The possibilities afforded by sustainable blockchains are massive, and the upsides for the environment are too important to ignore. Of course, there are still challenges to address as is true of any industry, but they are recognized and are being actively worked on. What other industry has had its second-largest operator reduce its energy consumption and emissions by more than 99% in less than 10 years since inception?
Sustainability in 2022
Today, the importance of ecologically sustainable business practices has become a central part of the popular narrative. Prominent companies rush to declare that they are launching various programs to address sustainability, and in many cases they do just what they say. However, it is also common for some of these businesses to hide behind opaque metrics 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 be greener in an effort to merely improve their image (also known as “greenwashing”). This serves nobody but company executives and has sown mistrust amongst the broader public.
Blockchains are often stigmatized for their burden on the environment. While it is true that Bitcoin itself and similar proof-of-work (PoW) chains have a considerable ecological impact, proof-of-stake (PoS) chains are vastly more energy efficient. For example, the Ethereum network recently upgraded to PoS, which saw Ethereum’s energy usage drop by 99.9%.
Moreover, efforts are already underway to address and rectify Ethereum’s historical carbon consumption via the newly formed Ethereum Climate Platform (ECP) – a collective of industry luminaries, including Ethereum Enterprise Alliance, ConsenSys, Microsoft, Aave and Polygon, which launched at COP27’s U.N. Climate Change Global Innovation Hub.
With new green credentials, blockchain networks can be put to good use by improving tracking and verifiably proving emissions of a given organization or supply chain. Due to their inherent immutability, accountability and transparency, blockchain can track carbon balances and other environmental measures, holding to account companies that proclaim to be sustainable.
For example, implementing smart contracts can automate the process of tracking how much carbon is produced at every step of a business’s operations. This information could then be reported to various monitoring services and relayed to the public. The verifiable, cryptographically enforced nature of this data will guarantee that it cannot be falsified or obfuscated in any way.
Incidentally, that same cryptography will also protect the privacy of the company’s reporting. Thanks to zero-knowledge (ZK) technology, unfalsifiable proofs can be generated that confirm the underlying information without revealing it. In basic terms, a company could provide evidence that it met various energy usage or carbon emission standards without disclosing the underlying data – a current blocker to company transparency when reporting details on emissions producing activities.
Another way environmentally friendly blockchains can become a sustainability solution is through the tokenization and digital distribution of digital environmental assets. A recent example is the accelerated development of the carbon credit market, which has attracted the attention of leading organizations across the globe, from the largest registries that provide accreditation including Verra and Gold Standard, to international bodies such as the World Economic Forum.
There are even blockchain-native iterations focused on solving the scaling problem and the limited supply of current carbon markets such as Nori, whose novel approach recognizes the need for measurable drawdown alongside carbon avoidance. Nori’s future-forward focus, which was not widely recognized in earlier years, has recently secured a partnership and integration with Bayer, which has the potential to deliver immense scale.
Even the United Nations is inviting the applications of blockchain in climate action and supporting initiatives driven by the Web3 community.
Taking the next steps
Blockchain’s role in helping the environment can go far beyond energy footprints and carbon credits as well. We expect to see an increasing number of sustainability-focused systems launching in 2023, where things like water usage or plastic creation could similarly be tracked and reported. Governments and regulators could create clear standards for what levels of environmental impact are acceptable across various industries and utilize these blockchain systems to monitor them. This would not only benefit the planet itself, but it would also streamline business processes via clear expectations for emissions.
The aforementioned ECP is a prime example of the sentiment within Web3 to tackle this monumental challenge. Beyond efforts to mitigate Ethereum’s previous carbon footprint, the ECP aims to create a positive impact via investment in scaling carbon-reducing technologies that leverage blockchain.
Another important possibility of 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 supply chain, it can bring more transparency and provability to equitable distribution of revenue and improved treatment; the next generation of fair trade.
Clearly, this technology is nascent, and nobody is saying that blockchain on its own is a panacea for dealing with climate change. Nonetheless, more industries must consider what this technology can offer. Perhaps the most important initial component is accountability for companies claiming to be engaging in sustainable practices. That said, there is so much more that is possible. The world should begin paying attention and get past the notion that blockchain is part of the problem because, in truth, it could form part of the solution.
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