For some time now, there has been significant scepticism surrounding notions of blockchain and sustainability and it is easy to see why. The energy-intensive process of Bitcoin mining is no secret – a tool produced by the University of Cambridge discovered that the energy usage of the technology matched that of Switzerland. Unfortunately, people often conflate the two, believing that blockchain technology is responsible for the huge consumption of energy used by Bitcoin miners.
In reality, blockchain is as well-placed to make a positive sustainable impact as any other emerging technology and organisations are finally beginning to look past associations with cryptocurrencies and this opens their eyes to the blockchain’s environmental possibilities.
Blockchain for banking and financial services
Blockchain and financial services are natural partners. Not only do the types of private blockchains used in this sector use minimal energy, they also directly help banks reduce their energy consumption and minimise their impact on the environment, whilst reducing costs for consumers. By eliminating several intermediaries within banks’ processes, blockchain improves efficiency and reduces energy consumption.
One of the most exciting innovations in this industry involves cross-border international payments. As emigration rates rise, there has been a sharp increase in remittance payments, as foreign workers send money back to their families. Whilst traditional international payment networks are expensive and slow, blockchain technology is well placed to underpin a better solution.
Blockchain allows banks to provide remittance services to send payments using cryptocurrencies then immediately back into fiat, as opposed to completing multiple fiat-to-fiat conversions. Not only does this solution make the process cheaper, it also significantly reduces energy consumption by making the process more efficient.
Applications in the energy sector
Further behind the financial sector, the energy sector is only just beginning to realise the true potential of blockchain. In 2015, the development of Ethereum catalysed the instigation of smart contracts, giving energy companies a way to validate transactions without human supervision. Not only does this facilitate peer-to-peer trading, but it also greatly enhances the traceability of how our energy is sourced and distributed.
For example, decentralised energy grids are rapidly gaining in popularity. However, coordination across these grids is not yet perfected. Blockchain can be used to optimise this coordination, whilst enabling traceability of energy sources.
Looking forwards, we will likely see blockchain become commonplace in the sector, as energy businesses better understand the technology’s potential in streamlining supply and providing a secure, standardised way of sharing data.
Reducing carbon emissions
Blockchain’s ability to provide a standardised method of data sharing makes it a fantastic tool to track carbon emissions. As climate change continues to top the global agenda, more than ever before, businesses are committing to reducing their carbon footprint. Unfortunately, they often lack the technology to do so, and there is rarely a standardised system that can measure and track carbon emissions. As a result, tracking emissions is often expensive and time consuming.
Through the use of smart contracts and secure data recordings, blockchain can help produce a standardised metric system that can measure carbon emissions in a single and easy to use platform. One example is with smart phones, where a single product may be comprised of numerous different raw material components, created at several, global locations. Each individual component will produce different amounts of carbon dioxide as part of its manufacture. Blockchain’s standardised metric system is able to effectively track and connect all of the different parts involved in the process, and provide a fool-proof audit trail, whilst ensuring privacy, security and traceability.
Solving the crypto issue
It is quite clear – blockchain has tangible, positive applications across industries. However, major concerns remain around the energy consumed by cryptocurrencies.
Recently, Ethereum creator Vitalik Buterin announced that the cryptocurrency will undergo a complete overhaul this year, which will reduce energy consumption by almost 99 percent; notably making Ethereum 2.0 far friendlier than Bitcoin.
Buterin hopes to achieve this drastic reinvention by switching from the existing Proof-of-Work (PoW) system to a Proof-of-Stake (PoS) system. Proof of Stake is a type of consensus mechanism used by some blockchain networks to achieve distributed consensus and comes with a number of improvements over the existing Proof-of-Work system, such as:
- Better energy efficiency as the energy-intensive activity of mining blocks is reduced
- Lower infrastructure-related barriers to entry and reduced hardware requirements
- Stronger immunity to centralisation
- Stronger support for shard chains
The roadmap to transition to Ethereum 2.0 is already in action, and has been rolled out into a series of steps which are estimated to be finalised in 2022. The first step taken was to activate the Beacon Chain, which is the technology that is employed to introduce the Proof-of-Stake upgrade to Ethereum and went live in December 2020. The next step, also known as the merge, is the much-anticipated point where Ethereum’s mainnet and the Beacon chain will “merge” into a single, Proof-of-Stake-based blockchain. This will mark the full transition to Proof-of-Stake for the Ethereum blockchain and will signify the shutdown of the current Proof-of-Work consensus mechanism. It is estimated to come to fruition in the last months of 2021; a moment that will enable a more sustainable and eco-friendly use of the blockchain. The first merge transaction between the two Ethereum networks took place on March 25th, 2021, and was made using only Proof-of-Stake validators. However, it is important to note that although Ethereum 2.0 has been planned for several years, it is nonetheless encountering organisational and technical problems that are significantly delaying its deployment.
The decision to transition to a cleaner consensus mechanism, reinforced by widely publicised energy consumption concerns and the emergence of environmentally conscious blockchain solutions, are clearly symptoms of a pivotal moment for the crypto industry. In recent months, Iran decided to ban crypto mining because of the largescale power outages across the country, while Elon Musk announced that his company, Tesla, would no longer accept Bitcoin payments because of environmental concerns.
The message is clear - cryptocurrencies need to change. Businesses and creators should look to Ethereum for inspiration and begin considering alternative and innovative models to ensure that energy consumption is drastically reduced while maintaining the integrity, and in turn benefits of the technology.
Growing consumer demand
As climate change continues to loom closer than ever before, consumer demand for transparency is growing. As a result, businesses are increasingly expected to provide clear and easy access to information regarding how goods and products are brought to market. In light of this, businesses are turning to blockchain as solution, recognising its ability to create a digital identity for products, increasing traceability across the value chain and providing consumers with a clear picture of where their product came from. Increased transparency works to expose unethical practices, encouraging businesses to become more sustainable, and meet consumer demand.
This is an exciting moment for blockchain-based solutions, as they continue to rise in popularity and more industries recognise their potential. In fact, it is predicted that 30% of blockchain products will make it into production in 2021.
Business leaders must now put their misconceptions behind them and look at how they can leverage the possibilities that the technology offers. Sustainability is one of the most pressing issues of our time, and blockchain has a key role to play in our battle against climate change.
Jorge Lesmes, Global Head of the Blockchain Banking practice, everis, an NTT DATA company