Is Blockchain Sustainable?

Posted by finterraorg on March 23rd, 2020

A range of blockchain use cases were introduced from the moment blockchain gained popularity, proving that the technology had the power to disrupt industries worldwide. We have heard about how blockchain can be used to improve efficiency and transparency for charitable initiatives and non-profit organisations. The question now is, despite being able to introduce applications which offer opportunities to help us create a more sustainable world, is the blockchain technology itself sustainable?

Environmental Sustainability Issues

The largest platforms, such as Bitcoin and Ethereum, require vast amounts of energy consumption to function. In the year 2016, it was estimated that blockchain used up more power than 159 individual nations including Uruguay, Nigeria, and Ireland. As expected, this caused a major environmental problem because it posed a real threat to the Paris Climate Agreement, which talks about several applications where blockchain can be utilised to mitigating greenhouse gas emissions, whereas a highly polluting use of the technology would go against the purposes of the agreement, not to mention the commitments made.

When Bitcoin was first introduced nearly a decade ago, no bank regulated it. So, miners used their computers to verify transactions by solving cryptographic problems, similar to complex mathematical problems. Then, they combined the verified transactions into “blocks” and added them to the blockchain technology to document them, in return for a small sum of Bitcoin (which today sells for over ,000 USD per BTC). There is a strong incentive to create “mines”, which are server farms scattered across the globe. Now, the energy consumed by 25,000 machines calculating mathematical problems 24 hours a day is heavy.

The Good News

There is hope in solving this environmental issue because a variety of alternatives exist today to help businesses cut energy costs. One main alternative we will focus on is Proof-of-Stake (PoS) algorithm. While Bitcoin and Ethereum depend on energy inefficient cryptographic problem-solving consensus system known as Proof-of-Work (PoW) to operate, many newer blockchains like Finterra’s blockchain use PoS systems that rely on market incentives. Server owners on PoS systems are called “validators” rather than miners. They “stake” a large amount of digital assets in exchange for the right to add blocks to the blockchain. In PoW systems, miners compete with one another to see who can problem-solve the quickest in exchange for a reward, a process that consumes a large amount of energy. However, in PoS systems, validators are selected by an algorithm that takes their “stake” into account. This system eliminates competition, thus saving energy and permitting each machine in a PoS system to work on one problem at a time, as opposed to a PoW system, in which a lot of machines are rushing to solve the same problem. Also, if a validator fails to behave honestly, they may be removed from the network, which helps keep PoS systems accurate.

Conclusion

Among the largest blockchain platforms, Ethereum is already working on a transition to PoS, and more action has to be taken to speed up the process. Due to the fact that PoW blockchains have a negative environmental impact, blockchain-based firms need to think about adopting PoS blockchains in order to help cultivate a healthier planet.