Bitcoin (BTC) is often used to criticize all blockchain-based projects. This is understandable, as Bitcoin was the first project to use a blockchain, it is arguably the most recognizable, and it is the largest cryptocurrency by market capitalization.
In the first half of this article, i will use bitcoin as a substitute for all blockchain based projects because most people associate blockchain with bitcoin. Anything environmentally positive that can be said for Bitcoin will be doubly true for the vast majority of new blockchain-based projects, as Bitcoin uses the oldest version of blockchain technology.
Blockchain Power Consumption
Bitcoin has come under attack for its high power consumption. Headlines that Bitcoin’s electricity use is comparable to a country’s total consumption is a popular criticism. Comparisons are useful, but they can have a misleading structuring effect. For example, the statistics most cited in these attention-grabbing headlines come from the Cambridge Center for Alternative Finance (CCAF). This same organization indicates that electricity losses in transmission and distribution in the United States could power the entire Bitcoin network 2.2 times. Always-on electrical devices in the United States consume 12.1 times more energy than the Bitcoin network.
Therefore, the Bitcoin network uses as much electricity as a small country or much less than a portion of the United States’ energy budget. Is that a lot? It depends on how you look at it.
Another criticism that is often used is that Bitcoin’s electricity consumption is growing so rapidly that Bitcoin’s emissions alone could drive global warming above 2 ° C, or consume the equivalent of all the world’s energy in 2020. The latter has not happened. Why? First, like most network-based technologies, Bitcoin is following an adoption curve defined by the theory of diffusion of innovations: an “S-curve.”
The explosive and exponential growth in the first half of the curve slows down considerably in the second half. Secondly, Large and predictable improvements in computer efficiency will continue to lower the energy cost of computing even as Bitcoin’s growth slows. Third, these predictions do not take into account the evolution of Bitcoin’s energy mix.
Blockchain energy mix
Almost all the energy consumed by blockchain projects comes from the electricity used by the computers that secure the network. Bitcoin calls them “miners”, but new blockchain projects can use much more efficient “validators”. Electricity is produced from many different sources, such as coal, natural gas, and renewable energies such as solar and hydroelectric. These sources can create very different levels of carbon emissions, which largely determines their environmental impact. The two most prominent estimates of Bitcoin’s energy from renewables range from 39% in this report to 74% in this other. Either of these estimates is “cleaner” than the US energy mix, which only comes from renewables by 12%..
There is evidence that the public scrutiny that Bitcoin has undergone has most likely guaranteed that energy from renewables will only increase in the future.
Blockchain is worth it
Bitcoin’s energy consumption and composition are not perfect, nor are they as dire as is often reported. What is often lost in the Bitcoin energy usage conversation is whether Bitcoin’s energy usage is worth it.. Many industries require energy or produce large amounts of waste, but most people find the environmental costs worth it. The agricultural industry requires a massive expenditure of fossil fuels for fertilizers and to power equipment in the field, not to mention the production of harmful spills. However, despite the negative aspects for the environment, we recognize the enormous importance of growing food. Instead of ruling out agriculture, we strive to improve it from an environmental point of view.
Whether it’s allowing the 1.7 billion unbanked people to gain financial inclusion or offering an alternative to predatory international remittance services, it seems clear to me that Bitcoin deserves energy use. It is even clearer that the enterprise blockchain is an unmitigated public good.
Newer alternative blockchain technology uses at least 99.95% less energy than older ones. Enterprise blockchain can use even less energyas it can be tailored to specific use cases. In addition to using much less energy, enterprise blockchain helps organizations achieve their sustainability goals.
Blockchain as a key driver of renewable energies
Solar and wind power are now cheaper than fossil fuels like coal and natural gas. Solar and wind energy are now comparable to geothermal and hydroelectric. Despite having solved the cost problem, renewable energies have several problems that prevent their massive adoption. Geothermal and hydroelectric are linked to geography. Solar, wind and, to a lesser extent, hydroelectric power suffer from intermittency and grid congestion. Flashing means that currently they are very unreliable. There is no sun at night, the wind sometimes stops and there are rainy and dry seasons. Network congestion is similar to car traffic. Due to geographic limitations, renewable energy facilities are often built in rural areas. However, most of the energy is needed in dense towns and cities. Like a car in a traffic jam, electricity is delayed in reaching its destination.
There are solutions, such as building storage batteries and increasing transmission capacity, but they are expensive infrastructure projects. This is where Bitcoin, and the blockchain in general, can help. Unlike Bitcoin miners and other blockchain projects, they can be built anywhere. They are profitable businesses, so essentially can subsidize the construction of renewable infrastructures by always using the excess energy produced.
Another promising energy technology that is well suited to blockchain is the person-to-person (P2P) electricity trading. These energy exchange systems offer electricity suppliers and consumers the opportunity to trade in energy without the need for existing intermediaries, while increasing the level of renewable energy. Like renewable infrastructure, Blockchain-based projects will incentivize the development of P2P energy networks.
Blockchain allows the acquisition of materials and their origin
Consumer demand for more ethically sourced products is on the rise. Companies have to demonstrate that their product is produced in a way that protects the environment and public health, and that it is manufactured ethically. Consumers, who distrust “greenwashing”, have had to trust the information provided by companies. Blockchain-based projects are already changing this dynamic.
Everledger has created tools to increase the information of consumers and companies about the provenance of a certain object. By combining blockchain, AI and IoT, Everledger digitally streamlines compliance processes and enables companies to prove the true origin of their products.
Transparency and traceability will be crucial to building consumer confidence in food supply chains. Supermarket giant Carrefour and the world’s largest brewer AB InBev partnered with enterprise blockchain developer SettleMint to offer a digital traceability solution that uses dynamic QR codes attached to a product during the packaging process.
Green financing consists of the use of loans to support sustainable companies and finance the projects and investments they make. It will be crucial to closing the funding gap of the SDGs (Sustainable Development Goals) of 2.5 trillion dollars annually, and which is estimated to increase. A good example of green financing is the green bond (GB) market. According to the Climate Bonds Initiative, $ 269.5 billion in green bonds were issued in 2020.
Unfortunately, the GBs are not without problems, such as confirming that sustainability metrics are authentic or that funds were used to support sustainability. Blockchain can immutably store this data, so projects can be verified to meet sustainability requirements. Blockchain can help in other ways too, like tokenization.
Oi Yee Choo, Chief Commercial Officer of iSTOX, a Singapore-based digital stock exchange, said in this interview: “Even in markets where the demand for green bonds is high because investors are motivated by ESG considerations, tokenization helps investors diversify their portfolio across different bonds due to smaller subscription sizes.“.
The blockchain industry is currently far from ideal in terms of environmental sustainability. But nevertheless, if it maintains its current trajectory, the blockchain industry will not only be an example, but an enabler of environmental sustainability.
The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Matthew Van Niekerk is the co-founder and CEO of SettleMint, a low-code platform for enterprise blockchain development, and Databroker, a decentralized data marketplace. He holds a BA with honors from the University of Western Ontario, Canada, and an international MBA from Vlerick Business School, Belgium. Matthew has been working on financial technology innovation since 2006.