Tick Tock Tech: A Crash Course on Blockchain and Sustainability
Whether it’s the roller coaster of crypto values, celebrity NFTs or Web3 musings, blockchain has become a constant in business and tech headlines. Yet, no matter how many articles it commands, blockchain remains a mystery to many. We’ll help answer your questions about the sustainability impacts of Blockchain, and what brands need to consider when utilizing it.
A blockchain is a digitally distributed public ledger, or record of transaction. These digital ledgers are decentralized, stored on multiple computers called nodes that are linked by a network, which means they provide a transparent and verifiable transaction record that cannot be altered.
While blockchain technology is most often associated with cryptocurrencies, non-fungible tokens (NFTs) and Web3, it has many functions outside of this space such as supply chain management, carbon accounting and government record management.
Blockchain is no longer just for the “crypto bros” and the decentralized finance (DeFi) ideologues. As cryptocurrency and other blockchain-powered technology have become more commonplace, its audience has broadened in kind. Many brokers now offer crypto funds and as of 2020, over 2,300 U.S. businesses accept Bitcoin as a form of payment. Increasingly, organizations like the World Economic Forum and IBM are also looking at how blockchain can be applied to climate and sustainability initiatives.
Blockchain and sustainability
There are two main conversations around sustainability when it comes to blockchain: the environmental impact of blockchain technology and sustainability use cases for blockchain.
Blockchain’s environmental impact
Blockchain technology consumes an enormous amount of energy. At the time of this writing, mining bitcoin alone consumes about as much energy annually as Belgium, according to the University of Cambridge, which tracks the cryptocurrency’s network real-time power demand.
How? Validating transactions (like a sale) on the blockchain takes compute power. Multiply that by all of the miners worldwide (there’s an estimated 1 million Bitcoin miners at any given moment) and you get energy consumption that rivals some nations.
However, not all blockchains are as power-hungry. The two leading consensus techniques for managing blockchains are known as Proof of Work (PoW) and Proof of Stake (PoS). In PoW systems, like Bitcoin and Etherium, miners race against each other to verify transactions. In PoS systems, individuals, known as “validators,” are randomly selected to validate transactions – making it 99.99% more efficient than its PoW counterpart. Solana, Terra and Cardano are among the biggest cryptocurrencies that use proof of stake and Etherium is in the process of converting to this consensus technique.
Additionally, less costly and energy intensive verification methods are also emerging in protocols, including “proof of authority” (PoA), “proof of importance” (PoI) and “proof of history” (PoH).
What about the sustainability use cases?
Putting compute power and energy needs aside, blockchain technology is increasingly being tapped to support sustainability efforts.
At its core, blockchain technology is about transparency. There are dozens of potentially “game-changing” sustainability applications for blockchain, from transforming carbon markets and energy management to tracking emissions and tree planting initiatives.
The transparent and immutable nature of the public ledger makes it particularly apt for tracking supply chain emissions. Supply chain emissions, also known as Scope 3 emissions, are notoriously difficult to track, though they account for the vast majority of most companies’ emissions – as much as 90%, according to the Environmental Protection Agency. Blockchain technology presents a perfect fit for publicly tracking and synchronizing supply chain records, including supply chain-related emissions data, as well as transparent Environmental, Social and Governance (ESG) reporting.
What Brands Need to Consider about Blockchain and Sustainability
Here are a few pointers on what brands need to consider about the blockchain sustainability conversation.
- Understand your consensus protocols: However a brand is using blockchain technology, it’s critical to understand the environmental impact. While Proof of Work is the most commonly used mechanism, it’s also by far the most energy intensive. With sustainability top of mind for business, technology and increasingly crypto reporters, it’s important to note what consensus technique is being used and why.
- Understand your stakeholders: Many companies have faced backlash from eco-conscious stakeholders over their use of cryptocurrency, leading some to backtrack and announce they would pause accepting crypto payments or donations. Organizations that fail to understand both internal and external sentiments towards crypto and blockchain technology risk committing resources to a product or initiative launch only to follow it up with a public mea culpa.
- Be transparent: Any business deploying blockchain-powered technology – especially those prioritizing sustainability or looking to position itself as a leader in the space – should address its environmental impact head on.
- Identify the larger sustainability story: Whether you’re using blockchain to track shipments or energy use, it’s important to identify how this effort ladders up to the company’s sustainability plan. Identify why blockchain will help advance the company’s sustainability goals to fit it into the company’s larger sustainability narrative.
As blockchain’s prominence grows, many companies will weigh whether and how the technology can support their goals. Simultaneously, sustainability is becoming increasingly core to business operations as everyone from customers and employees to partners and regulators demand climate action. Businesses must approach blockchain technology from both a technology and sustainability perspective.