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A Primer on the Environmental Impact of Blockchain Technology and What We Can Do to Help

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I’ve shared a lot about cryptocurrency, the blockchain, and how social good organizations can start harnessing the power of web3. As a marketer and technology enthusiast, I’m genuinely excited for many of the promises that web3 brings—specifically authenticity, immutability, and decentralization.

However, technology and progress come at a price. It’s important to be aware of the negative aspects of blockchain technology. This and my next opinion piece will cover two of these negative aspects.

Blockchain Technology has a Huge Carbon Footprint

The blockchain has a legitimate negative environmental impact. According to Digiconomist, as of March 2022, it is estimated that the annual carbon footprint of Bitcoin (BTC) is equal to that of the Czech Republic. For Ethereum (ETH 1), the carbon footprint is equal to that of Serbia & Montenegro. And that doesn’t include the thousands of other smaller cryptocurrencies with millions of annual transactions.

In 2017, the European Environment Agency published a study that found a single Bitcoin transaction was 20,000 times more energy intensive than a single VISA transaction. In other words, the blockchain has a high carbon footprint, uses a lot of energy, and is not sustainable in its current format.

Proof-of-Work vs. Proof-of-Stake: What’s the difference and why does it matter?

Proof-of-work is the method used to validate Bitcoin transactions.  This validation process is termed mining and it requires that thousands of computers agree on and verify transactions.  These are complex algorithms that require a ton of computing power (in other words, energy) to solve – on the order of billions of calculations per second.  Miners compete to be first to correctly validate transactions; this then nets them a small amount of Bitcoin, termed a “gas fee.”

However, there is a method that is gaining steam to validate cryptocurrency transactions, called proof-of-stake. In the proof-of-stake model, miners need to buy-in to participate in transaction validation, so that they have stake in keeping the blockchain accurate. Think of it like bidding to play the game.  The more you bid, the more likely you are to be chosen to validate.

However, proof-of-stake is newer to the scene, may not be as robust from a security perspective, and has the potential for recentralization. Ethereum 2 (ETH 2) is one the highest profile cryptocurrencies using proof-of-stake. And Ethereum has advised it will swap over to a full proof-of-stake model sometime in 2022. Proof-of-stake may or may not end up as a replacement for proof-of-work—and Ethereum will be a great large-scale test of its scalability and security.

In addition to the proof-of-stake model, there are pro-blockchain organizations working to curb the environmental impact of the blockchain. 

How does this impact marketing?

Continuing to run the blockchain on proof-of-work models is not sustainable. In April 2017, Bitcoin energy consumption was 11 TWh per year. By March 2022, consumption has grown to 205 TWh per year (a 1764% increase), with no signs of slowing down. As this consumption climbs, there has been more publicity around it. While it’s still a very niche audience (13% of US adults; 10% of Canadian adults own or use cryptocurrencies)*, more light is being shed on this problem daily. In summary: Bitcoin is considered a dirty currency.

Consumers that own or use cryptocurrency are younger than a typical donor—with the average age in the US being 39 (37 in Canada)*. Tapping into this market is lucrative and helps diversify an aging donor base. These consumers are also more likely to be charitable donors, and more likely to care about the environment than the population at large. To capture this audience, social good organizations need to be aware of, and transparent about how they are working to reduce this impact. Otherwise, these young, tech-savvy supporters will donate to organizations who are.

So, what you can you to help?

  1. You can join Crypto Climate Accord and help make blockchain technology powered by green renewal energy by the year 2030.  This organization connects and lobbies on behalf of other organizations who have made a commitment to green energy
  2. If you’re a miner, you can join the Bitcoin Mining Council, which is committed to promoting the awareness of enormous energy consumption of mining
  3. You can partner with a company like Zumo, who is currently in a “Zero Hero” campaign that offsets the cryptocurrency purchased on its platform with renewal energy certificates
  4. You can support cryptocurrencies using proof-of-stake (and other less energy-intensive methods) of validation

It is heartening to see the web3 community acknowledge, lean-in, and look for a solution to the environmental impact of the blockchain.

Despite this and other issues, web3 is here to stay. The onus is on us as citizens of the world and good stewards of the environment to work towards and demand solutions that minimize the negative environmental impact.

 

*Source: One & All’s Purpose Insights, 2022.