Blockchain and cryptocurrencies continue their inexorable rise, often evoking diametrically opposite reactions from fans and critics alike.
Fans of blockchain systems see a chance to reset the internet, government, and society. Cryptocurrency fans hail its disruptive possibilities alongside its potential to bring 1 billion unbanked people into the financial world.
Detractors think blockchain networks waste energy. At the same time, critics see digital currencies as Ponzi schemes or a way for criminal gangs to launder money.
What’s clear is both blockchain and cryptocurrency are already pushing society to reflect on its inherited protocols and systems. Can these technologies lead to a greener future, one where they help reduce greenhouse gas emissions rather than damage the planet?
Let’s look at how blockchain works, the influence of digital currencies, and how these two entwined technologies could help in the battle against climate change.
What Is Blockchain Technology, and How Does It Work?
Blockchain is essentially an enormous database; the technology is known as a distributed ledger. No one person, company, or government controls the information contained within — there is no central authority. That makes blockchain a peer-to-peer network (P2P) where all users manage data flow and record keeping.
P2P is a crucial element for blockchain, called decentralization. Blockchain, P2P technology is distinct as it moves control and decision-making from a centralized authority (a person or entity) to a distributed network.
What separates blockchain from standard databases is that once information has been added, no one can alter it, and every user can see every transaction. This blockchain security comes from it being peer-to-peer, using the computing power of everyone on the blockchain to create immutable information records.
Data is added to a blockchain in blocks. First, a new block of data is uploaded to a blockchain. Next, every users’ computer, also called a node, checks that information using math equations called mining. If all the data corresponds, the verified block is added to the previous block, creating an incontestable, chronological block order.
In most circumstances, miners earn cryptocurrency for the work they do checking data and blocks. Adding blocks can take time because of the mining requirement.
Blockchain adoption is increasing because user-controlled systems appeal to some people. Anyone with internet access can control their finances through blockchain-backed cryptocurrencies instead of relying on central banks and financial institutions. The blockchain ecosystem sees thousands of new projects and startups every month.
Private Blockchains and Public Blockchains: What’s Different?
Public blockchains are for use by anyone; the Bitcoin blockchain is a public blockchain, and all Bitcoin transactions are visible on its blockchain. Anyone making transactions on a public blockchain must use a private key, protected by cryptography, for authorization. Public blockchains are an example of a peer-to-peer network.
As the name suggests, a private blockchain is not for public consumption and is accessible by only those accorded access. Private blockchains usually have one central holding figure with the power to alter data, block users, and so forth. These private blockchains offer advantages to companies that wish for internal transparency and the benefits of a distributed leger technology but without opening up their operations to the world.
A permissioned blockchain could offer a bit of both, with selected operational powers for specific users. As the use of blockchain expands, so do the demands on its flexibility to make it fit for use.
What Are Some Examples of Blockchain in Today’s World?
IBM’s Food Trust provenance has become a significant player in the supply chain ecosystem. It uses blockchain technology to provide real-time data about a company’s supply chain, helping with the track-and-trace of products.
Companies like Walmart, Carrefour, and more have signed up to the program, giving blockchain credibility and helping to dismiss much of the negative hype surrounding it.
Estonia has been enthusiastic about its uptake of blockchain technology. Indeed, blockchain-based systems handle all its healthcare billing, and 95% of people’s health information is ledger-based. The system’s cryptographic capabilities have thus far proven strong enough to withstand cyberattacks.
Real estate is another potential growth area for blockchain, from correctly listing property details to turning properties into digital assets for easier trading.
And, of course, the world’s most famous blockchain is Bitcoin.
What Is Bitcoin, and How Does It Work?
In 2009, the mysterious and still unidentified Satoshi Nakamoto quietly brought Bitcoin, and therefore blockchain, into existence.
Bitcoin uses blockchain technology for all its transactions. People can buy, sell, and send Bitcoin to other users in return for goods and services, replicating our current use of money but in digital form.
Miners use powerful computers specialized in hash algorithms to win the race to add a new block of data to the Bitcoin blockchain. Mining is rewarding work, with one Bitcoin worth $49,000 (as of Dec 7, 2021) with a price as high as $68,000 in November 2021.
There will only be 21 million Bitcoins, and almost 19 million have already been mined. This mining process is called Proof of Work (PoW) and requires a vast digital effort, helping add to the blockchain’s security.
With approximately 900 Bitcoins currently being mined daily, it’s lucrative work and also why Bitcoin and other cryptocurrencies are being scrutinized for their carbon footprint.
Does Bitcoin Mining Damage the Environment?
Such generous rewards for mining means more and more people try to be the one to add a new block to the Bitcoin blockchain.
