Tech
Sustainable Solution or Climate Calamity? The Perils and Promises of Cryptocurrency Technology
A “useless way of using energy”?
The amount of energy required to power the Bitcoin network is staggering: Tim Berners-Lee, credited with inventing the World Wide Web, went so far as to describe “Bitcoin mining” as “one of the most fundamentally useless ways to use energy.”
Bitcoins do not exist as physical objects, but new coins are “mined,” or put into circulation, through a process that involves using powerful computers to solve complex mathematical problems. This process is so energy-intensive that it is estimated that the Bitcoin network consumes more energy than several countries, including Kazakhstan and the Netherlands. And because fossil fuel-fired power plants still make up a large part of the global energy mix, Bitcoin mining can be said to be partly responsible for producing greenhouse gases that cause climate change (although, so far, its impact on the climate is far less than that of major players such as agriculture, construction, energy, and transportation).
Another problem is the amount of energy required for each transaction, which is enormous compared to traditional credit cards: for example, each Mastercard transaction is estimated to use only 0.0006 kWh (kilowatt hours), while each Bitcoin transaction consumes 980 kWh, enough to power an average Canadian home for more than three weeks, according to some commentators.
Waste collectors rummage through municipal landfills in Zambia.
An important driver of sustainable development?
Despite these challenges, UN experts believe that cryptocurrencies and the technology they are based on (blockchain) can play an important role in sustainable development and, in fact, improve our environmental protection.
One of the most useful aspects of cryptocurrencies, as far as the UN is concerned, is transparency.
Because the technology is resistant to tampering and fraud, it can provide a reliable and transparent record of transactions. This is especially important in regions with weak institutions and high levels of corruption.
The World Food Programme (PAM), the largest United Nations agency that distributes humanitarian money, has found that blockchain can help ensure that money reaches those who need it most.
A Pilot program in Pakistan demonstrated that it was possible for WFP to get money directly to beneficiaries, safely and quickly, without having to go through a local bank. The project, Building Blocks, was also successfully tested in refugee camps in Jordan, ensuring that WFP could create a reliable online record of every single transaction.
If this can work for refugees, it can work for other disadvantaged and vulnerable groups. The authors of a report by the United Nations environment agency, PNUEsuggest that the technology could improve the living conditions of waste pickers, who survive thanks to the informal economy.
According to the report, a transparent monitoring system could accurately track where and how recovered waste is used, as well as identify who collected it, ensuring that the right people are rewarded for their efforts.
Unsplash/Chris LeBoutillier
Air pollution harms our health, but there is often a lack of local data available to identify solutions.
Stop environmental degradation
The potential of blockchain in protecting the environment has been tested in a number of other projects, by the UN and other organizations. These range from a tool to eliminate illegal fishing in the tuna industry, developed for the World Wide Fund for Nature (WWF), to a platform (CarbonX) that turns greenhouse gas emission reductions into a cryptocurrency that can be bought and sold, providing producers and consumers with a financial incentive to make more sustainable choices.
For the UNEP DTU Partnership (a collaboration between UNEP, the Technical University of Denmark and the Danish Ministry of Foreign Affairs), there are three main areas where blockchain can accelerate climate action: in transparency, climate finance, and clean energy markets.
Data on harmful greenhouse gas emissions in many countries, the Partnership says, is incomplete and unreliable. Blockchain solutions could provide a transparent and reliable way to show how nations are taking steps to reduce their climate impact.
Climate finance, or investments that help slow the rate of climate change, could be boosted if carbon markets were expanded, allowing companies and industries to shift to low-carbon technologies.
And blockchain could be an important part of accelerating the adoption of renewable energy sources like wind and solar. Because these sources are, by their very nature, intermittent and decentralized, new forms of energy markets are needed.
Tools that leverage blockchain technology can help create these markets and end our dependence on fossil fuels.
Finding energy-efficient solutions
Despite all these potential benefits, the huge energy consumption associated with this technology is one of the main obstacles to overcome; many operators in the industry are working to find solutions to this problem.
For example, the Ethereum Foundation, the organization behind the cryptocurrency Ethereum, is working on a new way to verify transactions. By switching to a different method (called Proof of Stake, or PoS), the Foundation claims that the energy cost of each transaction could be reduced by 99.95 percent.
At the same time, many industry players want to ensure that all energy consumed by industry is completely carbon-free.
In April 2021, three leading organizations (Energy Web Foundation, Rocky Mountain Institute, and Alliance for Innovative Regulations) formed the Crypto Climate Accord, supported by organizations spanning the climate, finance, NGO, and energy sectors.
The Accord aims to “decarbonize the industry in record time” and achieve net-zero emissions in the global cryptocurrency sector by 2030.
Gold has always played an important role in the international monetary system.
The Ups and Downs of Cryptocurrency
Cryptocurrencies are still in their infancy and there are still many technical and political challenges to overcome, as evidenced by the volatile nature of some of the more well-known releases.
A single tweet from tech billionaire Elon Musk can make Bitcoin go up or down; El Salvador announced plans to make Bitcoin legal tender in June, a month after Beijing announced a crackdown on Bitcoin mining; while another cryptocurrency, Dogecoin, has been widely traded, with huge and widely reported jumps and drops in its value (again, thanks in part to Mr Musk’s statements), despite the fact that it was created as a joke.
However, many financial experts believe that these teething problems will eventually be resolved, allowing cryptocurrencies and other blockchain-based financial instruments to enter the mainstream: several central banks are planning their own digital currencies, and so-called “stablecoins,” which can be pegged to precious metals like gold or national currencies, could become, as the name suggests, stable and reliable investment opportunities.
If the most vulnerable are to benefit from the promises of blockchain technology, and if it is to have a truly positive impact on the climate crisis, more technical research is needed, as well as a stronger international dialogue involving experts, scientists and policy makers.
“The UN should continue to experiment in the blockchain space,” says Minang Acharya, one of the authors of a recent UNEP forecast report on blockchain applications. “The more we experiment, the more we learn about the technology. This will likely improve our UN-level knowledge of blockchain, our understanding of the environmental and social implications of mining operations, and improve our ability to address any issues the technology may bring in the future.”