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Blockchain technology, often associated with cryptocurrencies, is emerging as a powerful tool in the fight against climate change. By providing transparent, secure, and decentralized solutions, blockchain has the potential to enhance environmental monitoring, improve the efficiency of carbon markets, and promote sustainable practices. However, this technology also faces challenges due to its own environmental impact, particularly in terms of energy consumption. As the world seeks innovative ways to tackle climate change, blockchain is at a pivotal point, balancing its promise for climate action with the need to reduce its carbon footprint.
1.0 WHAT BLOCKCHAIN OFFERS FOR CLIMATE CHANGE
1.1 Transparency and Traceability in Supply Chain Tracking
Blockchain can enhance transparency in supply chains, ensuring products are sourced sustainably. This allows companies to trace the origins of materials and certify that they comply with environmental standards.
Example 1: IBM Food Trust uses blockchain to track the journey of food products from farm to table. It allows consumers and companies to verify that agricultural products are grown and sourced sustainably. For example, retailers can trace if coffee beans are ethically harvested and organic-certified, ensuring compliance with environmental standards.
- Example 2: Everledger uses blockchain to track diamonds, ensuring they are conflict-free and ethically sourced. This principle can be applied to minerals like cobalt, crucial for batteries, to ensure they are mined responsibly.
1.2 Carbon Footprint Tracking
tracking of carbon footprints across entire supply chains, helping companies reduce their emissions. It can verify carbon credits and offsets, preventing fraud in carbon markets by providing clear proof of transactions.
Example 1: ClimateTrade is a blockchain platform that allows companies to offset their carbon emissions by buying verified carbon credits. It provides transparency, showing exactly how funds are used for environmental projects like reforestation or renewable energy.
Example 2: CarbonX tracks carbon reductions across a supply chain and allows companies to earn tradeable tokens for their carbon savings, ensuring carbon credits are accurately accounted for.
1.3 Decentralized Energy Grids - Peer-to-Peer Energy Trading
Blockchain supports the creation of decentralized energy markets, where individuals can buy and sell renewable energy directly, such as solar power from their solar panels.
Example 1: Power Ledger, an Australian company, enables households with solar panels to trade excess electricity with their neighbors using blockchain technology. This creates a local energy marketplace without relying on a central utility.
Example 2: Brooklyn Microgrid uses blockchain to allow residents in Brooklyn, New York, to buy and sell locally produced solar energy within their neighborhood, fostering renewable energy use.
1.4 Grid Efficiency
It can improve the efficiency and management of decentralized grids by recording energy generation and consumption data in a secure and transparent manner.
Example 1: Grid+ is a blockchain-based project that improves grid efficiency by optimizing energy distribution based on real-time data. The system manages energy flows and consumption, reducing waste and lowering costs for consumers.
Example 2: #WePower uses blockchain to record energy production and consumption data for renewable energy producers. This helps utility companies forecast demand accurately and integrate more renewable energy into the grid efficiently.
1.5 Incentive Systems for Sustainability - Green Financing
Blockchain can facilitate green finance by enabling tokenization of carbon credits and green bonds, making it easier to invest in sustainable projects.
Example: Moss.Earth is a blockchain-based company that tokenizes carbon credits, allowing individuals and businesses to invest in Amazon rainforest preservation. The funds are directly traceable, supporting conservation projects.
Example: Energy Web Foundation tokenizes energy attributes like carbon credits and renewable energy certificates, making it easier for companies to invest in renewable projects through blockchain-certified tokens.
1.6 Reward Programs
Platforms can use blockchain to incentivize eco-friendly behaviors, such as recycling or using public transportation, by rewarding users with tokens.
Example 1: RecycleToCoin uses blockchain to reward people with tokens when they recycle plastic, glass, and other materials at designated recycling centers. These tokens can be redeemed for cash or used for other purposes, encouraging recycling habits.