Bitcoin’s miners’ consumption is about 0.5% of total global electricity production, some 125 terawatt-hours a year (as of December 13, 2021). Bitcoin mining consumes more electricity than Argentina. In 2019, coal (36%) created more electricity than any other fuel, with hydropower (15%) and other renewables (10%) lagging somewhat.
Electric vehicle manufacturer Tesla stopped accepting Bitcoin in May this year because of the cryptocurrency’s contribution to carbon emissions. Tesla will only restart once Bitcoin mining is at least 50% renewably sourced.
But some say Bitcoin’s electricity use may not make it a significant contributor to greenhouse gas emissions.
Many miners insist they use renewable energy and excess energy to power their computers. Estimates vary, but renewable power sources account for anything from 39% to 74% of Bitcoin’s mining needs. Miners also claim to balance energy grids by using excess renewable energy that would otherwise go to waste. Utility-scale battery storage is in its infancy and cannot store all excess energy at present.
Nuclear power is also looking to enter the mix. Compass Mining has signed a 20-year deal for power from nuclear fission startup Oklo. Digital currency miners are becoming an important customer to energy companies.
Bitcoin and many other cryptocurrencies require mining to guarantee their security, but their increased energy use could add more pollution into an atmosphere already suffering the effects of global warming.
Are Cryptocurrencies Trying to Be Environmentally Friendly?
Cryptocurrencies and blockchain are starting to take their carbon footprint seriously. Crypto Climate has signed up more than 200 industry-related firms to achieve net-zero emissions by 2030.
Many cryptocurrencies promote their energy efficiency compared to Bitcoin. Litecoin, Dogecoin, and Ethereum use much less energy for mining than Bitcoin.
Filecoin has recently launched a blockchain-based Filecoin Green project to allow miners to understand where their electricity comes from and encourage the use of renewable energy sources.
Fresh approaches to the energy puzzle frequently appear, too. Blockstream Energy allows power suppliers to sell excess electricity to proof-of-work miners, no matter how remote the location.
Solarcoin wants to change real-world behaviors, giving people one Solarcoin for every megawatt-hour users generate from solar technology. They aim to incentivize people to invest in renewable energies with cryptocurrency rewards.
There are many environmentally friendly uses of blockchain, too. You could offset cryptocurrency mining with Terrapass’ carbon offsetting plans or buy Terrapass Coins to offset carbon using the Ethereum blockchain.
However, a much more fundamental technological shift could soon bring huge environmental rewards.
How Are Proof of Work and Proof of Stake Different?
Many cryptocurrencies use proof-of-work as part of their decentralized systems. That requires lots of computers mining and checking data before adding blocks to a blockchain.
A new system, called proof-of-stake (PoS), could revolutionize mining’s energy requirements and the speed of blockchain transactions.
Ethereum is close to adopting proof of stake for transactions. Proof-of-stake requires users with large reserves of Ethereum’s cryptocurrency, Ether, to function.
Ether holders stake their digital assets and hope to be selected to validate transactions and add them to the blockchain. If they do it successfully, they receive more Ether as a reward. Users will be fined Ether if they go offline or approve suspicious transactions. This honesty system assumes Ether holders prefer to earn rather than lose Ether in fines.
Ethereum’s proof-of-stake system should come online in February 2022. Its release is much-anticipated. A Bloomberg report estimates Ethereum’s energy footprint could diminish by 99% upon adoption. Next-generation blockchains like Cardano, Polkadot, and Cosmos already use the proof-of-stake consensus system.
Are Digital Currencies Better Than Dollars?
This is a deliberately leading question because it’s almost impossible to answer. However, digital assets may well be more useful — and therefore valuable — than traditional cash in the future. Let’s concentrate on the environmental aspect.
Before credit cards, debit cards, and bank transfers, physical money ruled people’s day-to-day financial lives. There is an environmental and energy cost to making physical money. Printing money requires trees for the paper, metals for coins, ink, machinery for printing, plus all associated expenses with transporting materials.
Once made, bills and coins move around towns, cities, states, and even countries, from banks to ATMs to people’s pockets, then back to businesses and banks in a constant stream. Dollars printed in Washington appear in New York, Ecuador, and further afield. Old bills need replacing, and the cycle continues. It’s a vast, energy-dense system.
Gold mining, an energy-intensive industry, is a classic safe haven for people to store value. The industry has recognized its pollution problem from its mining and is now working to achieve net-zero emissions. And let’s not forget, financial services fund fossil fuel industries to the tune of billions of dollars.
The themes around “real money” are similar to blockchain and cryptocurrencies; solutions to decrease energy use must be found to reduce carbon footprints. Proof-of-stake could become the game-changer that pushes crypto adoption mainstream.
Has Blockchain Helped to Reduce Carbon Emissions?
