The much vaunted blockchain is at the centre of a heated global discussion regarding its place in our future.
Is this a revolutionary new technology on the precipice of liberating us from economic oppression or is it a huge environmentally disastrous Ponzi scheme?
Firstly, what is a blockchain? Very briefly, a blockchain is a digital ledger technology that, typically, decentralises a list of transactions (blocks), creating a public data storage system. This data is verified across the decentralised network by the “nodes” (essentially computer running the blockchain software) such that all the ledgers agree, thus creating an immutable public record. As this system is public and publicly verified, it can be used to support cryptocurrency, as the typical problems of digital money (such as double spending) are eliminated. This approach has proved wildly successful, with the price of Bitcoin (the original cryptocurrency) sky rocketing.
But what does this have to do with the environment? Let’s again take Bitcoin as an example. Bitcoin, the brain child of the infamous Satoshi Nakamoto, is the archetypal cryptocurrency. In order to validate the afore mentioned blockchain network, a system called “proof-of-work” was instantiated. Nodes (often called miners) are rewarded for their arduous work of validating the network by receiving Bitcoin. This ingenious incentive mechanism has perhaps an unforeseen consequence. The energy required for all these nodes to validate the blockchain is outrageously high. Bitcoin is said to be 20 000 times more energy intensive than Visa (Brosens). Annually, Bitcoin consumes above 0.1% of the global energy demand (IEA).
However, the environmental story is not so simple. Many blockchains are moving to a new system of validation called “proof-of-stake”. Without getting into the technicalities, this system allows for much more efficient validation and greatly increases the efficiency of blockchain technology. Additional innovations are being implemented that will also increase the efficiency of many blockchains. Having said this, Bitcoin is still the most popular cryptocurrency, and while it’s popularity is still rife, energy consumption will continue to be an issue.
Furthermore, blockchain has many more applications than just cryptocurrency. It is possible that the blockchain could support environmental initiatives. By utilising the blockchain’s data storage capacity, supply chain management in many industries could be made public and immutable. This would enable consumers to make informed decisions about the products they purchase and their environmental and ethical footprint.
There are also a number of fascinating projects, such as the Toucan Protocol, aiming to bring carbon credits onto the blockchain. Although this represents a significant challenge as carbon credits are not perfectly fungible like typical crypto currencies (as they have a vintage and a project associated to them). We at C Free would like to see a hybrid solution between NFTs and crypto tokens where information about the vintage and project are contained in the token. If you know of such a project or would like to collaborate in the creating one, please let us know.
Klima DAO (decentralised autonomous organisation), whose express purpose is to become a “black hole for carbon at the centre of a new green economy”, recently announced their offset scheme, Klima infinity. These kind of DAOs represent a potential shift in the way economic power is organised in society, and with DAOs such as Klima with environmentalism at their core this is a perhaps promising sign for the future of environmentalism.
In conclusion, to address the opening question, the answer is “it’s complicated”. There is certainly significant environmental impact of the current instantiation of blockchain. However, as with all new technologies, they are, in a sense, neutral; it is up to us to decide how to use them. It certainly seems clear that the blockchain is here to stay and we at C Free are very excited about the fascinating possibilities this new technology represent if the high energy consumption can be addressed. We hope that, moving forward, environmental issues will be at the forefronts of the minds of the pioneers in this space as they build a better, more sustainable Web 3.0 for us all.