CryptoArt and the Environment

Update (2022-09-15): The Merge, Ethereum's switchover to proof-of-stake, has happened. Ethereum proof-of-work mining no longer happens, solving Ethereum's environmental issues. The article below was written before this happened and has been left as-is.

There's been a lot of attention on NFTs (Non-Fungible Tokens) and "CryptoArt" lately, and that's brought a lot of well-deserved criticism on the present environmental costs of cryptocurrency and Ethereum specifically. Ethereum has plans to address these environmental costs by switching from proof-of-work mining to an environmentally-friendly system called proof-of-stake that doesn't rely on large amounts of arbitrary compute power being spent.

Recently an article was written titled "HERE IS THE ARTICLE YOU CAN SEND TO PEOPLE WHEN THEY SAY 'BUT THE ENVIRONMENTAL ISSUES WITH CRYPTOART WILL BE SOLVED SOON, RIGHT?'", which begins with a good description of CryptoArt NFTs and the present environmental issues of cryptocurrency, but there are problems with the other criticisms presented.

What the article says about the ecological cost of proof-of-work mining is mostly true, and I think it's right in that this is a major issue today worth avoiding CryptoArt over. The article argues that it's not good enough to use now just because the environmental issues may be addressed in the future, and I think there's validity to that. But then the article tries to argue that even in a future world where the environmental issues were addressed through proof-of-stake, that CryptoArt would still be morally repulsive enough to practically excommunicate people over. The article's tagline promises to explain why NFTs are a "disaster for so many more reasons than the ecological", but fails to deliver.

I make this point for multiple reasons. In a future where we have NFTs on environmentally-friendly cryptocurrencies, the article's stated reasons for demonizing everyone connected to it are ridiculous. I think mixing good arguments around environmental concerns and bad arguments together obscures the real issues and leads some people to be skeptical about the good arguments. I think today it's important for the environment to encourage cryptocurrencies to move toward adopting proof-of-stake, or to encourage users of cryptocurrency to switch to cryptocurrencies that use proof-of-stake, and to avoid falsely convincing people that the switch would not be a worthwhile improvement. I think the article pushes falsehoods and misunderstandings about cryptocurrencies and NFTs that if addressed can lead to better understanding and even criticisms of cryptocurrencies and NFTs.

General Cryptocurrency Misunderstandings

There are a lot of reasons you could point to to explain this value growth, including general adoption, the anonymity cryptocurrency allows in illegal purchases, and a robust scene of scammers manipulating prices for quick returns. But there is also a very simple and obvious reason, and this is that it is wasteful. It requires value (the price of electricity) to be wasted in order to be made, and inherits all of that value in the making.

Cryptocurrency doesn't gain value from people choosing to burn more electricity on proof-of-work mining! No matter how many miners there are, the same amount of cryptocurrency gets minted over time. The relationship between price and miners goes the opposite way: miners spend electricity on securing the blockchain in proportion to the price of cryptocurrency. If the price goes down, then some miners stop mining because it's no longer profitable for them to mine, etc. Another angle to consider: if a cryptocurrency was changed so it no longer burned electricity through proof-of-work mining (maybe because it switched to a system like proof-of-stake), that wouldn't cause the price to drop to zero just because there's no electricity being burned. People still would get the same utility out of the cryptocurrency; people's utility and valuation of cryptocurrency isn't dependent on it working through mining specifically.

However, in a digital context scarcity must be constructed- there is nothing that demands the next block in the blockchain be harder to make than the last. If anything, the opposite should be true- computers grow ever more efficient and powerful. This means any scarcity is artificial, a process that demands ever more energy, ever more resources lost to continue to operate and return, for no other reason than to insure that tomorrow it will be even more expensive- which makes the wastefulness of today a good investment.

All digital payment systems rely on artificial scarcity. PayPal could freely let account balances be set to higher numbers, but that would make it useless as a payment system. Actually, all payment systems rely on artificial scarcity. The government could print orders of magnitudes more dollar bills than it does today, or it could even decide that dollar bills are photo-copyable, but that would make them useless.

It's true that mining becomes harder over time as the price goes up, but it's because of multiple reasons. When a cryptocurrency is worth more, more proof-of-work needs to be spent on the blockchain to prevent 51% and double-spend attacks. A cryptocurrency's minting rate is predetermined: you don't want an increase of miners to cause runaway inflation. The mining difficulty primarily adjusts over time to keep the block time constant: you don't want the block time to speed up boundlessly as the cryptocurrency gets more popular, or else the network will become flooded, blockchain storage sizes will go through the roof, and the block orphan rate will make the blockchain unstable.

