Is blockchain sustainable? It depends on what you’re using it for…
The relationship between blockchain and the environment is complicated, to say the least. Blockchain, also known as distributed ledger technology, has been used to improve sustainability across industries. In the energy sector, it has enabled peer-to-peer (P2P) transactions and reduced the need for energy storage and transfer.
In retail, it can provide an immutable record of goods to ensure that they have been ethically sourced. Conservationists have even used blockchain to log important data about natural environments… But there’s a much darker side to blockchain that these benevolent applications don’t take into account.
A double-edged sword
Environmental groups and corporate organizations have realized that blockchain could provide the answers to many of the issues around sustainable development. For example, in food and beverages, sustainably sourced fish could be tracked right back to the source, with each part of the supply chain noted and verified.
The same principle could be applied to any material or product, providing the transparency needed to guarantee the origins of any given item. In a world in which conspicuous consumption has given way to conscientious customers, this verification is more important than ever.
Although blockchain has piqued the interest of environmentalists, it is also the technology behind energy-hungry digital currencies. The biggest culprit, and the most well-known, is Bitcoin. Each time someone buys something using Bitcoin, the transaction currently requires the same amount of energy needed to power 1.5 American homes for an entire day.
There have long been concerns over blockchain’s scalability due to its vast energy demands and relatively low transaction capacity. Per transaction, Bitcoin is thought to be 5,033 times more energy intensive than VISA.
So why do cryptocurrencies use up so much power?
The answer lies in the miners who create or ‘mine’ new blocks by solving complicated algorithms. Miners are rewarded for their work with tokens, and compete with each other to mine blocks.
The problem is, the more blocks they mine, the more complex the mining process becomes, and the more power is needed. To make matters worse, a large volume of Bitcoin mining takes place in China, where electricity is produced largely by coal-fired power stations.
Solving the blockchain conundrum
One of the ways that blockchain could become more sustainable is through the adoption of Proof of Stake (PoS) over Proof of Work (PoW). PoS replaces miners with forgers, who are chosen at random to mine blocks instead of competing against one another. There are no block rewards, but forgers can instead collect transaction fees.
In 2017, the Ethereum Foundation began to lay the foundations for a move to PoS. Unfortunately, the PoS system favors those who have more wealth, because the more assets you have, the more likely you are to be selected as a forger. And, the problems surrounding blocks still remain.
Another alternative is DAG –Directed Acyclic Graph. DAG can be thought of as blockchain minus the blocks. If there are no blocks, there are no miners. So, instead of verifying transactions via miners, who can arbitrarily approve some and not others, DAG uses previous transactions to verify new ones.
DAG is currently used by Byteball and IOTA and has the potential to challenge blockchain-based alternatives. One of the major benefits of DAG is that it doesn’t have transaction fees. IOTA’s DAG is also compatible with blockchain, which means that the transition will be far easier.
The system has to change
Regardless of which solution is chosen, the current underlying structure of blockchain is simply not sustainable. If cryptocurrencies and the myriad of other applications of the technology are to be used reliably and at scale, the system has to change.
Ethereum has taken tangible steps towards doing this, but the chance of blockchain feasibly replacing central authorities – like banks and energy companies – remains slim. That doesn’t mean, however, that blockchain can’t be used to gradually improve transparency and trust in industries where there are environmental and ethical concerns.
The tricky relationship between blockchain and sustainability demonstrates just how complex sustainable solutions can be. While blockchain has the potential to improve supply chain sustainability, it also necessitates the mammoth energy consumption required by cryptocurrencies – particularly Bitcoin. Perhaps the evolution of blockchain won’t come from the financial sector, but from the governments, organizations, and communities that use it to support sustainability.