Why Blockchain’s Detractors Have it all Wrong

20 Jul, 2021

Will blockchain technology destroy the planet? There are several concerns about the massive amounts of energy required for this highly influential technology. But perhaps we should dig a little deeper: CURAZE Mentor Katharina Gehra explains why blockchain infrastructures will likely be beneficial for the planet in the long run

When even the Swiss paper Handelszeitung, which can hardly be suspected of any proximity to Fridays for Future, sports the headline: “Crypto against climate – Bitcoin is an environmental pigsty”, even conservative investors take notice. And at first glance, the energy required for the data centers that provide computer services for blockchain technologies is indeed enormous. For example, the Cambridge Center for Alternative Finance estimates that in 2019, the annual prospecting, or “mining” of Bitcoin was equivalent to Sweden's total energy consumption.

But these figures are put sharply into perspective when we adopt a long-term outlook. There are four arguments showing that the claim that the blockchain technology used for crypto assets accelerates global warming is not plausible – on the contrary, the climate can actually benefit from its use.

First: Compared to the energy consumption of the traditional banking sector or even gold mining, the Bitcoin network performs well in terms of carbon footprint. According to calculations by ARK Invest Management LLC from last year, Bitcoin production consumes 10 percent less energy than banks, and compared to gold mining, the difference is as high as 40 percent. Asset management analyses also give Blockchain a positive review: The proof-of-stake consensus mechanism is by far the most energy-efficient and has the lowest CO2 emissions compared to all other communication modes and asset transfer methods.

Second: The energy input we do need can be calculated more easily and reliably – because on the blockchain, data is 100 percent accessible and unchangeable. The underlying structure of the technology does not allow for manipulation, something that has been repeatedly attempted with CO2 measurements in other industries.

Third: It is undisputed that the energy generated by fossil fuels is declining in the medium term. Especially in States where companies are already using blockchain technology, there is a majority consensus, albeit not unanimous but increasing, in favor of shifting toward green energy sources to generate power. Already, many players in the bitcoin network are making efforts to source electricity from renewable sources. Estimates for the current portion of green power vary between 55 and 65 percent.

Fourth: The industry is making significant efforts to radically reduce its energy consumption, regardless of how they source their power. Bitcoin competitor Ethereum, for example, will complete the transition from proof-of-work (POW) to the so-called proof-of-stake (POS) system in the coming months. The two terms refer to different methods used to secure transactions on the cryptocurrency network: POS is the newer option, which uses virtually no computing power. Recently, the Ethereum Foundation expressed confidence that this change will reduce energy consumption by 99 percent compared to current figures. Future blockchain platforms will use proof-of-stake or other consensus mechanisms to reduce the energy consumption of blockchain applications.

As well as contributing to protecting the climate, the proof-of-stake blockchain, as the basis for the token economy and thus the foundation for a new Internet, will also assert itself because of its security, manageability, scalability, and breadth of use – a functional infrastructure for every industrial sector. Whether we’re talking about autonomous driving, or self-charging vehicles, or perhaps identifying distinct supply chains, or for the temperature-sensitive storage of products: The related processes will be simpler, cheaper and at the same time more secure than in existing systems. Incidentally, since this system makes no use of paper and avoids waste, it helps the environment beyond the matter of CO2 consumption.

Blockchain as an “ESG accountant”

But blockchain will also make an indispensable contribution as a watchdog for the sustainability of transactions and products in the financial sector. We’re at the start of a development that will only accelerate – and I expect the World Economic Forum in Davos is already discussing some potential implementations to turn this infrastructure into tangible business models.

This way, what have so far been primarily theoretical schemes will become very practical products. The proof-of-chain blockchain – intertwined with applications of artificial intelligence and the Internet of Things – will help to enforce sustainability criteria in the financial industry. After all, the technology behind it allows ESG data to be presented like a bookkeeper’s records, to be automatically checked for validity and thus bring transparency to the sustainability content of financial transactions.

Whether as a tool for transaction security and climate protection, in its shared and thus lower resource consumption, or for its potential to support sustainable finance – it’s because of its decentralized system that the blockchain is so interesting and versatile. No doubt, this technology will help shape our future.

Katharina Gehra is CEO and Co-founder of the start-up Immutable Insight Capital Management, which performs analytics and develops blockchain funds. This article was originally published on Tagesspiegel Background: Sustainable Finance.

More Blockchain insight from Katharina Gehra

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