Blockchain surrounding earth

Sustainability

Blockchain for social good

March 4, 2022

Ask most people about blockchain and they will talk about its inextricable relationship with Bitcoin and other cryptocurrencies, which are changing the face of traditional finance. But they may well also refer to the implications for energy consumption and the environment as cryptocurrencies like Bitcoin use astonishing amounts of electricity. According to research by the University of Cambridge, the process of creating Bitcoin to spend or trade consumes around 91 terawatt-hours of electricity annually. This is more than is used by Finland every year, a nation of about 5.5 million people, and is close to half a per cent of all the electricity consumed in the world. The level of energy consumption associated with cryptocurrencies has increased about tenfold in just the past five years.

With the public blockchains that underpin Bitcoin and other cryptocurrencies, transactions are managed by a decentralised network of users so no single person or entity is in control and appear in a public ledger that anyone can examine. Bitcoin miners compete to validate transactions and enter them into the public ledger by trying to solve a cryptographic puzzle using powerful, power-hungry computers to win and be rewarded. In the case of a Bitcoin transaction, the reward is 6.25 new Bitcoins, each worth about £33,000 (at the time of posting). Bitcoin Halving: What You Need to Know (investopedia.com)

Aside from energy consumption and emissions, the turnover of computer equipment used for mining has created a massive e-waste problem contributing to the blockchain environmental impact. Paris-based economist, Alex de Vries, estimates that at the start of 2021, Bitcoin was generating more e-waste than many midsize countries. Blockchain, ESG Investing And Why Investors Must Care (ifcreview.com)

B2B blockchain for social impact

Embracing the use of cryptocurrencies and public blockchain flies in the face of efforts to be more environmentally aware and present a greener approach. And while many companies and organisations recognise the benefits of blockchain, the idea that no single entity is in overall control, anonymity is protected and anyone can download, view, and interact with the blockchain, makes them very uncomfortable.

However, a new generation of B2B blockchain platform has emerged that addresses these issues. These ‘permissioned’ blockchains retain a level of control so no one can enter this type of network without proper authentication and are designed to empower and support the business rather than individual users. They also provide a high degree of regulation, which helps to eliminate many of the illicit activities and vulnerabilities associated with public blockchains.

Permissioned blockchains do not rely on cryptocurrency and specify pre-determined resource criteria defining the number of nodes (users) to participate, reducing energy consumption and making overall performance much faster. And instead of ‘miners’ competing against each other to verify the validity of a transaction, B2B blockchains typically use voting systems and do not need to run computationally intensive and wasteful consensus algorithms. Rather than running large computing facilities, a node on a B2B blockchain can be run on a standard PC or single Container. And with B2B platforms, nodes and services can be added on-demand to provide more flexibility and scalability. Using a fraction of the energy and fewer resources and participants means a much lower cost and impact on the environment.

Blockchain corporate governance

B2B blockchains can have a positive contribution to environmental protection; for example, by making consumption and production processes more transparent. With current Environment, Social and Governance (ESG) reporting and disclosures not always clear or helpful for decision making, a business blockchain is an ideal technology to increase the immutability, transparency and consistency of reporting frameworks that deliver increased value, usefulness and trust.

Supply chain management in industries such as forestry, energy, food or mining is another area that B2B blockchain can help. Standards and certification schemes to ensure sustainable and responsible supply chains remain costly and unreliable. But as an immutable storage mechanism, B2B blockchain can record detailed and verified information about the origin of a product, as well as the processes and parties involved in transactions and logistics. This data can be visible, traceable and auditable by all those in the supply chain. The encrypted and time-stamped data on the blockchain cannot be altered or modified, without everyone knowing about it, reducing the risk of fraud and errors.

This helps consumers to make informed choices that do not undermine environmental protection, working conditions, or human and animal rights. In a food supply chain, the record of a journey from farm to fork is available in real-time and the disclosure of data provides accountability for trading transactions and farming practices to support claims such as good animal welfare, organic, freshness and superior quality.

In another area, blockchain could be used to create a green asset management platform for trading carbon assets more efficiently. For example, you could have a blockchain-based peer-to-peer energy transaction platform that would enable efficient electrical energy transactions.

There are major questions around the merits and sustainability of large cryptocurrencies using first-generation blockchains, but the growth of business blockchain platforms for social good shows a way forward.

Scalable sustainability and the wider, more environmentally friendly application of blockchain technology provides some exciting opportunities to support ESG initiatives and goals.

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