Blockchain and the environment

The most well-known implication of blockchain technology for the environment relates to its energy consumption and, therefore, its possible negative impact on climate. The current standard process of transaction verification, based on the proof-of-work algorithm, is ‘extremely energy hungry’ (de Vries, 2018), as it requires a huge amount of processing power, and, therefore, electricity, to run associated computer calculations. Wider use of blockchain technology could counteract climate change mitigation efforts, as electricity remains largely generated from fossil fuels worldwide. In 2016, generation from combustible fuels still accounted for 67.3 % of total world gross electricity production (IEA, 2019b).

The Bitcoin application is particularly illustrative. Compared with alternative payment methods, Bitcoin was claimed to be 20 000 times more energy intensive than Visa (Brosens, 2017). In 2019, according to some analysts, the energy consumed for each Bitcoin transaction had increased to 635 kWh, which is equal to the electricity that could power approximately 21 US households for 1 day (Digiconomist, 2019). Recent studies estimate Bitcoin’s electricity consumption to be between 20 and 80 TWh annually, or about 0.1-0.3 % of global electricity use (IEA, 2019a). For instance, the Cambridge Bitcoin Electricity Consumption Index (CBECI) cites a figure of 64 TWh per year (CBECI, 2019), which exceeds the annual electricity consumption of Switzerland or all electric vehicles in operation worldwide (58 TWh) in 2018. These estimates must be interpreted with caution, due to methodological issues, limited data availability and highly variable conditions across the industry (Koomey, 2019). Moreover, these figures are still much lower than other end-uses, such as cooling, which consumed 2 020 TWh of electricity in 2016 (IEA, 2019a).

Nevertheless, Bitcoin is only one cryptocurrency, which is only one application of blockchain. Finding a way to reduce the energy consumed for transaction verification will be essential. Swapping the orginal consensus mechanism, i.e. the proof-of-work algorithm, for other approaches (such as ‘proof-of-stake’, ‘proof-of-authority’ or ‘proof-of-elapsed-time’ algorithms) has already been suggested (Jones, 2017). Some cryptocurrencies and blockchain applications already rely on these alternatives. However, a thorough assessment of each mechanism and its energy impact and energy efficiency is still required (EP, 2018b). Switching to greener sources of energy and developing less energy-demanding computation are other options to be further explored (Jones, 2017). It would also be possible to reduce the energy consumption of Bitcoin by restructuring the way blockchain maintenance is incentivised (de Vries, 2019).

Like other emerging ICT-based technologies, blockchain also raises concerns about electronic waste (e-waste). Competing miners require more and more efficient mining hardware, leading to quick obsolescence, roughly every 1.5 years (de Vries, 2019). Since its creation, Bitcoin-mining hardware has already shifted from the use of central processing units to graphic processing units, field programmable gate arrays and application-specific integrated circuits. Rough estimates show that Bitcoin creates 135 g of e-waste per transaction, which is 30 000 g more than a Visa transaction (de Vries, 2019).

Notwithstanding the energy consumption and e-waste issues, blockchain technology can also support environmental protection. In particular, it can offer opportunities to make existing consumption and production processes more transparent, which could enhance their sustainability. A promising application relates to supply chain management in industries such as forestry, energy, food or mining. There are already standards and certification schemes to ensure sustainable and responsible supply chains, but existing processes remain costly and unreliable in many regions (EPRS, 2017). Blockchain can make information about the origin of a product, processes and the parties involved in related transactions and logistics visible, traceable and verifiable by all those in the supply chain (Kouhizadeh and Sarkis, 2018). As the information is secured and time-stamped, it cannot be altered or modified, which reduces the risks of fraud and errors (EPRS, 2017). This can support the application of sustainability criteria for the selection of suppliers, vendors, materials and products, as well as the design of more sustainable logistics networks and internal operations (Kouhizadeh and Sarkis, 2018).

Eventually, this would help consumers to make choices that do not undermine environmental protection — or human rights and working conditions — in countries across the supply chain (EC, 2019b). Experimentation is under way. For example, researchers have recently simulated the application of blockchain technology to electronically trace timber through its life cycle, combining an open source radio frequency identification system and a blockchain ledger to retain records in a secure and decentralised way (Figorilli et al., 2018). The Programme for the Endorsement of Forestry Certification, the world’s largest forest certification system, has signalled its interest in blockchain (ITU, 2017).

More generally, some internet and blockchain pioneers argue that blockchain-enabled initiatives, such as decentralised autonomous organisations (DAOs), could bring about new forms of governance arrangements that would challenge existing economic and power dynamics (EPRS, 2017). A DAO is an organisation that can run on its own, without the need for any central management, as the governance rules agreed by its members are programmed in smart contracts that are automatically enforced and executed through blockchains (EPRS, 2017). Based on the assumption that peer-to-peer and commons models of governance could manage resource use better than purely top-down governance approaches (for instance, building on Elinor Ostrom’s work), some argue that DAOs could be a game-changer for sustainability (P2P Foundation, 2019). So far, however, DAOs remain largely at an experimental stage and in a regulatory grey zone (EPRS, 2017)

Other blockchain applications potentally beneficial to renewable energy diffusion, energy efficiency and the reduction of energy consumption are being explored. IBM and Energy-Blockchain Labs are experimenting with a blockchain-based green asset management platform for trading carbon assets in China in a more efficient way (IBM, 2017). Some envisage a blockchain-based peer-to-peer energy transaction platform that would enable efficient electrical energy transactions between prosumers and lead to economic and environmental benefits (Park et al., 2018). EnergiMine has developed a blockchain-based rewards system that uses digital tokens to incentivise consumers to save energy (Forbes, 2018). The issue remains whether these niche initiatives will scale up and whether their benefits are offset by blockchain’s own energy consumption.