Blockchain technology has scaled rapidly in the last several years and is projected to expand to an even larger market across industries and countries. It is shaking up the global financial system, but environmental concerns risk stifling innovation. Potential regulatory action by governments concerned with the energy impact of blockchain activity is another reason to focus on sustainability.
In response, blockchain participants are considering environmental, social and governance (ESG) issues in their efforts to innovate. For example, Ethereum, the blockchain platform and the second largest cryptocurrency by market capitalization, Ether (ETH), is transitioning its consensus mechanism from proof-of-work to proof-of-stake in an effort known as “The Merge”. One of the main drivers behind The Merge is the ability to measurably reduce energy consumption, indicating the urgency with which developers are factoring in their environmental impact. To help navigate this complex landscape, and first-of-its-kind assessment framework that allows organizations to evaluate their environmental footprint as they look to take advantage of this emerging technology.
Blockchain is a distributed ledger technology that maintains data through a peer-to-peer network of computers. Although it was originally developed to facilitate cryptocurrency transactions, blockchain has expanded to other capabilities. From verifying ownership of digital assets like NFTs to tracking items in a supply chain, its versatility can drive innovation and support business transformation.
Blockchain provides an opportunity for organizations to build trust through its decentralized, secure and transparent features, but its reputation as a threat to climate goals remains an obstacle A closer look reveals that not all blockchain protocols are the same and may have different purposes and varying levels of environmental impact.
A key component of these protocols is the consensus mechanism, which is the defined approach to validate transactions and prevent malicious activity. Each consensus mechanism has advantages and disadvantages regarding decentralization, security and scalability, and adjustments to these trade-offs can unlock opportunities to make the respective blockchain more sustainable.
A thorough analysis of blockchain protocols can inform the decisions of regulators, users and the market as this technology continues to grow. Blockchain has significant potential to support sustainability, and it may prove to be a valuable tool to help companies advance environmental aspects of their ESG goals.
Whether your organization is interested in contributing to a blockchain network, becoming an ecosystem participant, making a cryptocurrency investment or adopting NFTs into your business, PwC’s Blockchain Sustainability Framework can help inform stakeholders of potential environmental impacts.
Although, the framework measures a cumulative environmental footprint of blockchain operations, factoring in electricity use, greenhouse gas emissions, e-waste, embodied carbon and differences in consensus mechanisms.
The key environmental impacts of Blochain are as follows;
Blockchain technology offers new opportunities to enhance sustainability efforts by improving tracking and verifying emissions. Its immutability, accountability, and transparency make it possible to track carbon balances and other environmental metrics, holding companies accountable for their sustainability claims.
By utilizing smart contracts, companies can automate the tracking of carbon emissions throughout their operations. The information can be reported to monitoring services and made public, with the cryptographic nature of the data ensuring it cannot be falsified or manipulated.
Moreover, the same cryptography can also protect a company’s privacy when reporting on emissions. Through zero-knowledge (ZK) technology, unfalsifiable proofs can be generated to confirm the information without revealing it. This allows a company to provide evidence of meeting energy usage or carbon emission standards without disclosing the underlying data.
Conclusively, another r way blockchain can contribute to sustainability is through the tokenization and digital distribution of environmental assets. A prime example is the growth of the carbon credit market, which has attracted the attention of leading organizations, including accreditation registries such as Verra and Gold Standard and international organizations like the World Economic Forum.