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Blockchain And The Environment

Written By

James Barra

Written By

James Barra

James is an investment writer with a background in financial services. As a former management consultant, he has worked on major operational transformation programmes at prominent European banks. James authors, edits and fact-checks content for a series of investing websites.

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Edited By

Jemma Grist

Edited By

Jemma Grist

Jemma is a writer, editor and fact-checker focused on retail trading and investing. Jemma brings a unique perspective to the forex, stock, and cryptocurrency markets and works across several investment websites as a researcher and broker analyst.

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Fact Checked By

William Berg

Fact Checked By

William Berg

William contributes to several investment websites, leveraging his experience as a consultant for IPOs in the Nordic market and background providing localization for forex trading software. William has worked as a writer and fact-checker for a long row of financial publications.

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Updated

Jun 28, 2024

Blockchain and the environment are two words that historically do not go well together, with the impact of cryptos being a hot topic in recent years. Blockchain is mostly known as the underlying technology for cryptocurrencies like Bitcoin and NFTs, which are notoriously damaging to the environment. However, blockchain has applications that could potentially benefit the environment.

This article will discuss the negative implications of blockchain on the environment, review how cryptos are being refined to reduce their impact and outline how blockchain can be used to benefit the environment in the future.

What Is Blockchain?

A blockchain is a type of database, or ledger, in which data is electronically organised, collected and built up into ordered blocks, like a spreadsheet. Blockchains are generally decentralised, meaning there is no central authority acting as the manager and all users of the network hold a copy of it, making transactions visible to everyone whilst still being encrypted.

Blockchain allows users to access and filter large amounts of information. Additional data is packed into limited-capacity blocks that, once full, will connect to the previous block to form a chain. When a block is added to the chain, it cannot be amended, forming a linear timeline of timestamped data. It is therefore relatively trustworthy and transparent, which, combined with its decentralisation, makes it a popular form of trading network.

Although widely known as the technology that enables cryptocurrencies such as Bitcoin and Ethereum, blockchain can be applied on a wider scale, including as an enabler for a decentralised and digital economy. The Ethereum 2 network, for example, can record other assets such as loans or contracts. Blockchain has attracted the attention of large corporations and investment banks thanks to its time and cost efficiencies. In fact, some analysts believe that blockchain technology could save the world’s largest investment banks up to $12 billion a year.

How Blockchain Technology Impacts The Environment

The negative correlation between blockchain and the environment has been a popular discussion topic of late. The controversy stems from the security systems of blockchain technology that supports cryptos and non-fungible tokens (NFTs). In order to exist, these systems require a network of energy-hungry computers to power them.

The energy consumption required to power the Bitcoin network is enormous; it is estimated to be more than that of several small countries.

Most cryptos are built on the Proof of Work (PoW) system, which consumes a lot of energy. PoW acts as a security system for cryptos as there is no third party, such as a bank, to oversee transactions. Users must instead solve cryptographic puzzles using inefficient machines to add blocks of verified transactions to the blockchain. The system is purposefully inefficient as using and paying for large amounts of energy makes it less profitable for someone to mess up the blockchain, and the environment obviously doesn’t take kindly to intentional inefficiency.

The amount of energy needed for each transaction is also astronomical compared to alternative payment methods like credit cards. Bitcoin was estimated to be 20,000 times more energy-intensive than Visa, for example. The electricity required to run associated computer calculations can also harm the environment. Coal and other fossil fuels are currently a major global source of electricity.

The interactions between blockchain and the environment go further still, with concerns being raised regarding electronic waste (e-waste). Competing crypto miners need increasingly more efficient mining hardware every 1-2 years. Bitcoin mining has been shown to create 135g of e-waste per transaction, 30,000x more than a Visa transaction, and has been held responsible for the production of many damaging greenhouse gases that cause climate change. It has also been described by the creator of the internet, Tim Berners-Lee, as a fundamentally pointless way of using energy. One major concern is that mining is less efficient when the price of crypto increases.

