The metaverse and the carbon economy

You’ve probably heard about the metaverse. Big tech companies and technology enthusiasts have been hyping the metaverse as “the next generation of the internet”, or an internet you can be in, not just look at

You likely have some idea of what the metaverse will look like, either because of promotional videos from companies such as Meta (formerly known as Facebook) or Microsoft, or from science fiction books and movies like Ready Player One 

The main idea is you don a 3D headset, and grab handheld controllers, and then navigate around a 3D virtual world interacting with other users’ avatars. At present, the experience is still relatively rudimentary compared with the depiction in science fiction, however there is a lot of research currently ongoing into making facial expressions and body language more nuanced and the immersion more lifelike. 

A long evolution

The concept of the metaverse isn’t new. The term “metaverse” was originally coined in Neal Stephenson’s 1992 novel Snow Crash, where it referred to a virtual world living on a computer network where people come to socialize, transact business, and collect information. 

In the mid-2000s, an earlier version of the metaverse called Second Life was all the rage. You could sign on to Second Life, create a virtual identity, build an avatar, teleport to an island, and go into a club where you could mingle with avatars of fellow Second Lifers. Businesses saw potential to improve productivity through Second Life, and bought islands and built virtual buildings in which geographically distributed employees could attend virtual meetings. Toyota and General Motors had virtual car dealerships where you could configure and buy virtual cars using the local Second Life currency.

In the summer of 2008, Linden Labs and IBM did a technology demonstration in which they teleported avatars between Second Life and OpenSim (an open-source 3D virtual world). There was one obvious flaw in the demonstration: the avatars arrived naked. The reason for this was that clothes are assets which have monetary value in these virtual worlds, and there was not any way to enforce the digital scarcity of those assets as they moved between worlds. The scarcity problem, also known as the double spend problem, is fundamental to any digital universe that has a functional economy. 

New visions for virtual worlds

The reason that there is so much excitement about the new metaverse is twofold. First of all, we now have a much better user experience powered by better graphics processing, better physics engines, and better headsets. Secondly, it sits on top of Web3 technologies driven by the “trivergence” of blockchain, IoT, and artificial intelligence. The confluence of these technologies will allow us to build a virtual universe which has a functioning economy. One in which we can transact business, interact with government services, and execute completely new business models. 

We are still in the very early stages of defining what this new Internet and the metaverse will look like. We should be asking ourselves now what basic building blocks and services we want to design into its fabric, and how we should normalize the description of value, and characteristics of services. 

Building blocks include constructs such as: identity, tokens, and wallets. Description normalization includes things like: price, size, function, durability, interoperability, and reputation. Doing this well, in a way that instills a high degree of confidence amongst users, will help facilitate efficient transactions.

Blockchain’s ability to support a digital currency and digital assets gives us the means to own something, express its value as a price, and to exchange that value with another user. Artificial intelligence’s ability to ingest large amounts of data and generate remarkably prescient predictions will allow us to optimize supply chains, personalize healthcare, and detect security intrusions.

Hidden environmental costs

However, these capabilities come at a cost. Many of them use large amounts of computing and network resources, which in turn consumes large quantities of electricity, which in turn often releases large amounts of carbon into the atmosphere. 

As more and more of the real-world economy shifts into the digital virtual world, the issue of the carbon impact of the metaverse and its various services will become more and more pressing. While the gradual replacement of real-world services and activities with digital analogs might intuitively feel like a positive step for the planet, the fact is that high electricity use, and its related environmental impact, of many key metaverse technologies is a real concern.

Take for example the accelerating market for nonfungible tokens (NFTs). In the rapidly expanding metaverse, NFTs will be the key digital expression of asset ownership. They will provide value for its network of platforms and simulated environments, providing greater data security, and enabling an economy built around intangible assets such as real estate, virtual fashion, gaming skins, and access to paid content.

Many current NFTs have a significant carbon footprint. In October of 2021, as an experiment, The Economist magazine sold an NFT of the cover art of an edition focused on distributed finance (DeFi). After a protracted bidding process, the NFT sold for US$422,000 (which was donated to charity). The Economist calculated that the carbon impact of their sale was the equivalent of a seat on a long-haul commercial airline. 

Like 97 per cent of NFTs, The Economist’s was sold on the Ethereum blockchain. NFTs on the Ethereum blockchain are worth more than US$14 billion, which is up from US$340 million in 2020, and it is estimated to reach US$80 billion by 2025. Reuters reported that, in 2021 approximately 28.6 million wallets traded NFTs. The collective carbon impact of this activity is significant. The metaverse will amplify this impact substantially. 

Another energy-intensive computing component of the metaverse is AI. The impact of training each AI algorithm has been estimated to be 284 tonnes of carbon dioxide — or five times the lifetime emissions of the average gasoline-powered vehicle. 

Accelerating market growth

If, as some predict, the metaverse will have a US$30 trillion market value within the next decade, its environmental impact could be huge. There will be an explosion of demand for power-hungry data centres with millions of servers, advanced graphic processing units, end-user streaming services, cloud services, the AI that will be used for the metaverse’s scalable spatial computing and personalized environments, and the blockchain-based smart contract management system behind its crypto economy. 

This last component is potentially one of the biggest energy consumers, but it is highly variable. We have recently seen the rise of various blockchain platforms that are much more energy efficient, such as Solana, Cardano, and Polygon. A forthcoming update to the Ethereum blockchain will move it from the energy-intensive proof-of-work consensus mechanism to a more efficient proof-of-stake mechanism. 

