World Earth Day, the day we usually become aware of the existence of nature, unless you are an environmentalist or a nature advocate. This statement could sometimes be wrong for those who are genuinely committed to caring for nature, and in fact, right for people who think about our planet once in a blue moon. Either way, this piece of writing is a sneak peek into how blockchain technology impacts our environment.     

How does blockchain work?

Before exploring the environmental consequences of blockchain, let’s first take a look at how the technology works.

Blockchain technology consists of several blocks of data connected to a chain, where each block carries essential information about crypto or NFT transactions. The blocks are connected chain by chain using cryptography. This technology deploys a decentralized, distributed ledger (record) that is equally accessible to all participants, devoid of middlemen or centralized agencies. 

Every mechanical action, including computational work, requires some energy to work, and blockchain is no exception. 

So, how do cryptocurrencies and NFTs impact our environment?

Now you have a glimpse of how blockchain works, it’s time to dig into the reasons for the impact of blockchain on the environment.  

Cryptocurrencies and NFTs are the major use cases of blockchain, alongside applications in healthcare, medicine, banking, finance, identity verification, and voting systems. 

When a cryptocurrency is minted, new coins are created based on rules and codes. This enables the blockchain to authenticate data and create new blocks for storing the data with different consensus mechanisms such as proof of work (POW), proof of stake (POS), proof of activity (POA), proof of importance (POI), and more.  

Remember, proof of work uses a high amount of energy when compared to other mechanisms. This is the core reason why Ethereum switched from PoW to PoS in September 2022.    

Bitcoin’s Proof of Work mechanism: how does it potentially affect the environment?

Bitcoin is a PoW-based crypto and uses more electricity to solve complex math puzzles. Although Bitcoin is highly secure, the amount of energy it takes to validate a node is high. Bitcoin takes approximately 6,400,000 kilowatt-hours (kWh) of electricity to mint one coin, which is 91 terawatt-hours (TWh) of electricity annually! 

How is energy consumed in the proof-of-work mechanism?

So, the question you may ponder could be: how PoW mechanism become power-hungry? When validators create/mint new coins, their nodes (computers) generate hashes to create and validate a block of transactions. Several other validators also take part in this race from different places. The validator who generated the hash rate first is the winner and earns a block reward. That said, other validators who participated in the process spent a lot of energy. Factors such as network resources, computational power, and energy consumption add to the reason for the win.

However, the repercussions of these factors on the environment are significant! As long as computers continue to operate to validate blocks, a high amount of energy is consumed, resulting in climate change and affecting our biosphere.      

Although PoW ensures high security, PoS saves energy.  Major coins that deploy the PoW mechanism are Litecoin, Bitcoin Cash, Dogecoin, Monero, Dash, Kaspa, etc. 

Meanwhile, Ethereum, Solana, Cardano, Tezos, Polkadot, Avalanche, Cosmos, and others. 

How is PoS more energy-efficient?

PoS is about earning rewards through staking. It does not require a lot of energy to validate blocks. PoS requires locking up a certain amount of crypto to bolster the network. Here, validators are selected based on the number of coins they stake, eliminating the need for high computational work. As transactions are faster in PoS, the energy spent is less.   

But wait, blockchain is for sustainability too…

Although blockchain is not entirely eco-friendly, it is superior in terms of promoting sustainable growth. According to a report prepared by accounting firm PwC, the carbon footprint (total amount of greenhouse gases emitted) of Bitcoin in 2019 was comparable to that of Switzerland. Following this, crypto holders and governments took stringent actions to align blockchain activities with sustainability goals. 

Diving in, blockchain promotes, 

Carbon credit trading: a system that allows companies to buy and sell permission to expel harmful greenhouse gases like carbon dioxide, methane, nitrous oxide, and more. Blockchain ensures transparency and efficiency over trading carbon credits.

Sustainable energy source: utilizing renewable energy produced through wind and solar, hydropower, or geothermal energy to mine cryptocurrencies. 

Transparent supply chain: enhances transparent production and distribution of commodities by promoting fair trade and ethical production.

Reduction in plastic consumption: transparent tracking and tracing of plastic products can reduce the use of plastics in some ways. With a proven track record, blockchain helps track companies using plastic and encourages them to recycle.  

Water conservation: Just as blockchain encourages plastic reduction, it also drives water sustainability by recording immutable and transparent data on water usage.    

So, yes, what blockchain technology emits into the environment can be harmful, but its sustainable applications speak volumes about the importance of protecting our planet. Every unfolding technology has its cons and pros. Governments in blockchain-friendly countries are taking measures to enhance sustainability in different sectors. The more we fix our gaze on environmental sustainability, the more we protect ourselves! It’s not always a piece of cake, but even the smallest efforts can lead to a huge impact.