The fact that mining becomes harder as the price goes up is not to ensure the price goes up. The system would still work fine if the price stayed stable or went down; mining even becomes easier as the price goes down. The mining difficulty adjustment isn't to influence the price but just to keep the block time stable.

Proof of Stake

Ethereum “has been moving” to proof of stake for almost as long as it has existed. It has been so long that “Eth 2.0 PoS Coming Soon!” is something of a running joke. In all that time, any time the ecological cost of PoW is brought up, PoS is touted as the redemption just over the hill- if we can just hang on another few months, the whole network will be green.

Early approaches to proof-of-stake turned out to be flawed (see the "Nothing at stake" problem that plagued early PoS cryptocurrencies), and it's taken a long time to understand and address the issues. Ethereum was originally planned to launch as PoS, but the community figured out that was a wildly optimistic plan.

I don't think it's accurate to say that PoS was considered "6 months away" throughout all of Ethereum's life. As far as I can tell, the concrete Ethereum 2.0 PoS planning didn't begin until late 2018, and it seems like it was always considered to take years to show fruit. The Eth2 Phase 0 Beacon Chain launched last December, and users have transferred over $5.5 billion into it already.

I think skepticism about the arrival of proof-of-stake isn't unfounded, and I think it's valid to discourage cryptocurrency usage until it's actually here, but from here the article alternates between arguing that proof-of-stake isn't enough or even returning to criticize non-PoS cryptocurrency without being explicit that it's no longer talking about cryptocurrency after the environmental issues were addressed, as you would assume it would be from the title!

I’m sure you’re seeing the problem here- there is not a schema [for Proof of Stake] that doesn’t reward those who already are already wealthy, who are already bought in, who already have excess capital or access to outsized computational power. Almost universally they grant power to the already powerful.

Anyone can stake (many discussions mention a 32 eth minimum amount, but staking pools allow people to participate with less than that), and because the rewards are split among all stakers, it means the profitability of staking is kept low because more people will stake as long as it's a competitive investment. Coinbase estimates the rewards for staking to be 3-7.5%, which is lower reward than many investment opportunities and doesn't factor the risk from price volatility.

I think the goalposts are massively shifted here, as if to say "Sure, it solves the ecological issue, but it provides a middling investment opportunity, so it's still terrible".

Part of the reason this is true is that cryptocurriencies are pyramid schemes. In a cryptocurrency marketplace, you make money on the people who have entered the market after you. This is not me on my socialist shit (which, don’t worry, I’ll get to later) but is rather just the fact of how they are constructed. Unlike a Ponzi scheme, there is no guarantee that it will all collapse someday- but the value continuing to rise absolutely depends on ever more users joining the network, using coins, and competing to mine them.

This is assuming that the only value to cryptocurrency is from it having an increasing price. If this were the case, there wouldn't be any cryptocurrencies and stablecoins like DAI which don't have price increases or volatility.

It seems like a common misunderstanding that the point of cryptocurrency is just to have its price go up. Cryptocurrency is about letting people have direct control over money and payments online without having to go through middlemen companies. Consider every time that PayPal or Patreon close someone's account with no explanation with no recourse, or introduce policies deeming certain kinds of payments off-limits. Without cryptocurrency, the only way to directly deal with money and payments without middlemen is in person with physical cash. I'm not sure cryptocurrency is something that everyone should use, but the freedom of having that option is valuable.

CryptoArt NFTs

To make an NFT, you have to “mint it”- register it on the blockchain. Minting an NFT takes energy (kind of- it gets bundled up into lots of other transactions which take energy to solve as a block, an aggregation scheme which has allowed the NFT market to claim culpability). Regardless, the artists pay “gas fees” to offset this energy cost.

This is true only as long as proof-of-work is used! This wouldn't be true after a switch to proof-of-stake. It's misleading for the article to frame itself as if it's talking about a future Ethereum version that switched away from proof-of-work mining and then come back around to criticisms that only apply under proof-of-work mining.

While minting an NFT doesn’t stop the associated file, image, album, or gif from duplicating or circulating, but it does mean that by this social contract a copy is not “the original” because it is not held by the owner.

There are mixed feelings about this idea- plenty of NFT artists are excited about monetizing images, plenty of people shrugging and saying it is fake ownership and doesn’t change anything about how files work online anyway (tbd- we’ll see how this settles out in legal spaces), and plenty of people horrified to see artificial scarcity imposed on digital objects. You could probably guess I’m in the last camp.

I feel like it's weird that the author admits that not everyone agrees that NFTs mean that the art is supposed to not be copied, but then puts forward that they believe it's that case but that it's also bad for it to be that case.

This is it! This is the one thing! Digital artists have media that can proliferate over a network and be held by many people at once without cheapening or breaking the aura of a first-hand experience. It is the one true benefit to working in digital space.

