In short: YES! Sustainable Blockchain solutions are just around the corner. The bad reputation of the Blockchain due to its high energy consumption is not entirely justified. Blockchain can even contribute to environmental protection.
Everyone is talking about sustainability. This raises the question: What about Blockchain, the major future technology pioneers all around the world put their trust in?
Arman Sarhaddar, CEO of Vault Security Systems AG, answers a few essential questions on the topic in a German interview with Industry of Things, a platform for Blockchain experts and upcoming technological innovations.
We summarized these insights for you in this blog entry to show you why Blockchain doesn’t necessarily mean high energy consumption and low environmental compatibility.
1. What’s the reason for Blockchain’s bad reputation concerning sustainability?
ivault’s founder Arman Sarhaddar explains, it is true that Blockchain does not have a good reputation in terms of its environmental performance. This is because, despite growing knowledge, the term is still strongly associated with crypto-currencies such as Bitcoin.
Bitcoin mining activities are indeed energy-intensive: The proof-of-work algorithm (PoW) by which transactions are verified and new coins are generated, involves a very high computational effort. A single transaction now consumes as much energy as 1.5 average American households per day.
This must be viewed critically since there is a lot of mining going on e.g. in China as well. There, the necessary electricity often comes from coal-fired power stations, which is extremely harmful to the climate.
“But Bitcoin is not Blockchain and Blockchain is not Bitcoin!” – Well said, Arman.
2. So, what about sustainable Blockchain applications outside the crypto world?
Today we can choose from many different algorithms –many alternatives to the PoW algorithm nowadays, which consume less or even net zero energy. Each option has advantages and disadvantages, which have to be weighed up in terms of application as well as environmental compatibility.
Most companies do in fact use these more sustainable Blockchain algorithms. For a company network or a network between known consortium members, the energy-consuming level of protection as with Bitcoin is simply not needed.
So, most Blockchain or distributed ledger technology (DLT) applications developed for businesses can do without the energy-intensive PoW. This requires networks that are not freely accessible like the Bitcoin network, but need permission (permission-based networks).
Instead of a proof-of-work, for example, a proof-of-stake can be used for verification and consensus building – but you don’t need to understand all the technological details in this case, only acknowledge the fact that this reduces computing power and thus reduces energy consumption drastically.
Yet these sustainable Blockchain solutions can still achieve the desired performance.
3. Can Blockchain technology contribute to environmental protection?
There are many business models that directly address social and environmental problems with SDGs (Sustainable Development Goals). Like any technology, Blockchain can be used for different purposes. In general, it can reduce paper consumption enormously by securely and permanently recording continuously retrievable data.
Among other things, there are sustainable Blockchain applications for sustainable aquaculture and fish farming, that track distribution, make fish traceable and provide evidence of the companies’ ecological responsibility.
Monitoring the supply chain makes it possible to identify inferior products earlier in the process. The extent of recalls and new production can thus be reduced, which has a positive effect on the greenhouse gas balance and other resources.
Another important issue is counterfeit protection. Counterfeit products are often highly polluting and therefore harmful to the environment. It seems ridiculous to mention that the extent of this is hardly scalable, as there are no legal controls on production and distribution standards in this dubious sector of world trade…
4. What about the social compatibility of sustainable Blockchain solutions?
Sustainability has not only an ecological dimension. Counterfeit protection and the tracking of supply chains has an ethical component too. Apart from consumer protection, Blockchain can ensure that goods have been produced under responsible conditions.
In the fair trade goods segment, for example, these sustainable Blockchain solutions are gradually being established and guarantee human rights and fair working conditions.
Another aspect is that in some markets up to 70 percent of medicines are counterfeits. An estimated 100,000 people die every year as a result of taking counterfeit medicines. A technology that can prove the authenticity of medical products helps to reduce the risk and potentially minimizes the amount of fatal incidences.
On the other side, Blockchain enables smart contracts that automatically come into force under certain mutually agreed and unchangeable conditions. The “if-then” principle can be used, for example, for automatic payments. Thereby payment delays or misappropriation are not possible anymore.
The entire business world can benefit from more trusting, transparent and direct relationships catalyzed by sustainable Blockchain solutions. This is also in line with the basic idea behind the technology:
In the Genesis block of Bitcoin, inventor Satoshi Nakamoto linked an article that deals with the crash of Lehman Brothers and the start of the financial crisis. A transparent network, in which transactions can be viewed and tracked by everyone, would rule out corruption.
5. What needs to be done to enhance eco-balance and the image of Blockchain?
The most important thing is: The public awareness of the difference between the Blockchain technology and crypto currencies like Bitcoin has to increase.
The fact that Bitcoin has a very high energy consumption that exceeds that of countries like Switzerland, for example, is usually being covered by the media to a greater extent than sustainability in the case of other applications of distributed ledger technology.
We need to put more effort into explaining that there are fundamental differences between Bitcoin and other Blockchain applications, which are now slowly being put into practice.
We are already on the right track – the applications that are working for a better world, such as energy savings or waste avoidance, more than make up for their energy consumption. In the future, this balance will continue to improve.