In March 2021, the Chinese province of Inner Mongolia was found to account for more than 8% of global Bitcoin mining. It is home to large coal mines and fossil fuel-powered plants, raising concerns over cryptocurrency’s environmental impact. However, the province’s Development and Reform Commission forced all new and existing crypto mining applications to close by April 2021 to meet its sustainability goals.

Environmentally Friendly Blockchain Setups

Perhaps unexpectedly, there is the potential for blockchain and the environment to work together, producing positive outcomes for social, economic and environmental sustainability.

Renewable Energy

Blockchain technology can be made more environmentally friendly by being powered by renewable energy, rather than fossil fuels, for example. Blockchain technology can also play an important role in driving the adoption of renewable energy sources like wind and solar by providing a tool to create clean energy markets. As these sources are intermittent and decentralised, new forms of energy markets are needed.

For example, blockchain can enable the smart metering of electricity generated through solar power to be recorded, traded and settled on a ledger. By trading electricity like a commodity, rather than fixing its price via centralised networks, energy prices can better react to supply and demand. This would facilitate individuals and organisations in potentially becoming both consumers and producers of electricity, ultimately reducing energy wastage and lowering costs.

Proof Of Stake

Another solution to the issues of blockchain and the environment is to swap the blockchain’s algorithm from proof of work (PoW) to proof of stake (PoS). This approach does not consume any power as the blockchain is secured through users staking their own crypto coins, on the successful operation of the network.

Climate Change

Despite the ongoing environmental concerns around Bitcoin’s carbon footprint, the United Nations (UN) has suggested that blockchain has potential environmentally friendly implications, including the ability to help reverse climate change. In a recent foresight brief, the UN’s environment agency highlighted various environmental benefits associated with blockchain.

These advantages include its transparency, as blockchain is resistant to fraud. The UN reported that unreliable data on greenhouse gas emissions can be avoided as blockchain could provide immutable records of carbon data, providing a way for nations to proactively reduce their impact on the environment. Blockchain’s positive impact on environmental sustainability has been tested in various projects by the UN, as well as other organisations.

Humanitarian Work

The World Food Programme (WFP), the largest UN agency delivering humanitarian cash, found that blockchain technology can help to ensure that money reaches those who need it without going via local banks. In addition, a blockchain tool to eliminate illegal fishing in the tuna industry was created for the World Wide Fund for Nature (WWF).

NFTs & The Environment

Non-fungible tokens — NFTs — are unique crypto assets that use a blockchain to record digital ownership. An NFT can represent any digital asset, like artwork, a GIF, a piece of music or a tweet.

NFTs have been heavily blamed for the millions of tons of carbon emissions that heat our planet and contribute to climate change. Emissions are generated by the cryptos used to buy and sell NFTs and the vast amount of electricity used to power these transactions has caused controversy in recent years.

Plans for ArtStation to launch an NFT platform were abandoned in March 2021 after some consideration of blockchain and the environmental impacts of NFTs. The online marketplace received criticism from climate activists who consider crypto art to be environmentally unethical.

However, Tezos is a PoS blockchain that prioritises the environment. Tezos consumes over two million times less energy than PoW networks like Bitcoin or Ethereum, meaning developers and users can prioritise innovation without compromising on sustainability.

Regulations On Blockchain And The Environment

The European Commission considers blockchain to be transformative and has set up several initiatives to support the development, monitoring and standardisation of blockchain technologies, including The Blockchain Partnership and The Blockchain Observatory and Forum.

Beyond these initiatives, the EU has recently extended funding for blockchain research through its Horizon 2020 programme. The circular economy, blockchain and the environment is one of its current projects.

The European Parliament Committee on Economic and Monetary Affairs concluded in 2019 that the regulation of blockchain is not of immediate concern. However, the environmental and sustainability implications of blockchain have not been sufficiently reviewed, especially in terms of energy consumption.

