Blockchain and its carbon footprint

Considering all areas of blockchain application reveals the horizon of a possible new transformation of our society, but especially of our environment. The latter is often the element left out of the great industrial revolutions. However, since 2015, the environment has been the subject of major debates and represents a major challenge for the future of society and our planet. Can the blockchain protect the environment or will it just feed on it and damage it? This technology is mainly known for its application in the use of cryptocurrencies. Since its introduction in 2008 as a Bitcoin transaction log, the technology has spawned hundreds of crypto-assets (Ethereum, NEO, Shiba Inu, Litecoin). The use of a blockchain is not limited to crypto-assets, but can also apply to other fields (logistics, medical, patents, copyrights, votes or the creation of art or digital content).

Birth of techno and perspectives

The blockchain: operation and limits
A blockchain is made up of a set of blocks. So far it’s easy, it’s all in the title. The blocks are defined as being data, it can be a list of transactions (1), or a list of the use made of wifi or “smart contracts”. It should also be understood that these blocks have limits, indeed, if I take the example of Bitcoin, a block records an average of 1500 transactions. When the blocks of the chain reach saturation, it is then necessary to add new blocks, in the context of Bitcoin, this operation is called mining. “Mining” consists of making the computing power of one’s computer available to the network for a monetary reward. In essence, the miner must solve billions of mathematical operations (2) that follow the cryptographic protocol used by the network (3). For Bitcoin, this validation operation is called proof of work. Once the new block created respects the cryptographic protocol, the miner who was the first to verify the validity of the block receives his reward and this new block is added to the very top of the chain (this is how new Bitcoins are created).

Why use a blockchain: areas of application
The use of a decentralized and tamper-proof certification system is suitable for monetary transactions, but the use of a blockchain is possible wherever the FITS model (4) applies (Fraud, Intermediaries, Throughput, Stable data – Fraud, Intermediaries, transaction throughput, data stability). A blockchain can be disruptive in any field and for any industry where: the risk of fraud is high and security and trust require substantial investments, a large number of intermediaries act without bringing any real added value, the number possible transactions per second is limited or constrained and where the data is table in time.

In 2021, the use of the blockchain will become widespread. Institutions, governments and companies are actively participating in its development: for governments, we can cite the United States, which filed a patent (5) for a postal voting system that would use a blockchain. We can also cite countries such as South Korea, Thailand, Japan, but especially China (6) which are embarking on the creation of digital currencies as soon as 2022. Several financial institutions are already using blockchain , either to perform inter-bank reconciliation (with the Corda (7) blockchain in Italy), or to promote interoperability between private and public blockchains with JP’s Quorum. Morgan (8) . The big economic players are not left out, Microsoft launched in 2020 Lition (9) and integrated it into its Azure cloud offer as the first BaaS (Blockchain as a Service) so that developers can create applications on this based. At the end of 2019, Samsung integrated a wallet (secure material area) into its phones that allows cryptocurrency users to keep their assets.

The speed at which this technology will be adopted depends on 3 major elements: it must offer a level of confidence greater than or equal to what exists, it must make aspects of our daily life easier and it must be simple to use.

CSR and environment impact

There remains an axis often set aside by the great industrial or digital revolutions. These are the impact on the environment and on CSR. There is no comprehensive study yet and the results of the studies that are available should be considered with a grain of salt (given the lack of empirical information on this technology as well as methodological differences). However, those citing Bitcoin are a good illustration of the stakes of the environmental question. They are targeted at Bitcoin activity, but they still highlight the hidden costs associated with the use of this technology.

Energy consumption and environment
The first environmental aspect is energy consumption. A study carried out in 2014 by two Irish researchers shows that systems based on the concept of blockchain with proof of work (Bitcoin for example) can be qualified as energy sinkholes (11), “the mining activity of Bitcoin would represent the consumption energy of a country like Ireland. The use of proof of work induces an overconsumption of electricity and computing time which is increasing exponentially in the world”. Economist Hyun Song Shin (12) (13) calls the proof-of-work validation system necessary for the Bitcoin blockchain an environmental disaster. According to a study published in nature and climate change (14) in 2018, emissions linked to the use of Bitcoin could push global warming above the 2°C mark in less than 30 years, despite the efforts made during COP21. In 2019, Bitcoin alone accounted for around 0.1~0.3% (between 58 and 80TWh )(15) of global electricity consumption (i.e. more than the annual electricity consumption of Switzerland or the global fleet of electric vehicles). Given that 67% (16) of global electricity production is provided by fossil fuels, a direct causal link can be established between global warming and the use of blockchain.

Corporate social responsibility
Another environmental aspect is the management of electronic waste. The blockchain like any other ICT produces a significant volume of electronic waste. In the Bitcoin example, mining creates strong competition and leads to the renewal of computer equipment (every 1.5 years on average). Two perverse effects emerge: the first is that this strong demand stimulates the sector and accelerates the development of certain technologies, particularly for microcomponents (this was true before the Covid crisis). The second is that this high demand adds stress on the entire IT sector and drives up the price of raw materials and other components (17). These two effects accelerate the renewal of computer equipment. For Bitcoin mining, the activity contributes to the annual production of 30 Kilo Tons of electronic waste (a little less than the mass of an aircraft carrier like the Charles de Gaulle). It should also be noted that the “eternal” nature of the information contained in the blocks raises the question of the right to be forgotten and the GDPR. At any time, any actor can consult the information without any censorship.

In conclusion, the first studies, carried out on part of the activity linked to the use of Bitcoin, point to an ecological disaster and raise fears of an iceberg effect when the subject is extended to all blockchains.

However, the energy-intensive methods pointed out in these Bitcoin studies such as proof-of-work are losing ground to alternative methods that consume less computing power and energy. Although a complete assessment of the different methodologies available as well as their environmental impact remains to be done in order to be able to establish a “greener” standard, the sector is aware of these problems and is multiplying alternative approaches.

The blockchain can help de-opaque the current processes of energy consumption and production, which would increase the renewable share of our energies. A promising example in the logging sector (18)(19): Although there are many certifications and labels to ensure the renewable and eco-responsible nature of products in this sector, many regions do not do not adhere to these standards. The added value of the blockchain is to be able to make information on the origin and processing of a product completely transparent for all actors in the supply chain. The end consumer could then be sufficiently informed to make a choice that would go in the direction of environmental protection, but also child labor or even the human rights of women and minorities (20).

(1) If we take the example of a crypto-currency such as Bitcoin, we then speak of a transaction log
(2 The hash function acts as a decoding key. It is then necessary to check that all the data of this new block respects the coding rule and that by applying the key to the data to encrypt them, we will be able to decrypt them. with the same key.
(3) For Bitcoin, this is the “SHA-256” hash function
(4) FITS: Fraud, Intermediaries, Throughput, Stable data. Model proposed by Dr. Adrian McCullagh Ph D. (IT Sec), LL.B., GAICD, Ph.D. Lawyer and researcher at the University of Queensland in Australia
(12) Hyun Song Shin, “Chapter V. Cryptocurrencies: looking beyond the hype”, in BIS 2018 Annual Economic Report, Bank for International Settlements, June 2018
(13) Michael Janda, “Cryptocurrencies like bitcoin cannot replace money, says Bank for International Settlements”, ABC (Australia),‎ June 18, 2018
(15) See: the Cambridge Bitcoin Electricity Consumption Index
(16) OECD data 2016
(18) Kouhizadeh and Sarkis, 2018
(19) Figorilli et al., 2018
(20) PEFC has shown interest in this technology

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Blockchain and its carbon footprint

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