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Why sustainability is emerging as the key bellwether of Web3

As more attention turns to innovative blockchain-driven technologies, companies are being forced to reckon with the elephant in the room: energy consumption

Why sustainability is emerging as the key bellwether of Web3

In April, the largest land rush in the brief history of the metaverse raised approximately $320 million from the sale of 55,000 parcels of virtual land in Otherside, an immersive world created by Yuga Labs, stewards of the Bored Ape Yacht Club collection of NFTs. The newly minted community cemented BAYC’s ascent from monkey JPEGs to a metaverse franchise in its own right—a trajectory any Web3-curious brand would kill for. But the stampede carried other costs, including an estimated $181 million in “gas fees” to pay for the electricity necessary to issue titles on Ethereum’s blockchain. At least one buyer paid eight times in gas fees what his plot cost in “ApeCoin.”

In this regard, BAYC’s triumph is a warning for brands as well. Amidst the push for greater ESG (environmental, social, and corporate governance) by customers, investors, and government regulators alike, companies can’t be caught shilling NFTs and other tokenized assets that seemingly contradict their public pledges to sustainability. At the same time, the recent plunge in the prices of blue-chip cryptocurrencies underscores how the recent NFT boom has raised the stakes for brands eager to experiment in this space. To that end, it’s important to focus on Web3’s unique community and utility while bolstering its sustainability through alternatives to energy-intensive blockchains. Rather than fret about electricity consumption, take a step back and strategize instead. “If energy usage is your first concern, stop that right now and make it community,” advises Brandon Aaskov, global crypto lead at the technology and marketing consultancy DEPT.

A COMMUNITY OF BELIEVERS

Community is arguably the buzziest word in Web3, an acknowledgment of its near-magical ability to bring value into being through the sheer will of true believers. These communities increasingly manifest as DAOs, or “decentralized autonomous organizations,” which reward members with tokens for their contributions. A prime example is Friends With Benefits (FWB), which boasts 6,000 members and has raised $10 million from investors based on the value of its $FWB tokens. Earlier this year, the group voted to partner on a line of sparkling beverages, followed quickly by similar deals with Hennessy and Reebok on future collaborations. In each case, FWB members will drive the creative process in return for a cut of sales, in what all sides hope will be a virtuous circle of influencer marketing.

DAOs have been described as “Discord with a wallet,” highlighting how the popular messaging app has been essential in bootstrapping Web3 collectives. This has also made it a popular tool for brands reaching out to these communities, as startup costs are minimal. But according to Alex Kunawicz, principal consultant at BYTE/DEPT, driving those conversations from the top down misses the point. “Let them explain what they would like to achieve on these platforms,” he says. “Get those communities to help shape your presence in these areas.”

As DAOs and Discords become creative powerhouses in their own right, their gatherings now straddle virtual worlds and the physical one. Before it made the leap to the metaverse, BAYC manifested as a series of parties, while FWB is planning a members-only festival in August that’s a cross between a board meeting and Burning Man. In both cases, NFTs will serve as badges of honor and entry, conferring special rights for holders. To Kunawicz, this represents a critical shift from extrinsic (read: $$$) to intrinsic value, bestowing real benefits rather than merely what he calls a “digital flex.” It’s a shift successfully embraced by both offline brands such as Adidas—whose NFT collaboration with BAYC offers a raft of privileges—and newcomers such as Poolsuite, which has leveraged its nostalgia-drenched vision of the good life into an NFT membership club and retail partnerships.

THE RENEWABLES SOLUTION

But as Web3 matures and truly begins to scale, concerns about its carbon footprint will creep back to the fore—what’s the point of building a tokenized, decentralized pocket metaverse if you’re only going to be vilified for it? Both Bitcoin and Ethereum rely on “proof-of-work“—forcing machines to solve puzzles as proof of the blockchains’ integrity, for which they’re rewarded with tokens—ensuring a colossal use of energy. (Bitcoin currently consumes more electricity than Norway.)

One solution is to switch to renewables, either through a short-term fix with carbon credits or long-term investment in dedicated generation. (Blockstream and Block have partnered on building the latter, using solar panels and batteries from Tesla.) Another is to switch from using blockchains relying on proof-of-work to those utilizing proof-of-stake, which is vastly less energy intensive.

Greenpeace and the Environmental Working Group are leading a campaign to pressure the leading blockchains to do just that. Brands eager to position themselves as leaders in both Web3 and ESG might consider throwing their weight behind them, pledging to use blockchains with a minimal carbon footprint or at least being selective in choosing one. “I would advise brands to consciously avoid proof-of-work, as it’s going to end up like VHS versus Betamax,” says Max Pinas, creative director at DEPT. “And proof-of-stake will win.”

One such energy-sipping blockchain is Algorand, which was created in 2019 by MIT cryptographer Silvio Micali. Its elegant design enables it to perform transactions with the same speed and reliability as Bitcoin, albeit with 120 million times less carbon emissions. The Algorand Foundation has now issued grants and incentives focused on the development of interoperability solutions. This will allow Algorand  to connect to other blockchain networks like Ethereum, which can offer brands access to the most popular NFT exchanges, such as Opensea, while vastly lowering their emissions. “Right now, most of what you’re seeing are retail-driven applications,” with a small number of users, says Barry Finkelstein, who, until recently, headed North American business development at Algorand. “But as you start to see more institutional use, that’s when the fundamental value of the technology will come to bear.”

For brands eager to make their mark in the next frontier of computing, now is the time to stake their claim—both in the metaverse and in steering the underlying software toward a more sustainable future. Brands eager to create or connect with communities in Web3 should evaluate, select, and champion carbon-neutral blockchains such as Algorand—with its high degree of interoperability—to avoid technological dead ends. It’s rare to have an opportunity to shape the future of a new technology; this one is ours for the taking.

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