Transparency and accountability underpin blockchain technology, and we can use cases to show how it improves efficiency. Industries need to assess if the benefits of more efficient systems outweigh the energy requirements of blockchain.
However, many companies are already reaping the rewards. If we return to Estonia, we’ll find every home has a smart meter, and the country has a digital energy grid.
The WePower company published a white paper and product that offered Estonian consumers the chance to monitor energy prices and sources, so they could choose to tap into renewable energy. The system runs alongside its own cryptocurrency, connecting small clean energy producers with Estonian citizens. People can choose how, when, and what type of energy they wish to use at home.
In the United States, The Brooklyn Microgrid calls its clients prosumers, or producers and consumers. The project helps community members generate, trade, and store electricity from local people’s solar panels or electric vehicles. Energy self-sufficiency in Brooklyn is being powered by blockchain technology, with residents as the providers.
Creating an energy grid with the philosophy of “with you” as opposed to “to you” could avoid excess energy wastage and encourage more people to invest in renewable energy.
Blockchain is also entering the fintech world, offering financial technology to support financial services. Oxfam developed a blockchain-based cash and voucher program to help distribute aid fairly on the Pacific island of Vanuatu. A supporting cryptocurrency made the system faster and more transparent than the banking system Oxfam used previously.
Layers of complexity are continually added to blockchain so it can perform more complex tasks, too. Smart contracts interact with blockchain to allow complex transactions, executing actions once certain conditions are met. Entities could use the contracts in voting, supply chains, and more.
Blockchain can help people and industries reduce emissions through more efficient processes and by giving honest and traceable information to improve decision-making.
What Sectors of the Energy Market Could Use Blockchain?
The energy market represents a significant opportunity for blockchain and the energy industry to reduce carbon emissions. According to studies, possibilities include:
Grid stability, observation, usage, consumption, and data harvesting in real time
Grid micromanagement empowering local communities to work alongside utilities and electric companies that manage the grid’s assets
Traceability of renewable energy sources, from location to type and generation time
Automated, accurate, transparent billing processes, including refunds and charges
Less friction in each area would result in a more reliable, adaptable, and reactive energy system.
What Are the Disadvantages of Blockchain Technology?
Of course, not everything about this new and emerging technology is currently advantageous. Among the hype and excitement, there are many legal, regulatory, and technical challenges for blockchain to overcome.
Governments will worry about sovereignty and data protection. At the same time, companies must grapple with how widespread adoption of blockchain technologies could affect the execution of contracts.
Information cannot be changed once added to a blockchain. This inflexibility has an inherent issue in that human or operator error needs consideration. It happens; we mess up.
Society must also consider the implications of complete transparency. While 100% accountability and transparency sound fantastic in theory, in practice, all manner of dilemmas will indeed present themselves.
The digital world is also ripe with security issues and possible cyberattacks. Many cryptocurrencies and blockchain systems are attacked by hackers who steal digital property and valuable cryptocurrency. One method hackers use involves taking over 51% of a blockchain’s nodes — the computers verifying blocks — to control its entire ecosystem.
These distributed-denial-of-service (DDoS) attacks do happen and can result in massive data and financial losses. Microsoft blocked a 70,000-bot DDoS attack in August 2021, while Google and Amazon have faced similar attacks. In total, cryptocurrency exchange platforms have lost at least 1.6 billion pounds (about $2.1 billion) to hacker attacks since 2014.
Scalability could slow block adoption. Most projects are relatively small-scale at the moment. This upscaling bleeds into how people will use blockchain, too. Cryptocurrencies and some blockchains require users to keep long, 64-digit private keys to safeguard digital assets. If you lose the password, you lose it all.
Most people keep their security information in a digital wallet. However, users lose access to their blockchain or cryptocurrencies if they lose their private keys. There are stories of people who are two guesses away from losing $220 million in Bitcoin because they can’t remember their password.
And, of course, the public appetite for reducing carbon emissions may mean that blockchain technology needs to reduce its energy use before it can go truly mainstream.
Are Blockchain and Cryptocurrency Reaching a Tipping Point?
Blockchain and cryptocurrencies have been in existence for just over a decade. In that time, Bitcoin has become a hugely sought-after global trading asset, one among many cryptocurrencies. Blockchain has started running healthcare systems and helping move freight.
We will only know if blockchain can satisfy society’s digital requirements through expanded use and testing. Early adopters have used a lot of energy to get to this point, both literally and metaphorically.
Carbon offsetting plans help. Digital users have an appetite for cryptocurrencies and what blockchain can currently achieve. Both could be the answer to reducing the carbon footprint of money or items of value.
The next step is part of blockchain’s natural selection process, and it will be fascinating to see its evolution.
Brought to you by terrapass.com
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