Blockchain and Environmental Sustainability

Introduction

Blockchain has brought major changes in all the industries, be it banking, healthcare, automotive or finance. The reach and impact are huge with estimates suggesting substantial growth from $11.54 billion in 2022 to a projected $162.84 billion by 2027. One major drawback is the highly energy consumption process of cryptocurrency mining which verifies all blockchain transactions. There are a lot of concerns raised about its impact on the environment. The need for environmental sustainability has never been more urgent. The planet has undergone many changes demanding accountability from all industries. Despite the blockchain factor being often criticized, it holds the power to play a major role in reducing the environmental concerns and creating a sustainable future. Sustainable blockchain technology has immense benefit for the environment which cannot go unnoticed. Blockchains major advantage is it can create sustainability through tokenization and digital distribution of environmental assets. One of the major examples is the carbon credit trading market which has gained lot of popularity. Blockchain technology is still in its early stages and cannot alone solve this problem but more participation and adoption can help it make an impact on the environment and turn out to be the solution we are all looking for.

Background on blockchain technology and environmental sustainability

Blockchain basics

It’s just been a decade since blockchain was introduced to the world. Blockchain records all its data on a distributed ledger which can be shared across multiple people, institutions and sites. It allows the transactions to be public. A particular individual can get access to the database from anywhere in the world and witness the significant changes made on the ledger within minutes and notify others as well.
A distributed ledger records all its transactions in a decentralized form thus, less likely to be prone to cyber-attacks or frauds as compared to a centralized/traditional ledger. As stated, earlier individuals can witness and verify the addition of transactions on the ledger, this process of agreeing on what information is recorded in the ledger is known as the process of consensus. To avoid tampering with data an algorithm named a s hash was created. A hash is a long string of alphanumeric numbers. Its main aspect is to ensure the smooth processing of transactions and maintain data integrity.
Different types of Consensuses Mechanisms are proof-of-work (POW), a common mechanism algorithm used by Bitocin, which requires high energy consumption and long mining hours. Then comes proof-of-stake (POS) which requires less energy consumption and time as compared to POW.

Emergence of sustainability and green initiatives

Blockchain technology has always been criticized for its impact on the environment due to its high energy consumption nature. However, initiatives have been taken to create alternative mechanisms as opposed to the PoW-based mechanism that requires less energy prioritizing environmental concerns. This has led to the creation of green cryptocurrencies whose main aim is to reduce carbon footprint, energy consumption and long mining hours. One of the initiatives is the renewable energy certificate mechanism that lets Bitcoin miners obtain certificates as evidence that a certain amount of green power was produced during the mining. CHIMPZEE is another initiative introduced that allows crypto investors to gain income as well as contribute to the protection of endangered animals.

Tree Diagram for sustainability and green initiatives

Analysis of Key Blockchain Applications

Carbon credit trading

Carbon credit trading or carbon emissions trading means buying and selling of credits which allows companies to compensate for the carbon dioxide emissions that come from their production plants. With the help of these credit permits the companies have proof that they contributed to the environment by removing 1 ton of carbon dioxide from the atmosphere. When a company is successful in removing carbon dioxide from the atmosphere as part of its business activity, it can generate a carbon offset.
Companies that have excess offset credits can sell it to other companies, thus generating revenue for themselves. These credits also provide revenue to the governments. The cost of these carbon credits differs depending upon the quality and the issuing companies. A few of the popular ways to produce carbon credits are through carbon offsetting projects like:

• Energy projects
• Carbon and methane capture
• Renewable Land use and reforestation
• Improvement in energy efficiency

Reduction of fraud in carbon markets using Blockchain

There are only a few companies that can participate and abide by the government’s mandate to reduce their carbon footprints. The regulation is not efficient which leads to selling off the same credit multiple times to different parties. There have been projects reported that claim to have reduced carbon emissions than they have in reality.5 This problem can be overcome by using blockchain a decentralized ledger that ensures transparency and can trace the issuer of carbon offsets making it difficult to engage in fraudulent activities.
The use of Blockchain helps ensure transparency in the carbon credits market as all transactions would be visible to each individual. Further to reduce these fraudulent activities Power Ledger a blockchain technology that tracks the trading of renewable energy and environmental commodities was introduced. It enables peer-to-peer trading eliminating the need for a middleman. Power Ledger operates on 2 blockchain layers and uses tokens.

Renewable energy certification

Production and usage of renewable energy production

WePower is a blockchain-based technology used for green energy trading. One of the main advantages is transparency, each transaction is recorded on the blockchain which cannot be altered thus ensuring security and maintaining a record of all the transactions. WePower strives to bridge the gap between investors and energy producers in terms of equal capital allocation. Electron a UK-based firm records supplier relationships being formed between companies including assets like solar panels, batteries, smart meters, EVs being utilized.

Supply chain transparency

Environmental impact of supply chains

Sustainable goals improve the sustainability of the supply chain. Digital technology like blockchain essentially restructures supply chain management. Digital systems and databases can record transactions along the supply chain, supporting efficiency and cost reduction. Supply chains increase efficiency and lower costs.
IBM Food Trust designs modules to help everyone in the food system, such as suppliers, manufacturers, distributors, and retailers. It addresses food safety, food waste, certification management and more. IoT is playing and important role in emerging concepts like provenance blockchain which protects production, logistics & supply chain networks. These devices can pose threats to cloud manufacturing networks. The focus is on end-to-end tracking and tracing of data, including creating, modifying, transmitting, storing and deleting at specific times and locations.