The great variability in the carbon impact of various underlying platforms and services is why it is so important to infuse some of the same Environmental and Social Good (ESG) principles that many real-world industries have embraced into the digital economy.

If we do not address the carbon impact of the metaverse, we risk falling into the science fiction dystopian vision of a future where a seductive — and often far more enjoyable — digital world leads us to neglect our physical reality, with disastrous outcomes.

Embedded green economics

As we define the fabric of the next internet and the metaverse, we need to think about ways to report a normalized measure of the carbon content of the digital services consumers and businesses interact with. That knowledge can then be incorporated into decision-making in much the same way that listing ingredients and nutritional information on food products allows consumers to make informed decisions about what they are eating. If we could make it easy to surface carbon content information in the emerging metaverse and find a way to create a strong market around carbon credits, it could make a big difference.

We can do this – we aren’t starting from scratch. Many governments, businesses, and consumers are taking the climate crisis seriously. Many governments have implemented regulation or tax policy which aims to incorporate the externality of carbon cost into the market. Many companies have already embraced the need to track and trace carbon and expose carbon content to the marketplace. Many consumers already incorporate carbon footprints into their buying decisions. 

To solve the problem we can use some of the same technology that is the cause of some of the problem. Although carbon tracing across the real world’s complex supply chains is very difficult, carbon tracing in the metaverse can be accomplished through the relatively simple process of moving tokens around. 

Furthermore, once carbon content is tokenized in a normalized way, carbon credits can be transacted, helping put a market price on carbon and incentivize carbon friendly behaviours. One major step forward on this front was the COP26 United Nations Climate Change Conference in November 2021 where, along with a sharp rise in net zero commitments by governments and major industries, there was a global agreement on establishing voluntary carbon markets through the long-awaited approval of the Paris Agreement’s Article 6.

Created as fungible digital assets using blockchain, voluntary carbon credits can be freely traded on these markets. These credits can represent mitigated emissions, because of activities such as forestry conservation and underground carbon sequestration. These markets can be an effective tool in mitigating carbon impact. They can also be used to help compensate for metaverse-caused climate impacts that cannot be reduced by other means. By integrating with energy measurement sources, carbon accounting and mitigation through the transaction of digital offsets could become an embedded, automated process that acts as a secondary economy within the metaverse.

Mintable as native tokens across the metaverse’s public blockchain platforms, each digital carbon credit will contain immutable metadata that describes the origin, composition, and authenticity of the mitigated carbon behind the offset. Each tonne of measured carbon emissions will be registered on a blockchain for accounting and automatically netted out with a purchase of a digital carbon credit from a preferred source. The rigor of the underlying blockchain technology will make this system very resistant to gaming.

The sustainable digital future 

In this future net zero system, a hyperscale data centre hosting metaverse cloud services could take device-captured data about its nonrenewable energy consumption, algorithmically calculate its Scope 2 carbon dioxide emissions (indirect greenhouse gas emissions associated with the purchase of electricity, steam, heat, or cooling), and register each tonne of carbon dioxide as an emissions debit on a blockchain network, which would be minted as a “carbon positive” token. 

As each emissions token from the data centre is generated, or on a programmed schedule, smart contract-governed transactions could then acquire tokenized carbon credits on a cryptocurrency exchange from a preferred source – such as a forestry conservation initiative in the Amazon rainforest, or a carbon capture and sequestration projects.

This would not only act as an innovative form of climate finance for sustainable projects, but also support positive behavioural transformation at both an infrastructure layer and on a personal level. As tradable assets that can be exchanged for cryptocurrencies or fiat currency, digital carbon credits could also become the basis for creating climate-positive behavioural changes, and could be issued as incentives for verified emissions-lowering changes made by metaverse participants within their own homes.

An economy partially built on carbon content transparency and carbon credit markets will incentivize carbon mitigation through such things as increased energy efficiency of hardware and software platforms, and transitioning to renewable power sources.

As with other industry movements toward carbon neutrality, a common vision and coordinated approach is critical. Leading companies in the development of the metaverse, including Meta and Microsoft, have already made commitments to becoming carbon negative. 

Industry leaders need to advocate for carbon transparency and leverage a blockchain-enabled sustainable economy to engage the entire metaverse ecosystem by offering incentives such as service and product discounts. Consumers need to demand carbon transparency from the services they interact with and actively participate in the carbon credit marketplace. We should embed these capabilities into the fabric of the metaverse from the outset.

Although it is still too early to predict the degree to which the metaverse will reshape our lives and economy, we have an opportunity to guide its development and incorporate strong ESG values from its inception. This is too important of an opportunity to be missed. Our planet and the generations that follow us depend on it.

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Jim Love, Chief Content Officer, IT World Canada
Douglas Heintzman and Alexis Pappas
Douglas Heintzman and Alexis Pappas
***The Chief Catalyst at the Blockchain Research Institute, Douglas Heintzman is a technology strategist with over 30 years of experience. He is a consultant, advisor, and host of the Soveren Privacy Impact podcast. He was the vice president of strategy at Insolar, a massively scalable DLT platform. He is past chair of the selection committee for the NSERC Synergy awards of Innovation, former practice lead for innovation and disruptive technology at the Burnie Group and former head of technical strategy at IBM Software Group. *** A life-long fascination with our evolving future led strategist and writer Alexis Pappas into the world of disruptive digital transformation. With a background in energy innovation, hydrogen power and blockchain, she focuses on how the convergence of emerging technologies can support better ESG across industries. As the Executive Director of the Canadian Blockchain Association for Women and a Director of the Canadian Blockchain Consortium, she believes that inclusive change is the key to sustainability.

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