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  • Philip Osadebay - Tech Journalist

Can blockchain technology be considered environmentally friendly?

With numerous organisations exploring a range of use cases, blockchain technology has long been hailed as a solution for many issues that businesses and entire industries confront. However, blockchain’s operation has real drawbacks regarding energy use, and its popularity grows when companies constantly avoid adverse environmental impacts.



The most well-known blockchain application, bitcoin, is known for having less than stellar environmental practices. The University of Cambridge's Bitcoin Electricity Consumption Index estimates that the annual consumption of bitcoin mining rigs used to validate transactions is 102.3 TWh.


This amount exceeds the 110 million population of the Philippines' total energy use (93.4 TWh). However, Bitcoin only uses broader distributed ledger technologies (DLTs). Can using the blockchain damage a company's reputation as environmentally friendly when so many other possible forms and use cases exist, particularly in the enterprise?


Less hype and more accurate?

We must first consider how blockchain functions to comprehend why it consumes so much energy. Often known as a distributed ledger, a blockchain is a database shared by many users. This database resembles a growing chain of blocks, with each block identified by its tamper-evident cryptographic signature. A distributed ledger is impervious to hacking since it is dispersed over numerous independent nodes in a network.


Until recently, businesses could not use blockchain and other DLTs to meet their demands. Lack of scalability, regulatory compliance, security, and energy efficiency have all played a significant role. However, the development of enterprise-grade blockchain technology has made such systems available to organisations in the public and private sectors.


Debunking myths about green technology

Organisations embrace distributed ledger technologies (DLTs) for their benefits of security, immutability, transparency, and traceability. The creation of the European Blockchain Services Infrastructure (EBSI) platform illustrates how the blockchain is becoming more widely used. This program uses blockchain technology to enhance cross-border services' energy efficiency, scalability, and security requirements for EU residents, enterprises, and public authorities.


The issue with Bitcoin is how much processing power is needed to complete a transaction. Transfer requires solving challenging encryption puzzles on large numbers of computer servers, which uses a lot of electricity. According to the most recent benchmarking analysis from the University of Cambridge, just 39% of the electricity used to power the Bitcoin mining process is generated from renewable sources, with the remaining 61.9% coming from gas, coal, and oil. As Bitcoin develops, the proof-of-work confirmation procedure necessitates more computing power to crack the more complex encryption codes; therefore, fewer coins are available for mining. Another illustration of how DLT prevents third parties from interfering with on-chain data is blockchain-backed traceability.


Blockchain-backed traceability can guarantee the accuracy of the data transmitted through a network and, as a result, stop any unethical practices in agriculture or the production of commodities.


According to Worsley, businesses shouldn't shun blockchain technology as long as the intended usage doesn't depend on the proof-of-work paradigm. He laments that the rest of the DLT field, which employs many consensus mechanisms, is suffering unjustly from Bitcoin's negative environmental reputation. "This misconception that blockchain consumes a lot of energy needs to be corrected immediately."


Construction of a greener blockchain

There is a potential solution to the proof-of-work model known as proof-of-stake for businesses hoping to use blockchain technology and pursue their net-zero targets. In the case of cryptocurrencies, proof-of-stake dispenses with the necessity for energy-intensive banks of computer servers by asking miners to stake their shares of any particular coin to validate each transaction.

The community has developed a proof-of-stake protocol on a Beacon chain since December 2020. It is currently integrating a proof-of-stake system on the Ethereum blockchain, which underlies the cryptocurrency Ether. Though there is no specific completion date yet, the switchover is anticipated to be finished by the end of 2021.


Cryptocurrencies might someday become a sustainable investment for ESG investors if they evolve to proof-of-stake or other models that don't require massive quantities of electricity, which Bitcoin probably won't do. A proof-of-stake system will soon replace proof-of-work on the Ethereum blockchain.


Companies can also lower the carbon footprint of many firms by incorporating a sustainable type of blockchain technology into many facets of economic activity.


For instance, automating the vast majority of an organisation's IT infrastructure may allow businesses to reduce the number of people who must commute to an office to execute orders. We might even transition to a carbon-neutral future utilising carbon credits enabled by blockchain in the future. According to Dr. Najwa Aaraj, director of the Cryptography Research Centre at the Technology Innovation Institute (TII) in the United Arab Emirates, this will decrease carbon emissions related to transportation (UAE). Whereas the full potential of blockchain technology's green applications may not be evident for some time, she claims that it can still help businesses track their carbon.

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