ReFi is short for Regenerative Finance
which came from the term Decentralized Finance (DeFi).
ReFi was born from a movement to address climate change
through blockchain (distributed ledger technology) and web3, which have previously disregarded sustainability. ReFi supports climate conservation, fostering biodiversity and creating a more equitable and sustainable financial system for all. Please see the infographic below which briefly explains ReFi, DeFi and DeSci. Today we will be focusing on ReFi.
There has been backlash about the massive environmental cost of some key web3 technologies, such as cryptocurrency and NFTs (Non-fungible tokens). Mining Bitcoin (a popular cryptocurrency) generates about 38 million tons of CO2 per year.
That’s more electricity consumption than Argentina
and as much carbon emissions as watching 57,000 hours of YouTube videos. Thankfully, as Web3 matures, there have been efforts made to make the technology sustainable. Switching blockchain algorithms from “proof-of-work" to the less energy intensive “proof-of-stake"
A big problem of the proof-of-work method is its high energy use. Proof-of-stake is a less energy-intensive method of maintaining the blockchain, ensuring users of a cryptocurrency can’t mint coins they didn’t earn. Ethereum – a popular cryptocurrency on the proof-of-work method – plans to move to proof-of-stake to make the platform more scalable and reduce its energy consumption. The difference between the two? Proof-of-work awards miners who have computational power (electricity) and proof-of-stake awards those who have more ether
(money). While Proof-of-stake doesn’t solve all problems, it is definitely a step forward towards a more energy efficient planet.
Connecting carbon offsets to cryptocurrencies
Another opportunity to make web3 technologies more sustainable is through carbon offsets. Which are generally certificates that represent projects that reduce emissions or remove carbon dioxide from the atmosphere, such as preserving forests, building wind and solar farms, or capturing methane gas. One carbon credit represents one metric ton of carbon dioxide saved from the atmosphere.
Crypto tokens that are solely intended to acquire clean energy might give organizations the ability to demonstrate that their business operations comply with climate neutrality
. Crypto carbon credits (offsets) are also a big part of regenerative finance. Further, it is even better to add the carbon credit market to a blockchain, as that leads to a transparently priced market removing fraud and unverified carbon credit organizations.