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Blockchain: Sustainable Savior or Climate Calamity?
Since its explosion into the public consciousness, blockchain has continued to hold pride of place for business forecasters and would-be innovators. But while it’s captured the imagination of the business world, blockchain-based solutions may also hold some hope for sustainability challenges. For instance, they have the potential to simplify water rights issues in drought-stricken parts of the world or democratize energy through microgrids. However, blockchain’s most visible offspring – cryptocurrencies and non-fungible tokens, or NFTs – could prove major roadblocks to realizing sustainable goals.
Mining problems
The crux of the problem facing cryptocurrencies, NFTs, and blockchain solutions generally, is energy. Blockchain’s major benefits – transparency, decentralization, and security – all currently rest on its proof-of-work consensus methods. Unfortunately, these demand an enormous amount of energy, with one estimate suggesting that every Bitcoin transaction consumes 2156.99 kWh. The average US household takes over 70 days to consume an equivalent amount of energy. Globally, cryptocurrencies outrank many countries in terms of energy consumption.1
A related technology is NFTs – blockchain-backed, verifiable digital assets or one-of-a-kind digital collectables. They are, effectively, a digital receipt that a buyer can use to prove that they own an item in the digital space.2 This means that digital art can be more easily attributed and artists properly compensated for their work. Because NFTs can be applied to anything digital, they have a vast potential, including such uses as controlling food security by eliminating fraud in the fishing industry. However, NFTs also function using the same proof-of-work consensus that cryptocurrencies do, making them just as energy-intensive as cryptocurrencies. An NFT of a cat in a rocket heading to the moon was calculated to have the same carbon footprint that an EU resident generates in two months.3 Clearly, for these technologies to become genuinely useful for sustainability, a solution to their energy consumption is needed.
Upping the stakes
The crux of the energy problem facing blockchain is what’s called proof of work (PoW). PoW currently forms the basis of all cryptocurrencies and NFTs. This system forces users to expend computing power (and thus, energy) to validate transactions and create new tokens. The intention of this method is to raise the bar for malicious interference with blockchain, eliminating the need for a trusted third party in transactions. Unfortunately, PoW’s intentional inefficiency means that it consumes enormous amounts of energy at scale.4
There are several proposed solutions to this problem, including proof of burn, proof of capacity, and proof of elapsed time. However, the most popular alternative is proof of stake (PoS). This system evolved specifically as a low-energy alternative to PoW, and requires transactors to offer their own cryptocurrency as validation of a transaction. Advocates for PoS claim it will reduce energy consumption enormously – and it has some big backers. Ethereum, the blockchain on which a large number of NFTs exist, has long suggested it would move to PoS consensus, and many are hopeful that it will finally follow through. However, doing so means convincing its users to make the switch as well, which is no small feat.5
Ultimately, the question of blockchain sustainability is a complex one: great potential, alongside dangerous pitfalls. On the University of Cambridge Institute for Sustainability Leadership (CISL) Business Sustainability Management online short course, you’ll have the opportunity to explore the complexities of sustainability in the context of modern business. Join the course today, and help lead the conversation in your business.
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- 1 (2022). ‘Bitcoin energy consumption index’. Retrieved from Digiconomist.
- 2 Goodwin, J. (Nov, 2021). ‘What is an NFT? Non-fungible tokens explained’. Retrieved from CNN.
- 3 Calma, J. (Mar, 2021). ‘The climate controversy swirling around NFTs’. Retrieved from The Verge.
- 4 Frankenfield, J. (Jul, 2021). ‘Proof of work (PoW)’. Retrieved from Investopedia.
- 5 Calma, J. (Mar, 2021). ‘The climate controversy swirling around NFTs’. Retrieved from The Verge.