The year Blockchain becomes a sustainability solution
There has never been a time in world history when environmental sustainability for large companies has been more critical. The planet is showing signs of dramatic change, and the public is calling for greater accountability from all industries. Often the blockchain community is portrayed as part of the problem, but this is largely a misrepresentation. Indeed, this technology can help in the global transition necessary for a sustainable future.
The opportunities presented by sustainable blockchains are enormous, and the benefits to the environment are too important to ignore. Of course, there are still challenges to be tackled, as is the case for any industry, but they are recognized and are being actively worked on. What other industry has had its second largest operator reduce energy consumption and emissions by more than 99% in less than 10 years since inception?
Stefan Renton is sustainability leader at Polygon, a blockchain development platform. This opinion piece is part of CoinDesk’s Crypto 2023 Outlook.
Sustainability in 2022
Today, the importance of ecologically sustainable business practices has become a central part of the popular narrative. Prominent companies are quick to declare that they are launching various programs to address sustainability, and in many cases they do exactly what they say. However, it is also common for some of these businesses to hide behind opaque calculations and somewhat more interpretive goals. A lack of transparent oversight or explicit standards exacerbates this. Some companies have been caught fudging the truth about their efforts to go green in an attempt to improve their image (also known as “greenwashing”). This serves no one but business leaders and has sowed distrust among the wider public.
Sustainable blockchains?
Blockchains are often stigmatized for their impact on the environment. While it is true that Bitcoin itself and similar proof-of-work (PoW) chains have a significant ecological impact, proof-of-stake (PoS) chains are much more energy efficient. For example, the Ethereum network recently upgraded to PoS, which saw Ethereum’s energy usage drop by 99.9%.
Additionally, efforts are already underway to address and redress Ethereum’s historical carbon consumption via the newly formed Ethereum Climate Platform (ECP) – a collective of industry luminaries, including the Ethereum Enterprise Alliance, ConsenSys, Microsoft, Aave and Polygon, which was launched at COP27’s UN -climate. Change the Global Innovation Hub.
With new green credentials, blockchain networks can be put to good use by improving tracking and verifiably proving emissions from a given organization or supply chain. Because of their inherent immutability, accountability and transparency, blockchains can track carbon balances and other environmental measures, and hold to account companies that declare to be sustainable.
Implementing smart contracts can, for example, automate the process of tracking how much carbon is produced at each stage of the business’s operations. This information can then be reported to various monitoring services and forwarded to the public. The verifiable, cryptographically enforced nature of this data will guarantee that it cannot be forged or obfuscated in any way.
Incidentally, the same cryptography will also protect the privacy of the company’s reporting. Thanks to zero-knowledge (ZK) technology, unfalsifiable evidence can be generated that confirms the underlying information without revealing it. In basic terms, a company can provide evidence that it met various standards for energy use or carbon emissions without disclosing the underlying data – a current block to company transparency when reporting details of emission-producing activities.
Another way in which environmentally friendly blockchains can become a sustainable solution is through tokenization and digital distribution of digital environmental resources. A recent example is the accelerated development of the carbon credit market, which has attracted the attention of leading organizations worldwide, from the largest accrediting registries including Verra and Gold Standard, to international bodies such as the World Economic Forum.
Projects including KlimaDAO and Toucan deliver tokenization of carbon credits, bringing important discussion about the future of carbon markets and whether and how they should use blockchain technology.
There are even blockchain-native iterations focused on solving the scaling problem and limited supply of current carbon markets such as Nori, whose new approach recognizes the need for measurable reduction alongside carbon avoidance. Nori’s future focus, which was not widely recognized in previous years, has recently secured a partnership and integration with Bayer, which has the potential to deliver enormous scale.
Even the UN invites the use of blockchain in climate action and supports initiatives driven by the Web3 community.
Take the next steps
Blockchain’s role in helping the environment can also go far beyond energy footprints and carbon credits. We expect to see an increasing number of sustainability-focused systems launched in 2023, where things like water use or plastic production can be similarly tracked and reported. Authorities and regulators can create clear standards for what levels of environmental impact are acceptable across different industries and use these blockchain systems to monitor them. This will not only benefit the planet itself, but it will also streamline business processes via clear expectations for emissions.
Even electric grids can be managed via blockchains and smart contracts. Where electricity is routed can be largely automated at the same time as it is tracked, and this development will make energy use far fairer. Applications that improve energy demand management can become easier, providing incentives for network users. Increased access to investments in renewable energy infrastructure is a real opportunity made possible by blockchain.
The aforementioned ECP is a good example of the sentiment within Web3 to tackle this monumental challenge. Beyond efforts to reduce Ethereum’s past carbon footprint, ECP aims to create a positive impact via investment in scaling carbon-reducing technologies that leverage blockchain.
Another important opportunity for blockchain and its applications such as DeFi (decentralized finance) is its ability to provide tools to empower communities most affected by climate change and business-generated consumption, such as those in the Global South. In other applications such as the supply chain, it can provide more transparency and provability to the fair distribution of income and improved treatment; next generation fair trade.
Clearly, this technology is nascent, and no one is saying that blockchain itself is a panacea for dealing with climate change. Nevertheless, several industries must consider what this technology can offer. Perhaps the most important initial component is accountability for companies that claim to engage in sustainable practices. That said, there is so much more that is possible. The world should start paying attention and move past the notion that blockchain is part of the problem because it may in fact be part of the solution.
