3 Major Drawbacks of Crypto-Focused Carbon Projects
Nowadays, when the word “crypto” is mentioned alongside any industry project, there arises a bit of skepticism–and for good reason. More often than not, people are skeptical of cryptocurrencies because of their relation to scams, rugpulls, and other nefarious activities. Unfortunately, this is equally true for crypto-focused carbon projects, which are not necessarily scams, but they also haven’t been proven to be effective in actually reducing carbon emissions like they claim to.
However, the technology behind cryptocurrencies–blockchain–still does have potential to create immense value for carbon projects. This article will not only discuss the three major drawbacks of crypto-focused carbon projects, but also point out the strengths of carbon projects that are utilizing blockchain to create substantial value for global carbon markets.
Drawback #1: Poor Quality of Carbon Offset Credit-Based Crypto Tokens
One of the critical drawbacks of crypto-focused carbon projects is the poor quality of carbon offset credit-based tokens. The cryptocurrency tokens created and traded from these projects are represented by carbon offset credits that are of terrible quality. In this case, you may be wondering, what exactly is a low quality carbon offset credit?
Here’s an example: let’s say a carbon registry generates a carbon offset credit from a carbon emission reduction project that claims to decrease CO2 in the atmosphere through rainforest preservation or tree planting in the Amazon Rainforest. Before diving deeper into the situation, one can assume the carbon offset credits generated from rainforest preservation must be high quality credits. However, further investigation leads to the discovery that the specific area of the rainforest was never endangered at all; therefore, the generated credits to preserve the forest area are in fact worthless because the CO2 emissions were unfortunately never removed from the atmosphere.
In that sense, if a cryptocurrency token is created to represent these low quality carbon offset credits, then the crypto token will also have no little to no merit. Ultimately, hiding the carbon offset credit under the guise of a crypto token will neither improve the quality nor increase the value of the carbon offset credit.
Drawback #2: Over-Exaggeration of Crypto-Based Carbon Projects Mitigating Climate Change
In recent years, there have been several companies within the growing carbon offset credit industry incorporating crypto into their businesses. Moreover, the goal is to put carbon offset credits on the blockchain to increase transparency, auditability, and traceability of the credits and any related carbon data. Blockchain technology does indeed have enormous potential in creating value for the carbon credit market; however, as mentioned in the previous section, cryptocurrencies are not the most appropriate utilization of blockchain technology in reducing the increasing dangers of climate change. In fact, cryptocurrencies haven’t contributed much to actually solving the climate crisis.
For example, not only are many carbon offset credit-based crypto tokens of low quality, but they are also connected to obsolete carbon projects that did not have the traction and revenue to continue their day-to-day activities. If these obsolete projects were to try and trade their carbon credits, there would be no buyers because a change in ownership will not change the value of the carbon offset credits.
Drawback #3: Crypto Mining Contributes to Climate Pollution
The immense energy usage from bitcoin and other crypto mining has been a controversial topic since bitcoin mining was first introduced to the world. Without a doubt, cryptocurrencies based on the proof-of-work protocol like bitcoin are highly energy intensive–the data is available below:
Bitcoin mining requires special computers and other hardware to solve the intricate codes that make up the blockchain, which is not only energy intensive, but also significantly detrimental to the climate–making it a significant contributor to the climate crisis. Therefore, the fact that cryptocurrencies are being utilized in carbon projects seem a tad bit counterintuitive, if in fact they are proof-of-work cryptocurrencies. In some cases in the U.S. for example, bitcoin mining has become such a problem that regulators denied permits for an energy intensive gas-based power plant required to mine bitcoin. With that in mind, backing crypto-focused carbon projects becomes an issue of environmental impact that can be avoided if cryptocurrencies are not incorporated into carbon projects, which leads us to the final section: how FiO, a Web3 infrastructure platform, is working to create real value in carbon markets without the need for crypto-focused carbon projects.
FiO: Creating Real Value for Carbon Projects
FiO is a platform, providing cutting-edge technology built on a blockchain foundation to collect and transform carbon assets into transferable carbon credits with self-served and easy-to-use connections. What differentiates FiO from crypto-focused carbon projects and other carbon blockchain projects is that it seeks to create long-term value, and not short-term gains.
FiO’s Value Proposition
Renewable energy companies have already connected to the FiO platform to create, track and authenticate carbon assets with simple Plug-n-Play APIs and familiar protocols already recognized by various legitimate carbon registries—both domestically and internationally. Moreover, with low onboarding fees, enterprises can participate in the global carbon credit market without having to invest costly time and resources in building blockchain based infrastructure or requiring expensive expertise. For enterprises, this will not only save huge costs on infrastructure investment, but also save enormous time on processing carbon credit sales globally, eliminating the barrier of cross-border trading for carbon credits.
Furthermore, the assets are not only in compliance with UN-based standards, but will also be globally tradeable on licensed exchanges in different jurisdictions for maximum economic return. Rising concerns on greenwashing and false ESG reporting of carbon assets can be put to rest using the immutable audit trails based on FiO’s multi-blockchain compatibility.
FiO differentiates itself from its competitors using its end-to-end monetization infrastructure and multi-tier protocols with multi-chain compatibility to remove potential geo-political risks and automate the pre-approval of international regulatory requirements. Unlike crypto infrastructure providers, FiO focuses on enterprise needs and is designed to create easier, faster, and frictionless connections for enterprises without any changes to their existing infrastructure.
Lastly, removing low quality credits necessitates fostering partnerships with trusted third-party intermediaries like traditional carbon offset registries, which is why FiO is collaborating with important entities in climate policy such as the United Nations Framework Convention on Climate Change (UNFCCC) and the Singapore IMDA, in addition to globally recognized solar companies.
In conclusion, crypto-focused carbon projects have many flaws, which limit their potential to create value in the carbon market. As evident in failed attempts to create carbon offset credit-based crypto tokens based on hype, these projects are only looking for short term gains. Companies like FiO are analyzing the limitations and using blockchain technology to create real value in the carbon markets. For more reading on how blockchain can be incorporated into carbon projects, you can read this article on how blockchain can improve carbon trading or this article on blockchain solutions for carbon trading.