The worlds of sustainability and blockchain are, inexorably, intertwined as the carriers of the future. For crypto based on blockchain to flourish, there’s an urgent need to identify cryptographic mechanisms for maintaining robust distributed records that are resource-efficient and efficacious. To understand whether crypto is energy-efficient, we must scrutinize its means of creation and get users to agree on the order and validity of the data in each ‘block’ of its shared database.
Official reports suggest that billions of dollars have entered the digital-asset markets in recent years, fueled by the notion of promising new technology and the parabolic growth narrative provided by big catchy headlines. This brings us to the starting point of one of crypto assets’ most pressing and potentially existential questions: are decentralized digital assets part of building a prosperous net-zero economy, or are they part of the problem? To answer this, we must understand the complex relationship between crypto and the environment. Do we need them, and can we afford them? What does crypto’s environmental relationship look like? Do these new, decentralized digital assets represent a new wave of a sustainable economic future, or could they increase our carbon footprint?
Blockchain and the Environment
Blockchain’s tamper-proof ledger, which can be managed without a centralized authority, is changing – and will continue to change – entire industries for the better. Public blockchains are becoming an overpowering disruptor that brings improved transparency, security, and efficiency. However, new evidence has also emerged showing that blockchains, particularly those requiring energy-intensive consensus protocols, such as PoW, might be energy inefficient. With the pressing international need to limit global warming, the blockchain industry has to consider its ecological footprint and ways to make it cleaner.
Energy Consumption in Blockchain
Its energy usage arises, primarily, from the underlying consensus mechanism required to validate transactions and secure the network. By their design, PoW algorithms force miners to compete to create a proof-of-work with high computational capacity – ie, to successfully generate a cryptographic puzzle whose answer proves that they have done the requisite work and that they are publishing a new block on the blockchain.
Assessing Environmental Implications
Blockchain’s carbon footprint is also large, increasing carbon emissions and reverberating through the effects of climate change. Empirical research has quantified the carbon footprint of major blockchains, while mining’s concentration in low-cost electricity regimes, reliant on fossil fuels, means that they are unusually carbon-intensive.
Blockchains and Sustainability
The environmental impact of the blockchain must be resolved through a multipronged approach, which includes both technological and regulatory efforts, in addition to cooperation by industry actors. Potential solutions for mitigating the environmental impact of the blockchain include:
Mining Using Less Energy: This was followed, shortly, by other proposals to incorporate more energy-efficient mining hardware and protocol advances to optimize blockchain protocols while improving network security.
Increased Use of Renewable Energy: Mining processes can leverage green energy to further reduce carbon emissions. A few crypto assets use techniques such as solar and wind power.
Shifting to Alternative Consensus Mechanisms: Switching to the Proof-of-Stake (PoS) form of consensus, which uses far less energy than the Proof of Work (PoW) mechanism, can minimize the carbon footprint of the blockchain networks.
Carbon offsetting and compensation: Offsetting the carbon emissions of blockchain networks can be done by investing in reforestation projects or through the purchase of carbon credit schemes.
While PoW chains, such as Bitcoin, have been criticized for their environmental impact, PoS chains, such as Ethereum, which recently completed its transition to PoS, are far more energy-efficient (instantiating a system with the moniker PoS mechanism indicates that, instead of miners burning PoW tokens to get paid, indicating validator nodes are ‘locked’ and must stake a large sum of cash to play).
Moreover, the Ethereum Climate Platform (ECP) was established to mitigate the environmental consequences of the carbon emissions of Ethereum in its pre-Merge era. Launched at the U.N. Climate Change Global Innovation Hub at COP27 in Egypt, the ECP is a partnership between major industry players, including the Ethereum Enterprise Alliance, Microsoft, ConsenSys, Polygon, and Aave.
Leveraging Blockchain for Sustainability
Blockchain technology also holds, significant, potential to further sustainability goals by greatly improving the trackability and verifiability of emissions. As blockchain is immutable, auditable, and transparent, it allows for more precise monitoring of carbon balances and other environmental metrics for sustainability causes. It, effectively, holds companies accountable for their sustainability claims.
Smart contracts can automatically track companies’ carbon emissions across their supply chains, report them to oversight bodies, or make them transparently viewable to the public. Information is tamper-proof and unchangeable because of the intrinsic cryptographic nature of blockchain.
Furthermore, using blockchain’s cryptographic properties, a company’s privacy could be protected while reporting its emissions. Cryptography that verifies compliance with energy usage or carbon emissions, for example, can be created from Zero-Knowledge (ZK) technology (which proves something is the case without revealing any of the underlying information). In other words, a company could show that it complies with an environmental standard while keeping its output information private. Blockchain also contributes to sustainability through the tokenization and digital distribution of environmental assets.
Blockchain and Environmental Sustainability Applications
Let’s explore various applications of blockchain in sustainability.
- Carbon Footprint Tracking: Blockchain, accurately, measures and records carbon emissions data.
- Supply Chain Transparency: It gives greater visibility into the supply chain, and increases the likelihood of living up to a company’s values when manufacturing (eg, fair trade, ethical sourcing).
- DAOs: Sustainability projects can be funded by decentralized autonomous organizations (DAOs), consisting of a community that ‘owns’ DAOs, which directs resources towards potentially valuable sustainability ventures.
- Smart Cities: Helps to build digitizing or smart cities that improve energy efficiency through smarter infrastructures without compromising environmental impact (eg, waste management and transportation).
- Waste Management: Tracks disposal, recycling, and other city-generated waste streams to reduce the carbon footprint of the city.
- Tokenized Green Assets: Tokenizes ‘green’ assets such as renewable energy development projects or carbon credits.
Conclusion
Blockchain represents a tremendous opportunity for new and incredible innovation. We must consider its environmental impact, as it could revolutionize many industries. Blockchain has enormous potential for enhanced sustainability, but it’s paramount that we evaluate its real energy consumption and carbon footprint. Becoming critical of these systems is a first step towards understanding their environmental impacts, creating effective strategies, and making crypto more sustainable.
It is the duty of all blockchain developers, policymakers, and environmentalists to work together and ensure blockchain technologies are aligned with global climate policy. Blockchain technology has the potential to shake up every industry, we know, and drive technological innovations. If harnessed, correctly, it can also make the world a greener place to live.
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