Environmental Impacts of Blockchain Technology

Environmental Impacts of Blockchain Technology

Several experts and industry observers have expressed concerns over the negative environmental impacts of blockchain technology, including the expanding popularity of cryptocurrencies and emerging applications of non-fungible tokens or NFTs. These impacts collectively exemplify a major drawback of blockchain applications.

Overview and Applications of Blockchain and Blockchain Technology

A blockchain is a type of database that stores data in blocks that are then chained together. More specifically, it is a digital distributed ledger of transactions. Each block contains data about a particular transaction and links with another black from a previous transaction.

Blockchain technology represents the underlying technology used in creating and managing these chains of blocks. Specifically, multiple participants via a network of peer-to-peer computer systems maintain the ledger of transactions by performing complex mathematical problems to authenticate each transaction and create a particular block.

The involvement of these multiple participants fundamentally makes a blockchain a distributed ledger. The decentralization of transaction records is at the core of numerous blockchain applications to include cryptocurrencies and tokenization of digital contents.

Understanding the Environmental Impacts of Blockchain Technology

Opinions from Industry Observers

In an interview with New York Times reporter and CNBC co-anchor Andrew Ross in February 2021, Microsoft founder and philanthropist Bill Gates criticized the environmental impact of Bitcoin, thereby warning people against investing in cryptocurrencies.

He explained that “Bitcoin uses more electricity per transaction than any other method known to mankind.” However, he also mentioned that the environmental impacts of cryptocurrencies can be offset if the underlying blockchain technology uses clean energy, as well as if it does not crowd out other consumers of energy.

United States Treasury Secretary Janet Yellen, one of the top advisers of U.S. President Joe Biden, in a February 2021 statement, also described the cryptocurrency as “an extremely inefficient way to conduct transactions” because the “the amount of energy consumed in processing those transactions is staggering.”

A 2021 brief published by the European Environmental Agency of the European Union noted that the most well-known implication of the technology relates to its energy consumption and by extension, to its possible negative impact on climate.

Studies About Its Environmental Impact

The environmental impacts of blockchain technology stem from its high energy requirement. Creating a new block in chains requires an ample amount of energy. Several studies have explained that the proof-of-work or PoW algorithm used in several blockchains such as Bitcoin is considerably energy-intensive.

Specially, PoW requires a vast amount of computing or processing resources. This alone consumes a significant amount of energy. Moreover, computer systems involved in processing blockchain transactions also require effective cooling systems to avoid overheating and hardware damages, thus requiring additional energy input.

An online tool from the University of Cambridge shows that cryptocurrency mining in the Bitcoin network has an estimated energy consumption that is equivalent to the annual energy consumption of Switzerland or a total of 58 terawatt-hours of electricity per year. This accounts for 0.21 percent of the total energy consumption in the world.

Researchers from the same university did a follow-up analysis. As reported in a 2021 BBC article, these analysts concluded that Bitcoin uses more electricity in a year than the whole of Argentina and The Netherlands. The energy consumption has increased further to 121.36 terawatt-hours per year due to the expanding application of the cryptocurrency.

Energy consumption has environmental consequences, especially because most of this energy comes from hydrocarbons. The separate studies of S. Köhler and Pizzol, M., and C. Stoll, L. Klaaßen, and U. Gallersdörfer showed that the carbon footprint of Bitcoin operations in 208 was estimated to produce 17.0 to 22.9 metric tons of carbon dioxide.

Resolving the Environmental Impacts of Blockchain Technology

The white paper “Blockchain Technology and Environmental Sustainability” that appeared on the October 2020 issue of Foresight Briefs of the United Nations Environment Programme mentioned that blockchain technology has the potential to help solve some of the environmental problems that the world faces today, including the ongoing climate emergency.

However, the same white paper also reiterated that the energy requirement of the technology should be resolved. One workaround is to define and utilize new consensus mechanisms among the different operators and implementors of the technology.

A more specific solution is to replace the proof-of-work or PoW algorithm with the proof-of-stake or PoS or proof-of-authority or PoA algorithm. PoS or PoA is less energy-intensive than PoW. The development team behind Ethereum has been working on utilizing this protocol.

The UN brief also mentioned that energy consumption can be curtailed when blockchains are commercially applied and scaled up. A 2020 study by Franke et al. also suggested that private and permissionless systems, such as the Hyperledger Fabric, also offer no energy consumption conflicts through its reduced number of full nodes.

In their brief, the European Environmental Agency reminded that there is a need to sufficiently analyze the sustainability and specific environmental impacts of blockchain technology. This involves examining the current and future energy consumption requirements of blockchain applications, and analysis of more rigorous methodologies and alternative scenarios.


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