Example 2: Ecocoin rewards individuals for eco-friendly behaviors like biking instead of driving or buying sustainable products. Participants earn Ecocoins that can be exchanged for discounts or eco-friendly products, motivating sustainable choices.
2. BLOCKCHAIN'S NEGATIVE IMPACTS ON CLIMATE CHANGE
2.1 Energy Consumption - Proof-of-Work (PoW) Mining
Traditional blockchain systems like Bitcoin use PoW, which requires significant computational power. This consumes large amounts of electricity, contributing to carbon emissions if the energy source is non-renewable.
Bitcoin, the most well-known cryptocurrency, uses a Proof-of-Work consensus mechanism requiring miners to solve complex mathematical problems. This process consumes enormous amounts of electricity. In 2023, the annual energy consumption of the Bitcoin network was estimated to be around 140 terawatt-hours (TWh), roughly equivalent to the electricity usage of a country like Argentina.
Another example is Ethereum during the pre-merge phase
Before transitioning to Proof-of-Stake (PoS) in 2022, the Ethereum network operated on a PoW system, consuming roughly 112 TWh annually, similar to the annual energy consumption of the Netherlands. This raised significant environmental concerns, pushing Ethereum to switch to a more energy-efficient model.
2.2 Global Carbon Footprint
The energy demand of major blockchain networks has raised concerns about their contribution to climate change, especially if operations rely on fossil fuels.
Before China’s crackdown on cryptocurrency mining in 2021, about 65% of Bitcoin’s global mining took place in China. Much of this mining was powered by coal-fired plants, contributing substantially to global carbon emissions. Estimates suggested that Bitcoin mining in China alone could generate 130 million metric tons of CO₂ emissions by 2024.
After China's ban, Kazakhstan became a popular destination for Bitcoin miners due to cheap electricity, much of which comes from coal-fired power plants. In 2022, Bitcoin mining accounted for 8% of Kazakhstan’s total electricity consumption, leading to increased greenhouse gas emissions in a country heavily reliant on fossil fuels.
2.3 Electronic Waste - Mining Hardware
The rapid obsolescence of specialized mining hardware (like ASICs) generates electronic waste, posing additional environmental challenges. Proper recycling and disposal are often lacking.
Example 1: ASIC Miner Obsolescence
Application-Specific Integrated Circuits (ASICs) are specialized hardware used for mining cryptocurrencies like Bitcoin. Due to rapid advancements, newer, more efficient ASIC models frequently replace older ones. A study in 2021 estimated that Bitcoin mining generated around 30,700 tons of electronic waste annually, equivalent to the amount of small IT and telecommunication equipment discarded by the Netherlands.
Example 2: Graphics Processing Units (GPUs): For cryptocurrencies like Ethereum (prior to its switch to PoS), miners used GPUs. High demand for newer and more powerful GPUs has led to massive turnover and obsolescence, contributing to e-waste. In 2018, a significant price hike in GPUs occurred due to mining demand, with older models often discarded as newer versions emerged, adding to the growing electronic waste problem.
3.0 POSSIBLE EMERGING SOLUTIONS TO MINIMIZE BLOCKCHAIN'S CARBON FOOTPRINT
3.1 Transition to Energy-Efficient Consensus Algorithms - Proof-of-Stake (PoS)
Newer blockchains like #Ethereum 2.0 use PoS, which drastically reduces energy consumption compared to PoW. This shift aims to maintain blockchain's benefits while minimizing its environmental impact.
In September 2022, Ethereum transitioned from a Proof-of-Work (PoW) system to Proof-of-Stake (PoS) through "The Merge." This move reduced the network's energy consumption by over 99.9%, since validators no longer require energy-intensive mining equipment, relying instead on staked coins to secure the network.
Another example would be Cardano uses a PoS system called Ouroboros, designed to be environmentally friendly and scalable. It relies on staked ADA tokens for network security, significantly lowering its energy consumption compared to PoW blockchains.
3.2 Hybrid Models
Some blockchains use a combination of PoW and PoS or other efficient algorithms to balance security and sustainability.
