Can Blockchains actually be good for the environment?
The UN believes they can...
For years Bitcoin has faced criticism for its energy consumption, especially a few months ago in mid-May 2021, when Elon Musk stated that Tesla would stop accepting Bitcoin payments because of its negative impact on the environment. In a previous article, we compared Bitcoin’s use of energy with that of the traditional banking system and concluded that the former actually consumes less energy than the latter. But it really does draw a lot of power and we can definitely do better.
However, as early as 2017 and as recently as last June, the UN has stated that blockchain technology could actually be beneficial in fighting the climate crisis and could help lead us to a more sustainable economy. In this article we’ll take a look at just how the UN believes blockchains can be good for the environment and take a closer look at that statement. They’re talking about blockchains. Not about Bitcoin in particular.
Blockchain vs. Bitcoin
One of the reasons many people have trouble believing that blockchains can be eco-friendly is that they either believe that bitcoin and blockchains are synonymous or, at best, that if the bitcoin blockchain is energy-intensive, then all other blockchains must require the same amount of power. Now, if you’re here and reading this, you probably already know that both of those beliefs just aren’t true. You could probably name at least ten other blockchains in just a few seconds without even thinking too hard and you’ve heard that other blockchains use less power. But how big is the difference really?
The Bitcoin blockchain uses Proof-of-Work consensus, meaning that there are millions of computers all over the world competing against each other to be the first to solve complex mathematical puzzles and receive some Bitcoin tokens as a reward. The thing is that the blockchain is set up so that each puzzle takes about 10 minutes to solve. The more computing power trying to solve them, the more complex the puzzles need to be, which in turn demands even more computing power and that’s how the energy requirements skyrocket. If there were less computers trying to solve the puzzles, or if the time to solve them was shorter, they could be made less complex and power consumption would be lower. Basically, that’s why Ethereum uses less power than Bitcoin, even if it uses the same Proof-of-Work consensus mechanism (for now). Blockchains using Proof-of-Stake, dPoS or other consensus mechanisms require even less power to run.
Let’s have a look at the how much power an average transaction consumes on several blockchains:
Bitcoin: 707 KWh (PoW)
Ethereum: 63 KWh (PoW) (for now)
Litecoin: 19 KWh (PoW)
Cardano: 0.55 KWh (PoS)
EOS: 0.011 KWh (dPoS)
XRP: 0.008 KWh (XRP Ledger consensus protocol)
You can see that there is a big difference between blockchains using Proof-of-Work and those using other consensus mechanisms. Non-PoW blockchains typically require far less than 1 KWh per transaction. Ethereum is 11% more energy-efficient than Bitcoin and Litecoin is 37% more so. But all of those seem insanely power-hungry compared to the other three: Cardano is 1,285% more efficient; EOS, 64,273% and XRP is a whopping 88,375% less energy-consuming than Bitcoin. Running an XRP node is said to have an energy consumption similar to running a small email server.
So, if Bitcoin is already less harmful to the environment than the traditional banking system, can you imagine how much greener we could be with a global financial system running on EOS? Or XRP?
Although impressive in itself, these numbers aren’t even among the reasons why the UN says blockchains can help fight the climate crisis. Let’s take a look at what they are saying:
How can blockchains help?
The UN delivers millions of dollars worth of humanitarian aid to crisis areas all over the world each day. But almost all of these crisis spots also suffer from another major problem besides war, thirst and starvation: corruption. A good chunk of these funds gets lost along the way. In 2012, then Secretary General Ban Ki-Moon admitted that the UN was losing about 30% of its assistance funds to corruption. Distributed ledgers would allow funds to be transferred directly to the people that need to receive them, without having to go through banks or any other local institution. The United Nations World Food Program has already used blockchains for sending funds to refugee camps in Jordan and Pakistan to great success. If it can work in these camps, it can work anywhere. There’s a project aimed at using blockchains to improve the lives of waste pickers, the theory being that a transparent, auditable and immutable register of the waste picked, who picked it and how it was used could be the base for a fairer distribution of rewards. And better rewards could incentivize better waste management and handling.
Blockchains can also contribute to slowing down the degradation of the environment. Data about greenhouse gas emissions are very unreliable in a lot of countries, but registering these emissions on a blockchain would provide a better way of tracking these emissions and detect which countries are really making an effort to reduce them. At the same time, blockchains would provide a way to reward the countries that prove more effective in reducing their greenhouse gas emissions. This is the idea behind the CarbonX ledger. Blockchains could also be used to prevent or reduce illegal tuna fishing and accelerate the adoption of renewable energy sources like solar or aeolic.
Wrapping it up…
Even people with enough knowledge about cryptocurrencies to not believe all blockchains work in the same way generally think about the technology’s application in finance and how it can be the way to a new, fair global economy. While this is certainly true, blockchains can be just as disruptive and game-changing in other areas, including climate change. The UN has been recognizing blockchains’ potential to help in establishing a greener, more sustainable world. That doesn’t mean that blockchains’ energy requirements are to be taken lightly. Some of them do consume a lot more power than they should. But there are steps being taken. Less than three months ago, in April 2021, some important organization created the Crypto Climate Accord, with the goal of decarbonizing the blockchain industry. Ethereum has been planning on switching from PoW to PoS consensus, which would give the blockchain higher capacity and speed while cutting power consumption by over 99.9%. But there are other, much more energy-efficient blockchains already running. For example, there’s EOS, which claims to be the world’s first carbon-neutral blockchain, and XRP which consumes even less energy per transaction. If we were to take blockchain-based eco-friendly projects and deploy them in a low-power platform, we could quickly see just how green blockchains can be. It looks like the UN and crypto enthusiasts all over the world do have a point after all.
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