The Environmental Perspective of Blockchain
Blockchain, thanks to its properties of immutability, transparency, and self-verification, has potential applications in a wide variety of fields.
For instance, this technology has enabled the development of self-executing smart contracts, which automatically enforce agreements between parties with full guarantees for all involved. These contracts are useful in various scenarios, such as agreements between companies, transactions between suppliers and clients, or contracts involving administrations and organizations or individual entities.
Furthermore, the mentioned attributes of Blockchain facilitate the certification of traceability in processes. This is particularly important in sectors like the food industry and the logistics management of supply chains.
Specifically, Blockchain applications in traceability can translate into significant environmental benefits. In this post, we will delve into these benefits in detail, but not before addressing the other side of the coin represented by the mining of certain cryptocurrencies.
The Environmental Cost of Mining Bitcoin
Blockchain became popular as the technology supporting early emerging crypto-assets like Bitcoin.
The problem, which we discussed in a previous post, lies in the computational and therefore energy costs of mining, which involves generating new blocks and validating transactions under the required PoW consensus (Proof of Work). Among other challenges, this has hindered the exponential growth of financial operations using cryptocurrencies.
Whether due to the electricity consumption of specialized mining hardware in cryptocurrency farms or that contributed by other users, the process is largely unsustainable from an environmental standpoint.
Thus, new consensus protocols like PoS (Proof of Stake) are being implemented, which eliminate computational work by nodes for validating new blocks and transactions. Instead, they rely on the random and incentivized participation of other cryptocurrency holders, transitioning from miners to «forgers.»
This is a highly interesting alternative, as it removes the environmental drawbacks and allows deeper exploration of the advantages of cryptocurrencies. Beyond speculative uses, cryptocurrencies offer practical benefits that are particularly tangible in certain regions in Africa, where unstable national currencies make cryptocurrencies a more reliable option for citizens.
That said, the energy cost is not exclusive to cryptocurrencies like Bitcoin. For instance, cloud solutions also depend on the physical servers in data centers to store data. This demand is expected to grow exponentially with the rise of the Internet of Things, which will fully emerge with 5G networks, involving millions of devices constantly collecting and exchanging information.
Generative Artificial Intelligence also has a high energy cost, requiring enormous amounts of servers housed in large infrastructures. These not only consume electricity but also require significant water resources for cooling.
Moreover, Blockchain itself is not inherently a polluting technology. Instead, one of its applications—the creation of certain cryptocurrencies—is, at least for now.
It is also worth noting that technology has evolved. While the first generation was closely tied to Bitcoin, Blockchain 2.0 introduced decentralized apps and smart contracts. The current third generation has made strides toward interoperability, scalability, and sustainability, with solutions like Proof of Stake that avoid computational processes and the associated carbon footprint.
Beyond its challenges, which are being addressed, Blockchain also offers a bright side with significant environmental benefits.
Traceability of Sustainability and Environmental Transparency
The opportunity to establish complete traceability in supply chains enables tracking products from their origin to the consumer. This ensures their sustainability and demonstrates how Blockchain can make a decisive contribution to reducing the environmental impact of agricultural and industrial processes.
In fact, this technology is already helping producers in the Amazon verify the origin of their high-quality cacao through a transparent supply chain. More generally, there are Blockchain-based networks for all types of food, such as IBM Food Trust, which connects all participants in the food chain, from farmers to consumers.
Other initiatives like Plastic Bank aim to promote the collection and processing of plastics in vulnerable areas worldwide. To achieve this, collectors are incentivized with digital tokens exchangeable for goods or services, while companies purchasing recycled plastics are provided with verifiable traceability of the materials’ origin.
Energy Auditing
The creation of distributed data networks that are immutable due to encrypted structures also enables the verification of the clean origin of energy being sold. Renewable assets can thus be perfectly traced to their final buyer.
Since this data cannot be altered and is transparently accessible, the establishment of a traceability chain prevents common practices like greenwashing, where a product or service’s alleged sustainability does not align with reality. Blockchain makes it much easier to conduct reliable and verifiable energy certifications.
Additionally, the decentralized properties of blockchain technology pave the way for new renewable energy markets, allowing producers to sell directly to consumers. This could lead to lower supply costs by eliminating intermediaries, though significant legislative barriers would still need to be addressed.
Furthermore, Blockchain can enhance existing CO2 markets, where carbon credits are traded. These credits allow companies to offset their greenhouse gas emissions by supporting entities or projects that reduce emissions.
This includes both regulated emissions trading systems (ETS), such as the European Union Emissions Trading System, and voluntary carbon offset markets. The former already handles massive volumes, trading billions of tons of CO2 and generating €36 billion by the end of 2021. The latter is still in its infancy but could grow exponentially through the tokenization of carbon credits, transforming them into digital assets that can be stored, traded, and transferred on Blockchain-supported platforms.
Additionally, Blockchain technology could enable the issuance of carbon certificates in both markets, ensuring full guarantees.
In summary, despite Blockchain’s initial negative reputation due to early cryptocurrency mining, it is now a technology offering multiple valuable applications for environmental purposes in its latest stages of development.
However, it is also important to recognize the costs of its mass-scale implementation, as well as the significant regulatory adaptations required. These would demand consensus across multiple nations in various supranational regulated markets.