Example 1: Hedera Hashgraph - Uses a consensus algorithm known as Hashgraph, which combines elements of PoW and PoS-like mechanisms to provide high efficiency. It operates on a network of "Governing Council" nodes that validate transactions, aiming to be secure and scalable while minimizing energy use.
Example 2 - Decred: This blockchain employs a hybrid consensus model that incorporates both PoW and PoS. PoW miners secure the initial layer of transactions, while PoS stakeholders provide an additional layer of verification, balancing security and reducing energy usage compared to purely PoW systems.
3.3 Green Mining Initiatives - Renewable Energy Mining
Some blockchain projects are committing to using 100% renewable energy for mining, such as solar or hydroelectric power, reducing their environmental impact.
Example 1: Soluna Holdings - This company operates renewable energy-powered data centers for Bitcoin mining. They use wind and solar power in remote regions where excess renewable energy is available, reducing the reliance on fossil fuels for mining operations.
Example 2: Genesis Mining - One of the largest cloud mining companies, Genesis Mining operates facilities in Iceland, using 100% renewable energy from geothermal and hydroelectric sources for cryptocurrency mining. This significantly reduces the environmental impact of its operations.
3.4 Carbon Offsetting
Initiatives are in place for blockchain platforms to offset their carbon footprint by investing in renewable energy projects or purchasing carbon credits.
Example 1: Algorand - The Algorand blockchain has committed to becoming a carbon-negative blockchain by partnering with #ClimateTrade to purchase carbon offsets. This initiative offsets the small carbon footprint Algorand has, primarily through tree-planting projects and renewable energy investments.
Example 2 Chia Network - Chia, which uses a "Proof-of-Space-and-Time" consensus algorithm, aims to be environmentally friendly. In addition to using less energy-intensive mining, it has pledged to offset any remaining carbon footprint by purchasing carbon credits and investing in sustainability projects.
Emerging solutions to reduce blockchain’s environmental impact focus on more efficient consensus algorithms like PoS, hybrid models that balance security with sustainability, green mining initiatives using renewable energy, and carbon offset programs. These strategies help make blockchain technology more eco-friendly while retaining its core functionalities.
4.0 ENVIRONMENTAL MONITORING AND GOVERNANCE
4.1 Data Integrity for Climate Research
Blockchain can ensure the integrity and reliability of environmental data, which is crucial for research and policy-making. Immutable records can help scientists track and verify climate change data.
Example 1: Climate Ledger Initiative - This initiative leverages blockchain to track climate data and enhance transparency for environmental reporting. By storing climate data on a blockchain, it provides a secure and tamper-proof record, allowing researchers and policymakers to access reliable data for climate change assessments. This helps prevent data manipulation, which is crucial for informed policy decisions.
Example 2: IBM's Environmental Intelligence Suite - IBM uses blockchain technology to collect, track, and verify environmental data, such as air quality, temperature, and emissions. The immutable records allow researchers to validate the accuracy of climate data over time, ensuring that environmental studies and reports are based on dependable information.
4.2 Smart Contracts for Environmental Agreements
Blockchain can enforce international climate agreements through smart contracts that automatically execute conditions when pre-defined criteria are met, such as emission targets.
Example 1: UN Climate Chain Coalition (Website : Inatba as an example) - This coalition explores using blockchain and smart contracts to enforce and monitor international climate agreements, such as the Paris Agreement. Smart contracts could automatically track emission reductions and verify compliance with targets, facilitating greater accountability among participating nations.
Example 2: Climate DAO (Decentralized Autonomous Organization) (Website : KlimaDAO Japan as an example) - This DAO is designed to use blockchain-based smart contracts to manage funding for climate initiatives. It can automatically allocate resources and track the performance of environmental projects. If a project meets predefined environmental impact criteria (like a specific reduction in emissions), funds are released to continue the project, ensuring that resources are spent effectively.