NFTs are just about the social construct of "who has the original", the right to be considered the patron of the work, and the right to resell and trade that right, not about the right to view a work. As far as I know, cryptoart NFTs are generally freely viewable online! There is no artificial scarcity of who has access to viewing the art piece. The artificial scarcity introduced by NFTs is like the "artificial scarcity" of the supporter credits section of a Patreon-funded YouTube video.

When bought, these artworks have a record of sale and statements of authenticity, and are often couched as “a good deal”- this artist showed at X or Y gallery, they’re undervalued, they’re a hot investment opportunity. And from that point on, it is always up to the purchaser of the work- not the artist- how that piece will function in the future; as an artwork, as a futures investment stored in a warehouse, a tax shelter, or as somewhere in between.

Is it not better then that cryptoart NFTs get to stay freely viewable online despite whoever buys it? It seems like the best of both worlds: art gets to be funded through eccentric rich people who love the vague social idea of having credit for "the original", but the public still gets to see the art too.

Digital files don’t have that much going for them. They store monumentally less information than say, a piece of paper- which contains the artwork on it as well as inscribed histories of hand, pen, ink, pulp, forest- a dense connected materiality that unfolds forever. A digital file is a pauper in comparison. A file breaks down to requisite ones and zeros well before one can reach the atomic composition of the materials in a physical drawing.

The article has lots of parts like this that are entirely separate of the environmental concerns trying to convince people that no one actually wants cryptoart, flying in face of the apparent reality that plenty of people want it enough to pay money for it and plenty of artists want to accept money for it.

People don't buy an original art piece because it has microscopic information in its atomic composition, or at least it's not the only reason people do so, and the people interested in cryptoart definitely don't. People do it because they want an exclusive connection to the artist and the work that no one else can concurrently claim. People do it because they want to participate in a system that rewards the artist (either by buying the work directly from the artist, or buying the work from a secondary market, which rewards someone else for supporting the artist, which may encourage more people to do so or for primary purchasers to pay more). People want the social rewards of visibly doing these things. NFTs are capable of these goals.

Many of these non-environmental criticisms in the article equally apply to plenty of non-blockchain-related systems for buying digital goods, such as digital stores for music, ebooks, movies, or videogames! But does the author argue that there's a moral imperative to excommunicate everyone involved with those from society? It would be ridiculous to do so, and so these non-environmental reasons are ridiculous reasons to excommunicate people involved with cryptoart too.

But cryptocurrency and cryptoart are not bad for the environment accidentally- they are not bolted onto this blundering machine and cannot just be taken off (the technology of a proof of work-based system almost guarantees this). Fundamentally, cryptocurrency AND cryptoart are valuable because they burn energy. Because they turn sunk energy cost into futures.

The current ecological cost of cryptoart and cryptocurrency is very real and very large, and while steps can be taken to reign in some of that energy cost, the crypto- market is still based in a value system that fundamentally ties worth to spent physical resources. There is no undoing that relationship, no matter how low the cost to mint tokens gets or what the percentage of green energy is in doing so.

Again the article quietly moves back to assuming a non-PoS Ethereum! This criticism doesn't make sense: cryptocurrency and cryptoart's value doesn't come from the energy burn of mining. The only way you could believe this is if you believe that once Ethereum moves to proof-of-stake, everyone will consider their cryptocurrency and cryptoart valueless and sell it off. This is like saying that cars are only valuable because they pollute the atmosphere!

Cryptoart remakes digital artworks as primarily tokens of monetary worth, content and concept secondary to an asset that has market value.

I get why some people wouldn't prefer to participate in this system, but it doesn't make the system evil, and that's not fundamentally different than the art scene that's existed for much of history and has helped produce many works we consider classic. It's strange to treat this judgment on par with the very import criticisms around environmental cost! It's ridiculous to totally condemn ("The only viable option is total moral rejection. Anything less (selling, collecting, posting links to artists selling NFTs, yes even trying to find a less ecologically devastating model) holds up the power of the worst parts of this platform.") anyone who participates in a future version of this system where the environmental concerns have been addressed!

I truly do want to live to see the world that rewards artists for making the work they would like to make without asking them to jeopardize their health, stability, and creative integrity. This is not just my political belief- it is a desire that would directly benefit me and those I love. It is a future I have to believe in to keep going every day.

However, we must get there through collective empowerment and strong social programs like universal basic income, universal healthcare, divestment from warfare and policing, a regulated real estate market that does not capitalize on housing scarcity and rent, worker unions, food programs, environmental protections, and actual, functioning income taxes on the wealthy.

I mostly agree with the idea of this except for the idea that utterly condemning the art trade or digital storefronts are necessary or even useful steps to accomplishing this.