Impact on Environmental Sustainability

Increased efficiency in green programs

Many companies are focusing on introducing blockchain solutions that will guide them to balance their business requirements with sustainability promises. Blockchain technology has more potential to improve the energy economy, user experiences and markets which help it to make it more environmentally friendly. These solutions are gaining more popularity and can be utilized for recent blockchain projects that will move forward toward a greener future.
The green energy helps to reduce carbon dioxide emissions or the greenhouse effect from current usage. 8Most of the blockchains such as Bitcoin use proof-of-work (PoW), which is an agreement mechanism that needs miners to solve complex mathematical problems to verify transactions and earn rewards. The impact of the environmental blockchain is mainly from the energy consumption associated with cryptocurrency mining. Hence encouraging innovation and investment in green technologies can further improve the efficiency of these programs.

Facilitation of green financing

Green finance supports initiatives that promote energy conservation also it provides the protection for environment improves the transition to a low-carbon economy and helps to achieve global climate goals by pointing capital towards environmental sustainability. 9These finances will require investment in sustainable agriculture, energy-efficient technologies, renewable energy projects and some others that are environmentally friendly.
Funding these areas such as green finance drives innovation and will also create green jobs that will contribute to more sustainability along with the economy. It will also motivate governments and businesses that will make them understand how to adopt environmental practices which can lead to a greener and more sustainable future.

Empowerment of Sustainable Consumer Choices

Emphasizing transparency, and affordability also by providing a verity of sustainable choices to consumers will be beneficial for reducing carbon footprint. Consumers should diligently focus on durability, recyclability and ethical production practices while purchasing. Companies must actively focus on the long-term value and helpful environmental outcomes of investing in products designed to minimize their impact throughout the lifecycle.
Businesses should actively engage with customers and raise awareness about sustainable consumption. By actively communicating directly with consumers, companies have the power to actively empower individuals to make choices that will have a long-lasting positive impact on the planet. While shopping consumers should consider how durable items are, whether they can be recycled after using them and if they were produced ethically. Focusing on the minimal environmental impact products can benefit in the long term.

Emerging Trends

Tokenization of natural capital assets

To correctly control such liabilities, companies need to accurately evaluate and account for capital assets which include valuing natural assets. Tokenization generally involves converting the rights of a physical asset into digital tokens that can be traded on a blockchain network. It is a process that requires the representation of rights of real-world assets as digital tokens on a blockchain.
Tokenized natural resources have the potential to become one of the largest crypto asset classes due to the complete scale of the world’s natural assets. These assets have gained important traction throughout the financial services industry. Also, experts have predicted that tokenized digital-securities trade volume by the year 2030 will rise to $5 trillion.

Integration with IoT sensors and devices

Integrating IoT requires involving sensors and devices that are used to share insights and data, have an aim to improve the functionality and efficiency of these interconnected devices. Integration of data is an important part of the IoT ecosystem that brings the data together from multiple devices, sensors, and systems within the network.11 Also, it uses the process name as APIs, the logical connectors that allow the applications to connect with the IoT devices and expose data for transmission. Automating and managing these smart devices is facilitated by management platforms so that they offer scalable services to IoT devices and organizations.
Developing integration workflows on its own can have some challenges and integrations benefit IoT devices in multiple ways like sending notifications to platforms like Slack or email. For example, integrating Salesforce Service Cloud and Slack enables an IoT to send notifications in case of issues. Hence these connected devices show better results in terms of data integration making data management easier.

Emergence of Blockchain-based Carbon Removal Markets

The blockchain can store the data and transact on a distributed ledger which is accessible to everyone on the internet which will increase transparency. The ecosystem for carbon credits is built on blockchain which is more secure, effective and properly suited for setting up carbon credit exchanges. Also, it can be used for selling these carbon credits and brings these small buyers of carbon offset projects together because of its transparency.
Distributed ledger allows for the issuance and tracking of carbon credits. Using this public blockchain reduces barriers to entering the carbon trading industry which can be easily used by these small or medium-sized businesses. It will also help to offset carbon emissions, track shipping procedures and perform the more difficult duties like monitoring greenhouse gas emissions. Henceforth businesses can use technology that will provide clear energy reports and can support to tracking of carbon credits and emissions.

Conclusion

Sustainable Blockchain technology has shown a significant ability to address the main concern of the environment which supports the future of sustainability. It has enhanced transparency, supported green financing, sustainable consumer choices and advanced new trends like integration with IoT and tokenization of capital assets naturally. The blockchain has played an important role in reducing the emission of carbon and promoting energy efficiency which has started to be adopted by various industries and as this blockchain technology develops it will contribute to a more sustainable future by reducing the environmental challenges. We recommend businesses or organizations adopt this blockchain technology to have more transparency and traceability which can provide more options for them such as : empowering sustainable consumer choices, integrating IoT for efficiency and green financing options which can help the environment achieve sustainability and add long-term value creation.