The Future Of Blockchain And The Environment

In May 2021, Elon Musk made the bold move to tweet that his company, Tesla, would no longer accept Bitcoin as payment for vehicles, citing environmental concerns. He claimed the company would be looking to accept alternative cryptocurrencies that use less energy per transaction.

New data from Cambridge University, published in July 2021, shows that the geography of mining has changed over the past six months. China’s big crypto crackdown in April appears to have caused a dramatic shift in the mining world. Ultimately, it took half of the world’s Bitcoin miners offline, meaning fewer machines running and therefore less power being consumed, heavily reducing the blockchain’s environmental impact.

Ethereum, like most cryptos, is built on the PoW system, which consumes a lot of energy. The foundation behind the Ethereum cryptocurrency is now investigating better ways to verify transactions. For example, by switching to the PoS method, the Ethereum Foundation believes it can reduce the energy cost of each transaction by 99.95%, though this change has not yet taken effect. Alternative cryptos that do use the PoS blockchain mechanism are Dash, EOS, and Cardano.

In April 2021, three important organisations formed the Crypto Climate Accord to decarbonise the crypto industry and achieve 100% carbon-free emissions by 2030.

Some experts have argued that relying on renewable and clean energy may not be a perfect solution. If mining for tokens continues to be energy-intensive, the pressure on electricity grids will continue. In addition, renewable energy could arguably be better used for lighting and heating homes.

Final Word On Blockchain And The Environment

There is no denying the huge energy consumption associated with blockchain technology — specifically proof of work blockchains — cryptocurrencies and NFTs. Most of this energy comes from burning coal and other fossil fuels for the electricity required to mine tokens, pouring tons of carbon dioxide into the Earth’s atmosphere. However, putting aside the energy consumption and waste issues, global organisations still believe that blockchain technology can support environmental protection through its transparency and decentralisation. Crypto advocates also argue that renewable sources of energy could be the future of more efficient blockchains.

FAQs

Is It All Bad For Blockchain And The Environment?

The controversy centres on the underlying proof of work blockchain technology that requires a network of electricity-consuming computers to power cryptocurrencies and NFTs. Running all these computers requires an extortionate amount of energy, usually powered by fossil fuels that have a negative knock-on effect on the environment. However, proof-of-stake blockchains remove most of the energy requirements and global organisations believe the technological advantages of blockchain can be used to benefit the environment in the long run.

What Is The Crypto Community's Opinion On Blockchain And The Environment?

Reddit users often discuss the impact of blockchain on the environment and appear to acknowledge the devastating effects it can have on the climate. The threads offer food for thought on the topic, specifically on Bitcoin’s environmental impact, with one user comparing a year of BTC mining to 1 million transatlantic flights.

What Can Be Done To Offset Blockchain’s Carbon Emissions?

Blockchain and the environment need not fight forever, as the technology can be made more environmentally friendly through the use of renewable energy sources. Switching to the proof of stake (PoS) system can also reduce the energy cost of transactions by up to 99.95%. Otherwise, you can choose alternative cryptocurrencies that use less energy per transaction. Specific countries can also overhaul their output by following in China’s footsteps – cutting the number of the world’s Bitcoin miners in half by taking machines offline, heavily reducing the blockchain’s environmental impact.

What Is Riot Blockchain?

Riot Blockchain is an environmentally conscious company in the US that provides investment services to the blockchain ecosystem. Its setup aims and corporate values include watching its carbon footprint, pollution prevention and water conservation.

Where Can I Read More About Blockchain And The Environment?

In 2020, The Foundation for Technology Assessment published a comprehensive assessment of blockchain titled ‘Blockchain: Capabilities, Economic Viability and the Socio-Technical Environment’, which studies how blockchain works and its economic potential. The PDF reveals the impact that blockchain has on industrial and public spaces and addresses the social implications and challenges of blockchain. Another report published in December 2019, named ‘Blockchain technology: Business, strategy, the environment, and sustainability’, is also a helpful. Both can be downloaded online.