Gwendolyn Regina is Investment Director at BNB Chain, the blockchain developed by major crypto exchange Binance.
Blockchain sustainability has become essential. As the technology scales, new blockchains must be green.
You might have heard the saying, “Bitcoin uses more electricity than Argentina,” which is no longer true. Bitcoin miners are increasingly using renewable energy. Also, blockchain protocols that don’t need energy-intensive consensus models are emerging.
This article explains how the blockchain industry is revamping its technical architecture to ensure growth and sustainability.
What is ESG, and why does it matter?
ESG (Environmental, Social, and Governance) measures the environmental, social, and governance impacts of a firm or investment. Socially conscious investors use it to filter possible investments based on a set of globally agreed standards for a company’s operations.
Global enterprises, businesses, and organizations must enhance their ESG scores to remain relevant and competitive. This helps battle climate change and other challenges.
Plan A says enterprises must decarbonize, create ESG framework and reporting, reach net-zero emissions, and create a resilient and sustainable supply chain.
Blockchain technology can alleviate some of these difficulties using Bitcoin (BTC)‘s distributed ledger technology (DLT). Supply chain management, which affects carbon emissions the most, might employ DLT to improve ESG.
Blockchains can synchronize organizations’ record-keeping systems, allowing them to openly reveal ESG indicators and confirm their environmental commitment.
Blockchain makes supply chain tracking more efficient, transparent, and verifiable. It stores supply chain and sustainability data immutably.
In recent years, the number of investment funds incorporating ESG issues has grown rapidly and is likely to continue rising in this decade. ESG investments could reach tens of trillions of dollars in the next decades.
Blockchains aiming for carbon neutrality – a big win for ESG
Bitcoin introduced us to blockchain, and its success is built on the network security maintained by its Proof-of-Work (PoW) mining consensus mechanism. It requires large amounts of computing power, and thus electricity, to verify transactions in order to add new blocks to the chain.
Since the first Bitcoin block was mined, the crypto industry has improved technologically and produced more eco-friendly blockchain solutions. For instance, PoW-to-PoS transition is key to greener tech.
Proof-of-Stake (PoS) is a more sustainable consensus process than PoW. To verify transactions and add new blocks, PoS validators stake their currencies. This reduces electricity use and carbon emissions. Block rewards are divided among node validators, with higher-staked validators having a better chance. Even Ethereum (ETH), the second-largest crypto asset, has switched to PoS.
Many of the earlier Layer-1 blockchains are slow, have high transaction fees, and leave a larger environmental footprint than is acceptable.
All the top developers are working on cutting-edge protocols to solve Ethereum co-founder Vitalik Buterin‘s blockchain trilemma, which is how to balance security, speed, and scalability. When all blockchains accomplish this, the earth will benefit.
One of the major challenges for massive blockchain adoption is scalability
As blockchain adoption grows, most networks’ designs create operational bottlenecks that stop them from growing. Layers 2, which combine transactions and send them back to Layer 1, are one of the most common ways to fix this problem. This speeds up the process and frees up block space.
Many of these Layer 2s are also better for the environment. For example, validators use about 0.00079TWh of electricity per year, while Bitcoin – the biggest PoW chain – consumes ~ 9,000TWh. There is a big difference.
Scalability is a problem for both Proof-of-Stake and Proof-of-Work networks. Bitcoin, which, after the Ethereum Merge, is the only major chain that still uses PoW, has solutions for scaling up that also minimize power consumption.
For example, Lighting, which is used in El Salvador to scale daily Bitcoin transactions, can grow in a way that is not proportional to how much energy it uses.
This minimizes the required energetic input. Energy optimization goes hand in hand with scalability, which is needed to expand the use of blockchain technology.
Proof-of-stake is not the only sustainable consensus mechanism
PoW and PoS are the most widely used consensus algorithms. However, PoS is not the only consensus mechanism that does not require a lot of energy. Proof-of-Authority (PoA) takes advantage of the value of identities. This means that block validators don’t stake coins, but rather their reputations. PoA doesn’t require mining or any specific amount of energy (besides to be operative).
Its technical architecture allows high transparency and speed, making POA a pretty good solution for logistics applications (supply chain).
Consequently, it is the consensus mechanism used by veChain, the most relevant crypto protocol applied to logistics. PoS is a more efficient consensus mechanism for other types of use cases such as decentralized finance (DeFi), non-fungible tokens (NFTs), or GameFi because of its lower barriers to entry, reduced hardware requirements, etc.
Many of the methods blockchain can be utilized to solve problems are ESG compliant.
Global blockchain leaders are reducing carbon emissions. According to research by the Bitcoin Mining Council, the worldwide Bitcoin mining sector would use 58.5% renewable energy by Q4 2021. BNB Chain, Avalanche, Near Protocol, Algorand, and other public chains are continually upgrading their technology to enhance efficiency and minimize emissions. Ethereum, upon completing its major protocol modification, uses at least 99.5% less energy post-merge.
The blockchain sector is committed to ESG and sustainable development as global stakeholders. With climate concerns on the minds of a new generation of users and investors, it’s more important than ever to take steps to ensure the industry’s long-term sustainability.
Together, the blockchain industry can achieve environmental sustainability.