Blockchains can cut both ways in their impact on global warming

Source: The post is based on an article “Blockchains can cut both ways in their impact on global warming” published in the Live Mint on 21st July 2022. 

Syllabus: GS 3 Environment and Ecology 

Relevance: Role of Blockchain in the global warming 

News: Recently, the Centre for Alternative Finance at the University of Cambridge has released a report consisting of the Cambridge Bitcoin Electricity Consumption Index. It highlights the role of cryptocurrencies behind global warming in the Anthropocene era. 

What are the purported reasons for the warming?  

The top causes of global warming are cement construction, deforestation, fossil fuel use, etc.  

However, Technologies, much like their human creators, are double-edged swords. Blockchains are also double-edged. 

How Bitcoin and other cryptocurrencies are fuelling climate change?  

Bitcoin mining alone uses a lot of energy. For example, Bitcoin mining uses more energy than Belgium and Finland.  

The Bitcoin network generates huge amounts of carbon dioxide, as much as Turkmenistan. It has been found that Ethereum’s CO2 emissions rival New Zealand’s.  

Further, the Application Specific Integrated Circuit (ASIC) mining equipment that crypto miners use produces a colossal 36,000 tonnes of electronic waste every year. 

The ‘proof of work’ algorithms used in the cryptocurrencies which make the blockchain, decentralized, secure and open, consume vast amounts of energy. Here, ‘Proof of work’ is a consensus mechanism that allows miners to validate cryptocurrency transactions by deciphering increasingly complicated mathematical puzzles. Solving a puzzle requires heavy computing power and therefore uses tremendous energy.  

Measures Taken by the crypto industry to reduce emissions 

The industry has resolved to go carbon neutral by 2030. Many blockchains, like Ethereum, are moving from proof-of-work to proof-of-stake, a mechanism that uses far less energy.  

Other technologies like sharding and non-tech methods like carbon offsets are being used to create green crypto or green blockchains. 

So, is there a way that blockchains can actually help alleviate global warming and climate change?  

(1) Blockchains can be used to decentralize the power system. This can be done by creating peer-to-peer electricity sharing mechanisms for local communities. It will reduce transmission losses and encourage an economic model to produce and consume clean power through solar, wind, biogas and other sources. For example, the Brooklyn Microgrid Project uses smart contracts to trade solar electricity with neighbours over a blockchain.  

(2) There can be tokenization of electricity for power trading and donations to poorer areas. This has incentive mechanisms to encourage recycling of industrial and electronic waste. This can be implemented using smart contracts that can propel incentive mechanisms. There will be rewarded for using ecologically sustainable practices.  

(3) The ‘track-and-trace’ or provenance property of blockchains can be used to track environmental treaties. For example, to enforce action, decrease fraud and prevent manipulation.  

(4) Blockchains can be used to track environmental donations and how they are being used by non-profit entities working in the environmental areas. Start-ups like Bitgive and Bithope are working in this space. 

(5) The blockchains can help track and trace the greenhouse gases emissions, carbon credits and carbon tax mechanisms. They are being used in global supply chains to build efficiency and resilience. It can be used to measure and reduce the carbon footprint caused by them.