Everyone needs blockchain based technological help to develop a sustainable future.
Bitcoin (BTC) is often used to criticize all blockchain-based projects. This is understandable because Bitcoin was the first project to use blockchain, perhaps the most famous and largest cryptocurrency by market cap.
In the first half of this article, I will be using Bitcoin as a proxy for all blockchain based projects, as most people associate blockchain with Bitcoin. Anything positive about the environment that can be said about Bitcoin is doubly true for most newer blockchain-based projects, as Bitcoin uses the oldest version of blockchain technology.
Blockchain power consumption
Bitcoin is under attack due to its high energy consumption. Popular criticism includes headlines showing that Bitcoin's electricity consumption is proportional to the country's total consumption. Comparisons are useful, but can be deceptively framed. For example, the most cited statistics in these interesting titles come from the Cambridge Center for Alternative Finance (CCAF). The same organization also points out that power loss during transmission and distribution in the United States can power the entire Bitcoin network 2.2 times. America's always-on electrical appliances use 12.1 times more energy than the Bitcoin network.
So, the Bitcoin network uses as much electricity as a small country or far less than a fraction of America's energy budget. Is that a lot? It depends how you look at it. Another common criticism is that Bitcoin's electricity consumption is growing so fast that Bitcoin emissions alone could drive global warming to over 2°C or exhaust all of the world's energy by 2020. The latter is not the case. Why? First, like most network technologies, Bitcoin follows an acceptance curve defined by the theory of diffusion of innovation - the "S-curve".
The explosive exponential growth in the first half of the curve slows down significantly in the second half. Second, large and predictable improvements in computer efficiency will further reduce energy bills in computing, even as Bitcoin's growth slows. Third, such projections do not take into account Bitcoin's ever-evolving energy mix.
Blockchain energy mix
Almost all of the energy used by blockchain projects comes from the electricity used by the computers that provide the network. Bitcoin calls these "miners", but newer blockchain projects can use much more effective "validators". Electricity is generated from various sources such as coal, natural gas, and renewable sources such as solar power and hydropower. These sources can cause a wide range of CO2 emissions, which largely determine their impact on the environment. The two most famous estimates of bitcoin's renewable energy range from 39% in this report to 74% in this report. Each of these estimates is "cleaner" than America's energy mix, which is only 12% renewable.
There is evidence that public scrutiny of Bitcoin will likely ensure that energy from renewable sources will only increase in the future.
Blockchain is very valuable
Bitcoin's energy consumption and composition isn't perfect, nor is it as bad as is often reported. What is often lost when talking about bitcoin energy use is whether bitcoin energy use is worthwhile. Many industries use energy or produce large amounts of waste, but most people think that the environmental costs are worth it. Agribusiness incurs huge costs for fossil fuels and fertilizers for field equipment, not to mention the production of hazardous wastewater. However, despite the negative environmental impact, we recognize the importance of growing food. Instead of abandoning agriculture, we seek to improve the agricultural environment.
Whether it's enabling the 1.7 billion unbanked for financial inclusion or offering an alternative to predatory international money transfer services, it seems clear to me that bitcoin is viable for energy consumption. It's even clearer that enterprise blockchain is an unrestricted public good.
Newer alternative blockchain technologies use at least 99.95% less energy than older ones. Enterprise blockchains can use less energy because they can be adapted to specific applications. In addition to significantly lower energy consumption, enterprise blockchain helps organizations achieve sustainability goals. Solar and wind energy are now cheaper than fossil fuels such as coal and natural gas. Currently, solar and wind energy is comparable to geothermal energy and hydropower. Although a solution to the problem of cost, renewable energy sources have several problems that prevent their mass adoption.
Geothermal energy and hydropower are geographically connected. Solar, wind and, to a lesser extent, hydroelectric power generation experience blackouts and congestion. Periodicity means that they are too unreliable at the moment. There is no sun at night, the wind sometimes stops and there are rainy and dry seasons. Network congestion is similar to car traffic. Renewable energy sources are usually built-in rural areas due to geographical restrictions. However, most of the energy is needed in densely populated cities. Like a car in a traffic jam, electricity flows more slowly to its destination.
There are solutions like building battery storage and increasing transmission capacity, but these are expensive infrastructure projects. This is where Bitcoin and blockchain in general can help. Unlike Bitcoin miners, other blockchain projects can be built anywhere. They are profitable companies that can essentially subsidize the construction of renewable infrastructure, always using the excess energy generated. Another promising blockchain-compatible energy technology is person-to-person (P2P) electricity trading. This energy sharing system gives electricity providers and consumers the opportunity to trade energy without the need for existing third-party intermediaries and at the same time increase the share of renewable energy. Blockchain-based projects, such as renewable infrastructure, will stimulate the development of P2P energy networks.
Also read: DAO and the next gold rush for crowdfunding
Blockchain enables material acquisition and origin
Consumer demand for more ethical products continues to increase. Companies must prove that their products have been produced in an environmentally sound and health-friendly and ethical manner. Consumers who avoid green laundering should rely on information from companies. Blockchain-based projects are already changing this dynamic.
Everledger has developed tools to improve consumer and business perceptions of the origins of a website. By combining blockchain, AI and IoT, Everledger digitally streamlines compliance processes and enables companies to prove the true origin of their products.
Transparency and traceability will be critical to building consumer confidence in the food supply chain. Supermarket giant Carrefour and the world's largest brewery AB InBev have partnered with blockchain developer SettleMint to provide a digital tracking solution that uses dynamic QR codes that are attached to products during the packaging process.
Green financing is the use of credit to support sustainable businesses and to fund their projects and investments. It is critical to fill the $2.5 trillion annual gap in SDG funding, which is expected to grow. A good example of green finance is the Green Bond Market (UK). According to the Climate Bond Initiative, US$269.5 billion was spent in 2020.
Unfortunately, GB is not without problems, such as ensuring that sustainability indicators are genuine or that funds have been used to support sustainability. Blockchain can store this data without exception so that projects can be verified to meet sustainability requirements. Blockchain can also help in other ways, for example through tokenization.
Oi Yee Choo, Chief Commercial Officer of iSTOX, a Singapore-based digital stock exchange, said in an interview: “Even in a market where the demand for green bonds is high as investors are motivated by ESG considerations, tokenization helps investors, their portfolios in different bonds. due to lower subscription rates."
In terms of environmental sustainability, the current blockchain industry is far from ideal. However, if it stays on its current track, the blockchain industry will not only be an example but also a factor in environmental sustainability.