It is known, that bitcoin has very high energy consumption. Nevertheless, bitcoin is less a threat to the environment than to other old systems, which harm our environment as well. Moreover, blockchain even fosters ESG when it comes to investment decisions and can help to prevent companies from greenwashing. Learn more about the mentioned old systems, ESG and the almost won fight against greenwashing in this article.
The alleged excessive energy usage of bitcoin
According to Cambridge University, Bitcoin consumes more energy than the whole of Argentina. Sentences like these are found all over the media and affect the image people have of bitcoin. A lot of these statements contain proven facts, but bitcoin and its functionality may not look as bad when seen from another perspective. Instead of comparing bitcoin to countries, comparing it to the old system, which bitcoin is trying to substitute, would help people to understand bitcoin better. The old system with all the banking transactions, all the centralized single servers that each of the banks has and so on, also massively consumes energy. Nobody calculates the energy consumption of a single euro transaction when doing online banking. Katharina Ghera, CEO at Immutable Insight, says the following:
“The one calculates the whole of the network with all the transactions and the other would just if anything counts the individual banks. ‘…’ We would need to find a measure first of what the actual current status quo is and that energy consumption before we can judge on bitcoins energy consumption in a relative manner.”
As the most popular and successful project using blockchain technology, for many people bitcoin nowadays works as a symbolic representative of blockchain. To understand the broad potential of blockchain, it is important to differentiate it from bitcoin. Even in the crypto space, there are newer and less energy-intensive alternatives, that use blockchain technology in a different way.
Other blockchain alternatives
The underlying part of a blockchain is finding a consensus, based on a way of storing data that is decentralized, immutable, transparent, and secure. This consensus needs to be independent of a single party or authority, that trust can be created. Therefore, there always must be a system of multiple parties referring to the same set of data and trying to add new data in a way that is agreeable for everybody and secure to the wanted standard. Bitcoin works with proof of work. With this approach, miners need to provide enormous amounts of computing power to get rewarded. That gives a high level of security but is also the reason for inefficiency and high energy consumption. One example of an alternative approach is proof of stake, which Ethereum is planning on implementing. It works by a risk-reward balance, where participants need to hold up a certain amount of money to become a validator. Their money is blocked in the system and is called stake. The validators are responsible for the validation of blocks. The security of the network is guaranteed by punishing attempts of fraud with the loss of the stake. Using a blockchain with a proof of stake approach, the energy consumption is much lower than with proof of work. Nowadays, people have understood that energy consumption is an important point. This results in many different blockchain projects, using various approaches for their consensus mechanism, that are more energy efficient.
To sum it up, there is a solution for the energy consumption of blockchain networks and blockchain and sustainability are not contradictions. But more importantly, blockchain can boost other approaches to create a more sustainable economy. For example, blockchain technology can be used to check if companies really keep up with their promises of being more sustainable or if they are just greenwashing.
ESG – criteria for a sustainable economy
The term “ESG” has been established as the standard of sustainable investments. These three letters describe three sustainability-related areas of responsibility of companies. The term ESG stands for Environmental Social Governance. ESG thus encompasses not only environmental protection and the careful use of natural resources. Rather, the definition of ESG goes beyond the ecological aspect and includes numerous other ethical and social criteria. So, what has that got to do with blockchain technology? Pascal van Knijff, CEO of Future of Trust, gave an interesting answer on the question when a company is ESG compliant:
“The discussion on blockchain needs to be there inherently because that is a way of proving, that all those datasets that we are trying to aggregate and all the standards that we are setting are actually being utilized and that people are holding to those standards.”
Does sustainability still increase costs?
In the old days, it was common that behaving environmentally responsible made enterprises less profitable. Suddenly, energy as a resource has become more valuable. Therefore, a lot of innovations have evolved in that space, as for being more resourceful with energy that already has been given. In the short term, environmental responsibility might look like more must be spent, but in the long term much more can be gained. One example is Tesla as a rich company in connection with the carbon funds that are available for them. Nowadays, being environmentally responsible is more profitable for most companies because there has been a paradigm shift. With the new paradigm, Economic sustainability and therefore respect for nature, good treatment of employees, etc. are criteria that play a major role for sustainable economic success. More and more investors want to make long-term profits and therefore pay attention to the long-term success of the company.
When blockchain meets governance
Currencies and states are structured on the fundamental promises that people could live in peace and prosperity together, each of us could enjoy individual freedom, and that there would be a common better good. If the people who came up with that idea would have known about blockchain technology, they wouldn’t have organized states and companies the same way. With this game-changing technology, the level of transparency and clarity about what is going on is in a new state. Bribing, cheating, and freewriting are results of mistakes in our system, which occurred due to a lack of information. Blockchain solves problems regarding the lacks of information. With its transparent, unforgeable, and secure data given, everyone could have access to a substantial amount of information. It fairly must be said that Bitcoin, as the most prominent example for the usage of a blockchain, is referred to as a place where money laundering takes place. Nevertheless, it is not a good idea to do that, because all actions are documented and traceable forever on the blockchain. Nowadays, it is not just possible to catch money launderers, but also finding out if it has been done before.
“As long as you can launder the money in the end, that´s a profitable business. But the more difficult it becomes, the more crucial and the more rewarding and the more beneficial to the companies overall bottom line it is when you don´t do it.” – Katharina Ghera
Greenwashing – is blockchain a gamechanger?
Greenwashing is a term used to critically describe PR methods that aim to give a company an environmentally friendly and responsible image in the public eye without sufficient basis for appropriate behaviour. To get a green vest without behaving in a green way, companies point out certain aspects of their behaviour, for example by making only certain numbers public. When it comes to the question of how blockchain can be a gamechanger, it helps to view the situation from a positive perspective. Greenwashing also reflects the change in people´s consumerism. In many communities, environmental sustainability is a topic that increasingly gains importance. The next step is that people demand reliable information and therefore transparency. There already are companies that offer blockchain in supply chains. This enables conscious consumerism in a way it never did before. People can see through data transparency how a product was produced and trust this data. Once big companies start becoming transparent, it will be hard for competitors not to be transparent and proving responsibility towards everyone’s future. Furthermore, all the reliable collected data from a blockchain can help enterprises to detect where their problems are and why they are not green yet. Thus, it will be easier for them to define what becoming green means for them and set appropriate goals.
Blockchain & sustainability: About greenwashing & ESG
Learn more about the major role of ESG in the financing world and gain deeper insights into the topics mentioned in this article. Watch the full BLOCKCHANCE Online LIVE show, where Katharina Ghera, CEO of Immutable Insights and Pascal van Knijff, CEO of Future of Trust discuss the impacts of blockchain technology. BLOCKCHANCE Online LIVE is a regular hosted live show on YouTube and LinkedIn, where you can ask renowned experts in their field your questions and gain glimpses of our future.
Sven Hildebrandt and Matthias von Hauff will also be speakers at the upcoming BLOCKCHANCE Europe 2021 conference! Get your ticket here and take a deep dive into the universe of future technologies.