Blockchain’s role in environmental monitoring and governance centers on providing accurate, immutable data for climate research and leveraging smart contracts to enforce environmental agreements. These solutions enhance accountability, ensure compliance with climate targets, and facilitate data-driven decision-making, making blockchain a valuable tool for addressing global climate challenges.
5.0 IMPACT ON COST AND FINANCE
5.1 Reduced Transaction Costs in Carbon Markets
Example 1: Traditional carbon credit trading often involves intermediaries, leading to high transaction fees. Platforms like ClimateTrade reduce these costs by using blockchain to facilitate direct transactions between buyers and sellers, ensuring that more funds go towards environmental projects rather than intermediaries.
Example 2: Veridium is a blockchain-based platform that eliminates the need for brokers in carbon credit trading, lowering fees and making carbon offsetting more affordable for companies looking to reduce their carbon footprints.
5.2 Lowering Costs in Renewable Energy Projects
Example 1 : By using blockchain for smart contracts, renewable energy projects like those managed by #WePower can reduce legal and administrative costs. Smart contracts automatically enforce terms of agreements without third parties, making financing and investments cheaper and faster.
Example 2: Sun Exchange, a blockchain-based solar energy platform, allows people to invest in solar panel installations globally with small amounts of capital. This reduces the financial burden on communities seeking renewable energy solutions by allowing micro-investments and reducing overhead costs.
5.3 Financing for Small-Scale Green Projects
Example 1: Blockchain platforms like Energy Web Foundation provide tokenized financing options, allowing smaller green projects to access capital through decentralized funding. This approach cuts down the costs associated with traditional fundraising, such as bank fees or venture capital.
Example 2: SolarCoin - a blockchain-based cryptocurrency, rewards solar energy producers with tokens, providing them with additional financial support for green projects. This reduces dependency on traditional financial institutions, cutting costs for small-scale renewable energy initiatives.
5.4 Crowdfunding Sustainable Initiatives
Example 1: Blockchain platforms such as #DAOstack allow environmental projects to crowdfund through decentralized autonomous organizations (DAOs). This makes raising funds for sustainability projects cheaper by reducing reliance on traditional financial institutions and high administrative fees.
Example 2: Kickstarter-like blockchain platforms (e.g., #KickICO ) enable projects to launch Initial Coin Offerings (ICOs) specifically for green and sustainable initiatives. This reduces the complexity and costs of conventional IPOs, allowing smaller climate projects to access global funding.
5.5 Efficient Management of Green Bonds
Example 1 - Blockchain-based green bonds, like those issued by BBVA, use blockchain for all processes related to bond issuance, settlement, and management. This cuts down administrative and auditing costs, making green financing more cost-effective for both investors and issuers.
Example 2: The World Bank’s Blockchain Bond, known as "bond-i," was the first global blockchain-based bond. It demonstrated how blockchain could automate interest payments and settlement processes, drastically reducing costs related to bond issuance and increasing transparency.
5.6 Operational Cost Savings through Smart Contracts
Example 1: Smart contracts on platforms like #Ethereum can automate payments in energy trading, reducing overhead costs for managing energy sales. For instance, solar farms can use smart contracts to automatically trigger payments for energy delivered, lowering administrative costs.
Example 2: Grid Singularity, a blockchain-based energy market, uses smart contracts to match buyers and sellers of renewable energy instantly. This reduces the need for brokers and minimizes transaction costs for energy producers and consumers.
Blockchain technology can significantly reduce costs associated with green finance, carbon trading, renewable energy projects, and sustainable initiatives. By eliminating intermediaries, automating transactions with smart contracts, and providing decentralized access to funding, blockchain can make sustainability efforts more financially viable and accessible to a broader audience.
6.0 CONCLUSION
While blockchain technology has potential to drive transparency and accountability in climate action, its traditional forms can negatively impact the environment through high energy consumption and electronic waste. However, newer, more sustainable blockchain technologies and green initiatives are emerging to address these challenges, making blockchain a valuable tool in the fight against climate change.
