Gwendolyn Regina is the Investment Director of BNB chainthe blockchain created by the major crypto exchange Binance.
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Blockchain sustainability is becoming essential. As the technology scales, new blockchains must be green.
You may 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 do not require energy-intensive consensus models are emerging.
This article explains how the blockchain industry is changing its technical architecture to ensure growth and sustainability.
What is ESG, and why is it important?
ESG (Environmental, Social, and Governance) measures the environmental, social, and governance effects of a firm or investment. It is used by socially conscious investors to filter possible investments based on a set of globally agreed standards for a company’s operations.
Global enterprises, businesses, and organizations need to improve their ESG scores to stay relevant and competitive. It helps combat climate change and other challenges.
Plan A states that businesses must decarbonize, create an ESG framework and reporting, achieve net-zero emissions, and create a strong and sustainable supply chain.
Blockchain technology alleviates some of these difficulties using Bitcoin (BTC)’s distributed ledger technology (DLT). Supply chain management, which most affects carbon emissions, can use DLT to improve ESG.
Blockchains can synchronize organizations’ record keeping systems, allowing them to openly disclose ESG indicators and confirm their environmental commitment.
Blockchain makes tracking the supply chain more efficient, transparent, and verifiable. It keeps supply chain and sustainability data intact.
In recent years, the number of investment funds that include ESG issues has grown rapidly and is likely to continue to rise this decade. ESG investments could reach tens of trillions of dollars in the next few decades.
Blockchains aiming for carbon neutrality – a big win for ESG
Bitcoin introduced us to the blockchain, and its success is built on network security maintained by the Proof-of-Work (PoW) consensus mining mechanism. It requires a large amount of computing power, and thus electricity, to verify transactions to add new blocks to the chain.
Since the first Bitcoin block was mined, the crypto industry has advanced in technology and created more eco-friendly blockchain solutions. For example, the 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 coins. This reduces electricity consumption and carbon emissions. Block rewards are divided among node validators, with higher staked validators having better chances. Even Ethereum (ETH), the second largest crypto asset, has moved to PoS.
Many of the earlier Layer-1 blockchains were slow, had high transaction fees, and left a larger environmental footprint than acceptable.
All the leading 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. If all blockchains can do this, the earth will benefit.
One of the major challenges for the widespread adoption of blockchain is scalability
As blockchain adoption grows, most network designs create operational bottlenecks that stop them from growing. Layers 2, which combines transactions and sends them back to Layer 1, is 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 largest PoW chain – consumes ~9,000TWh. There is a big difference.
Scalability is a problem for 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 that also reduce power consumption.
For example, Lighting, which is used in El Salvador to measure daily Bitcoin transactions, can grow in a way that is not proportional to the amount of energy it uses.
This reduces the required energetic input. Energy optimization goes hand in hand with scalability, which is necessary 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) exploits the value of identities. This means that block validators do not stake coins, but their reputations. PoA does not require mining or any specific amount of energy (except to operate).
Its technical architecture allows high transparency and speed, making POA a great solution for logistics (supply chain) applications.
Consequently, this is the consensus mechanism used by veChain, the most relevant crypto protocol used in 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 due to lower entry barriers, reduced hardware requirements, etc.
Many of the methods blockchain can use to solve problems are ESG compliant.
Looking ahead
Global blockchain leaders reduce carbon emissions. According to research by Bitcoin Mining Council, the global Bitcoin mining sector will use 58.5% renewable energy by Q4 2021. BNB Chain, Avalanche, Near Protocol, Algorand, and other public chains are continuously upgrading their technology to improve efficiency and reduce emissions. Ethereum, having completed its major protocol overhaul, uses at least 99.5% less energy after the merger.
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 is more important than ever to take steps to ensure the long-term sustainability of the industry.
Together, the blockchain industry will achieve environmental sustainability.
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Learn more:
– Live Ethereum Integration: Latest News and Updates
– A Misconception and Bad Design of the Ethereum Merge Design
– Bitcoin Mining Efficiency Up 63% in Year, ‘Sustainable Electricity Mix’ Jumps 59% – Bitcoin Mining Council
– Bitcoin & Crypto Mining in 2022: New Locations, Technologies, and More Players
– Bitcoin Mining CO2 Footprint Less Than 0.08% Of The Total
– ‘Bitcoin Accepted’ by Government and Regulatory Future ‘Bright’ – MicroStrategy’s Saylor
