks about how hard it is to predict what new products will be built on top of new technology platforms. When the iPhone was first introduced, Chris asks, who would have guessed that ride hailing would be a killer app? With this in mind, I hesitate to make predictions. But I will make a suggestion:

Crypto Could Tackle Climate Change.

Right now, crypto is part of the problem, of course. I’m an optimist that we’ll find ways to reduce the carbon emissions associated with blockchains. Ethereum, a key blockchain, is in the process of switching from an energy-intensive Proof of Work mechanism to an energy-efficient Proof of Stake mechanism. Also, the crypto community seems to be embracing, albeit in fits and starts, the need to shift its energy consumption away from fossil fuel-driven sources.

For the sake of argument, let’s assume we solve crypto’s emissions problem. Why do I believe the crypto community could then be helpful in actually tackling climate change? Because of what we’ve already seen the crypto community excel at doing.

Crypto Superpower #1: Mobilizing Huge Amounts of Capital

The amount of money flowing into and through crypto is astounding. A couple of metrics:

• The market cap of the top two cryptocurrencies — even after this most recent correction — is over $1 trillion. 

• On Wednesday, Uniswap, a leading decentralized exchange, processed over $5 billion worth of transactions, with no downtime.

• Venture investments in blockchain and crypto topped $3 billion in Q1.

Why are crypto markets succeeding in mobilizing, aggregating, and steering huge amounts of capital? First and foremost, because people sense that they can make money. This is nothing new. Money has gone where it can make money since the dawn of capitalism.

What is new is the dramatic reduction in the friction associated with mobilizing capital for new projects. To be fair, there are downsides to this reduction in friction. Value-creating projects are easier to spin up; so too are scams. But, at least until and unless regulators clamp down, the crypto community will continue to launch new projects at a dizzying pace.

Reasonable people can disagree on how much of what we’re seeing is value creation, how much is speculation, and how much is straight up fraud. But I think it’s inarguable that the crypto community has created a new space where a lot of people believe they can make a lot of money.

How is this relevant to climate change? More on this in a moment. But first let’s look at something else that the crypto community does really well.

Crypto Superpower #2: Giving People Bragging Rights

Remember the NFT craze? A few months ago, Beeple made news by selling blockchain-based art via auction at Christie’s for $69 million. Beyond the headlines, there are lots of other places where people are continuing to spend real money on virtual, blockchain-native goods. Certainly, speculation is a driver. But there’s something else, more social, going on here. People love to have bragging rights!

This is nothing new. Whether it’s the house on the hill, the sports car, being the top bidder at a charity auction, or getting your name on a hospital — people like to show off. The same is true in the virtual world. Check out the response to the creator of a virtual world, who asked users whether virtual goods should be viewable by people who don’t own them:

Cryptovoxels.com is a good place to see the early Metaverse taking shape.

Flaunting is everything! Crypto is offering people new ways and new places to have bragging rights. Vitalik Buterin hints at how we can harness this superpower for good and not evil in a recent post:

“Which NFTs people find attractive to buy, and which ones they do not, is a question of legitimacy: if everyone agrees that one NFT is interesting and another NFT is lame, then people will strongly prefer buying the first, because it would have both higher value for bragging rights and personal pride in holding it, and because it could be resold for more because everyone else is thinking in the same way. If the conception of legitimacy for NFTs can be pulled in a good direction, there is an opportunity to establish a solid channel of funding to artists, charities and others...

“Some institution (or even DAO) could ‘bless’ NFTs in exchange for a guarantee that some portion of the revenues goes toward a charitable cause, ensuring that multiple groups benefit at the same time. This blessing could even come with an official categorization: is the NFT dedicated to global poverty relief, scientific research, creative arts, local journalism, open source software development, empowering marginalized communities, or something else?”

Harnessing Crypto to Fight Climate Change

Over time, other crypto superpowers will likely emerge. But for our purposes it’s enough to know that crypto excels at mobilizing capital and giving people bragging rights. These are two things that can be very helpful in the fight against climate change.

Transitioning to a renewables-based economy and taking excess CO2 out of the atmosphere are VERY expensive endeavors. Money’s not the only thing that matters, but money does matter. What’s going to get people and companies to part with their money? I can think of two things: the opportunity to make more money, and the opportunity to be seen as a hero.

As I’ve covered in a previous post, there are several initiatives at the intersection of climate and crypto. So far, none have been transformational. Perhaps it’s just a matter of time until one of the existing initiatives takes off. Or perhaps no one has yet figured out the approach that best enables people to make money and/or show off. But, one way or another, I think it’s going to happen.

Will the Crypto Community Focus on Climate Change?

The crypto community is so big and diverse at this point, it won’t ever focus on just one challenge. But we don’t need everyone. We just need a few who are interested in leveraging the superpowers of crypto in the fight against climate change.

Why do I believe these people will step forward? A few reasons:

1. Many already have. I’ve been lucky enough to speak with some of them, and it’s an amazing group of people who are actively thinking about this space. Check out Regen Network, and you’ll find a particularly vibrant community at the intersection of climate and crypto. 

2. Climate change is a challenge of enormous proportions, and our success (or lack thereof) in tackling it will have enormous consequences. People often say that crypto needs a use-case. How about the biggest use-case in history? What better way to demonstrate the power of crypto than to leverage it to tackle a huge, real-world problem?

3. Climate change will not affect people around the world equally. Communities that are already vulnerable — whether it’s due to location, institutional failure, or poverty — will likely bear a disproportionate burden. Will crypto engineers and crypto millionaires care about these vulnerable communities? Many of them are part of these communities. Unlike previous tech booms, this tech boom is decentralized. Crypto talent is distributed around the world, and crypto is making people rich all around the world. My hunch is that the crypto community will care about climate change because they will be affected by it. Not in the general sense that all people will be affected by it — though we will. But in the specific sense that many are part of the communities that are likely to bear more than their fair share of climate change consequences. Check out how the crypto community rallied when Sandeep Nailwal organized an effort to get money flowing to India to help in the fight against COVID-19.

It’s been a tumultuous week for crypto. But look beyond the rollercoaster markets for specific cryptocurrencies, and you’ll find a lot of really interesting activity. Hopefully, in the months and years ahead, this will include several initiatives that effectively harness the superpowers of crypto to fight climate change.

@Elisabeth_Steyn makes the argument more succinctly than I do.

Wouldn’t it be great if, one day, we could look back on this time and see crypto not as a contributor to the climate problem, but as a technology that helped turn the tide in the campaign for climate stabilization?