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October 17, 2024 •Avvale
The relationship between blockchain and sustainability has evolved a lot in recent years. It is a fascinating topic, as it shows how a technology, that has raised quite a few concerns on the environmental impact front, is becoming one of the greatest allies of sustainability, both environmentally and socially. This is not only at the level of the individual organization but also at the level of the supply chain and the entire economic system. Let's see why.
Blockchain technology has become topical about cryptocurrencies, particularly for Bitcoin, except that it has since involved a variety of other areas and use cases. The issue of Bitcoin mining, linked to a very energy-intensive transaction validation (consensus) mechanism such as proof-of-work (PoW), raised quite a few concerns about the enormous energy consumption put in place by all parties taking (and taking) part in the system. Some articles in 2019 compared the consumption attributable to Bitcoin to that of a country like Switzerland.
In response to these concerns, the underlying technical evolution has moved toward more sustainable goals. Many blockchains have adopted new consensus mechanisms, such as proof-of-stake (PoS), which validates transactions no longer based on computational work, but on the amount of cryptocurrency held, thus reducing energy impact.
Even more sustainability-oriented mechanisms, such as proof-of-authority (PoA), hybrid consensus systems, and concrete initiatives, such as the Crypto Climate Accord, aimed at making the impact of technology sustainable and developing increasingly green solutions (we talk about #ProofOfGreen) have also been introduced.
There is also the increasing implementation of renewable energy, a factor that brings blockchain and sustainability closer together because it drastically reduces the environmental impact of the technology. The migration of data centers to areas with an abundance of renewable energy further contributes to the decarbonization of blockchain technology.
The result is attractive from a green perspective. Today blockchain stands as a positive force for sustainable innovation because it has not only greatly expanded its areas of use by going far beyond cryptocurrencies and the financial world, but has itself become a driver of sustainability.
As is well known, the circular economy is embodied in a sustainable economic model that aims to minimize waste and promote efficient resource management by reducing, reusing and recycling materials, as opposed to the traditional linear approach.
But what is blockchain's role in all this, i.e., how can it foster the transition to a circular economic model?
The characteristics for which blockchain is known to most are its transparency, the reliability of information (which is by its very nature immutable), and the speed of its circulation within complex networks, such as typical industrial supply chains. In a circular perspective, where material and information flows are more complex than linear ones, identifying and tracking materials and components punctually throughout the supply chain makes their reuse much more manageable, as well as putting in place complex remanufacturing procedures.
Similar discussion regarding waste management. Blockchain facilitates the traceability of flows and their classification, improving the efficiency of collection, recycling, and disposal systems, with concomitant reductions in costs and environmental impact.
Blockchain and sustainability are thus synergistic concepts. Their relationship can be even closer in case Smart Contracts are used, i.e., digital contracts (notarized on the blockchain) that automate the fulfillment of specific agreements between parties, such as the release of incentives in the case of proper disposal of products or reuse of them. The same mechanism can be used to automate the verification of requirements for acquiring or maintaining sustainability certifications. This not only simplifies compliance processes but also helps prevent the rampant phenomenon of greenwashing.
As mentioned, the fundamental benefit of blockchain is transparency, which can be employed in many different ways to shape a more equitable and sustainable economic system not only environmentally, but also socially.
To this end, think of the traceability of food or products such as clothing: the adoption of blockchain not only allows companies to accurately assess the policies adopted by their suppliers (e.g., verify compliance with labor regulations) but also offers the same opportunity to end consumers, who can verify at any time that products are made sustainably and by ethical practices.
Adding to the picture is a higher level of security (we refer, in this case, to the provenance and expiration of food), the positive impact of blockchain on the phenomenon of counterfeiting, which is infamous, especially in the fashion sphere, and also its ability to support the creation of extremely secure and reliable digital identity systems.