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Blog posts, Thought leadership | 10/29/2020

Debate: Blockchain VS. Environment

Blockchain vs. Environment

Blockchain VS. Environment. Welcome honorable readers! We’re pleased to have your attention and time for this special coverage, opposing the infamous Environmental Issues to the innovative Blockchain Technology in their first one-on-one debate in our media. While the former appears more urgent to address each day with rising queries over climate change impacts, the latter has at times been questioned for its environmental footprint and sustainability. What obstacles are there to overcome? What can the future provide, and what can’t it? Let’s read further and see what they have to share!

Blockchain’s Bad Reputation Regarding Environment 

When starting a conversation about blockchain and environment, a red flag quickly comes up: because of the massive amount of energy used in its complex computations, blockchain has a high carbon footprint. However, this is not entirely true, since 3 completely different topics are commonly mistaken for being the same: blockchain, cryptocurrency and Bitcoin. 

To clarify the differences, let’s use a simple analogy.Websites are a well-known Internet application to share peer-to-peer information. Search engines are among the most common ways to use websites by facilitating access to them. Google is one of the most famous and used search engines.

To some extent, blockchain, cryptocurrency and Bitcoin share a similar relationship: blockchain is a groundbreaking technology to stock and share peer-to-peer information. This shared information is stored through successive blocks of data, together creating a whole chain (literally “chain of blocks”). Like websites, there are numerous different blockchains serving different purposes. Cryptocurrency is the most common way to use blockchain technology so far. Storing and sharing blocks of data that register digital financial transactions, creating a digital currency. Lastly, Bitcoin is one of the many existing cryptocurrencies, with the particularity of being the most famous and the first one ever created.

Why is this confusion so common? Partly because while creating Bitcoin’s first block (of data), the pseudonymous Bitcoin creator Satoshi Nakamoto actually piloted  blockchain technology. In other words, he created both the Bitcoin cryptocurrency and the whole technology to support it. And yes, as created, Bitcoin – and the specific blockchain on which it is operated – is costful in energy. In a simple and illustrative way, Bitcoin and its blockchain are based on an algorithm that requires the community – i.e. the miners – to execute complex calculations in order to validate and verify transactions. This execution is referred to as mining. For the more seasoned among you, this is called the Proof of Work protocol. Such computations executed by all the miners ensure the Bitcoin blockchain security encryption and immutability. However, these computations done at such a large scale also require significant energy expenditures, as you may guess.

As a result, Bitcoin mining requires the same amount of energy as the entire country of Ireland or Austria does in a single year!
However, this algorithm – or protocol – is not intrinsically linked to blockchain technology. It only applies for blockchains that have been purposefully based on it, such as Bitcoin. In other words, it’s Bitcoin, not the blockchain technology itself, which is costful in energy. Besides, in the past few years, the technology has evolved towards another greener and more energy efficient algorithm – called Proof of Stake (again, no need to dive deep into details here if you don’t want to).

Despite blockchain’s not-so-eco-friendly Bitcoin origins, most contemporary blockchains operate according to this more modern and environmentally sustainable protocol. Of course, some issues and limitations remain. Bitcoin’s network does continue to consume a lot of energy, and other blockchains – as well as most digital services – also need servers to power them. However, some innovative blockchain applications show ingenious ways to positively contribute to a more sustainable future without pumping up huge amounts of resources.

Blockchain Potential to Boost Environment Sustainability

Blockchain technology works as a decentralized digital ledger that records any information – like financial transactions as for cryptocurrencies – in a secure, immutable and transparent way. Such features make it very hard or almost impossible to alter or hack. Besides, they provide both companies and users with major revolutionary advantages for more sustainable ecosystems: 

  • Traceability, helping companies improve the environmental impact of their supply chain, from sourcing to recycling.
  • Transparency, which provides people with counter-checked and verified information regarding their consumption choices, encouraging them to adopt more sustainable lifestyles
  • Decentralization, helping foster trustworthy peer-to-peer collaborations between consumers and producers 

While there are probably tons of use-cases yet to be discovered to address environmental challenges with blockchain technology, today’s concrete applications seem to adopt the following 3 main approaches

Tracking product, good or energy origin

The first and maybe the more common approach is tracking product, good or energy origin. Famous US retailer Walmart partnered with IBM to create “a food safety blockchain solution” aimed at increasing supply chain transparency. A good start knowing that, according to a 2016 report from McKinsey, 80% of greenhouse-gas emissions and more than 90% of the environmental impact from a typical consumer company is the product of its supply chain. Beyond food, origin traceability is also key for the energy sector, with the growing need for green energy production and its tracking. At Ledger, we worked with global energy player Engie to implement a “Guarantee of Origin Issuance”: an irrefutable attestation proving green energy production, stamped to prove origin and registered on a blockchain.  

Reward P2P systems and Scale behavioural incentive

The second approach of blockchain applications to address environmental challenges is by enabling reward peer-to-peer systems and scaled behavioural incentive. A well-known example to illustrate this kind of application is SolarCoin, a reward token for solar energy producers. “Whoever produces solar power may receive SolarCoin (…) at the rate of one SolarCoin (SLR) per Megawatt-Hour (MWh) of solar energy produced”. 

Right of use on natural ressources

Finally, the third approach aims at implementing rights of use on natural resources. Much rarer, these emerging initiatives aspire to use blockchain to encode rights to use a natural resource. It could both protect the right-holder’s ownership and make overuse rapidly identifiable, while discouraging such behaviours. The idea would be to create collective and decentralized management of shared resources, such as natural parks, waters etc. The Australian government recently collaborated with blockchain firm Civic Ledger for an on-going pilot aimed at developing a more transparent water trading platform powered by blockchain. However in practice, such initiatives are much more complex to implement and scale.

Source: inspired from ODI Think Tank briefing note, “Delivering blockchain’s potential for environmental sustainability”, October 2018

Final Words: Blockchain Can’t Solve Everything, But It Can Help You Make Change Possible

Blockchain has the potential to build more environmentally friendly systems. Improving supply chains, rewarding sustainable practices, informing consumers in their choices, bringing transparency to opaque networks… Each approach contains its scope of possibilities and, hopefully, upcoming innovations. As a company, we firmly believe in blockchain technology and its future. But don’t forget, blockchain remains a technology.

At the end, the choices and actions are yours. At Ledger, we’re deeply convinced that you can have more power than you think and are dedicated to provide you with the best technology and services to freely and knowingly act as you wish.

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