Blockchain for Net Zero: How crypto can accelerate climate action

Summary

⛓️ Blockchain technology is revolutionary as it records data in highly visible blocks that are difficult to corrupt. This reduces data related risk and cuts costs for all involved.

🏭 Energy use by Bitcoin is not synonymous with all blockchain projects. Many now use ‘proof of stake’ approaches to forging new blocks as opposed to energy intensive mining.

💡 The UNFCCC recognise that blockchain technology can help accelerate action in 4 key areas: Improving carbon emission trading; Enabling peer-to-peer renewable energy trading; Enhancing climate finance flows; Better tracking and reporting of emissions reductions and climate data.

🌍 Blockchain technologies also present opportunities to support the Sustainable Development Goals and accelerate a just, low carbon transition.

This is part one of the ‘Blockchain for Net Zero’ series. Follow for more articles on blockchain for renewable energy, electric vehicles, carbon markets and more.

🖋 Why am I writing this?

COP26 represented the last UN Climate Conference with the potential to keep global temperature increase below 1.5 degrees and avoid the worst impacts of the climate emergency. To achieve this, by 2030 emissions need to have reduced 45% below 2010 levels in order to remain on track for net zero emissions by 2050.

Indicators show that while progress is being made, decarbonisation rates need to double for the 2030 target to be met. We therefore have 9 years in which to drive rapid low carbon transformation, accelerating the emergence and adoption of low carbon technologies to drive whole systems reconfiguration.

Blockchain technologies represent a structural innovation that could play a central role in addressing the complex challenges of the climate crisis.

Indeed, the UN Environment Programme, World Bank and World Economic Forum (amongst many other global institutions) are already reimaging how this innovation can help tackle the climate crisis.

I therefore wanted to write about all of the amazing, exciting blockchain projects I’ve been learning about. This first article in the ‘Blockchain for Net Zero’ series seeks to provide an introduction to the climate/ blockchain space covering:

• What is a blockchain?
• Why this is bigger than Bitcoins’ energy use
• How blockchain can accelerate climate action
• Opportunities to address the Sustainable Development Goals

Over the coming weeks I’ll dive into more detail on key areas relating to energy, electric vehicles, carbon markets, circular economy and more.

But for now, let’s start at the beginning…

⛓️ What is a blockchain?

In a nutshell, a blockchain is a growing record of data documented in blocks.

The idea emerged back in 1991 as a way to timestamp digital documents. It wasn’t until 2008 when Satoshi Nakamoto’s anonymous white paper applied it to developing a decentralised electronic cash system- Bitcoin- that the first blockchain application emerged.

The data stored in each block of a blockchain depends on the project. For example, the Bitcoin blockchain records data relating to transactions occurring between users.

Virtually anything of value can be tracked and traded on a blockchain network, with the Ethereum blockchain for example recording data agreed in smart contracts.

Blockchains are different from current record keeping systems because:

• Each block is linked to those before and after using information stored in a hash- a unique code generated cryptographically that is very difficult to reverse. This is where the term ‘crypto’ comes from to describe currencies and other projects based on the blockchain.
• The full blockchain of data is publicly available for anyone to view. Its contents are duplicated and distributed to the entire network of computer systems using the blockchain. This creates a decentralised database managed by multiple participants, which you may have heard referred to as ‘distributed ledger technology’ (DLT).

These features are revolutionary as they make it extremely difficult to change, hack, or repress the data that has been recorded. This reduces risk and cuts costs for all involved.

You can find a more detailed overview of blockchain technology here.

🏭 Why this is bigger than Bitcoins’ energy use

Most people I speak to in the climate space have heard about blockchain due to the high energy use associated with Bitcoin mining. This continues to steal headlines and railroad more in-depth conversations about potential of blockchain to unlock new climate solutions.

There’s no denying that bitcoin mining is energy intensive, accounting for 1% of global energy use, equivalent to that consumed by Argentina.

Bitcoin uses so much energy as it uses a process called ‘proof of work’ to add blocks to its blockchain. This involves computers working in competition to solve a mathematical puzzle, known as mining. As more blocks are added, the puzzles become harder and so require more and more power to solve.

It’s this activity that enables Bitcoin, which isn’t backed by any central bank, government or military, to be considered a trustworthy asset. Essentially, it’s too expensive to hack or defraud the blockchain network on which it’s based.

While many projects are emerging that enable mining to be powered by 100% renewables, such as Soluna in Morocco and Genesis Mining in Iceland, Bitcoin will undoubtedly face ongoing sustainability issues. The Crypto Climate Accord is seeking to minimise these impacts wherever possible.

Beyond Bitcoin however, there are MANY emerging blockchain networks and projects that use less energy as instead of using ‘proof of work’ they use ‘proof of stake’.

‘Proof of stake’ blockchains randomly select one computer to validate the next block instead of requiring them to compete. Therefore no energy intense mining is needed when using ‘proof of stake’.

A recent study of ‘proof of stake’ blockchains demonstrated that they use 0.001% of the energy that Bitcoin does, meaning that blockchain and climate can work hand in hand.

Moving beyond a focus on mining, it is therefore important to understand how blockchain projects can unlock the potential to decarbonise, decentralise and democratise our systems ✨

💡 How blockchain can accelerate climate action

There are several key areas of the climate crisis to which blockchain projects can contribute. These relate to blockchain features introduced above regarding the ability to create accurate, trustworthy, decentralised and incorruptible data flows in the climate space.

The UNFCC recognise recognise 4 key opportunities for application:

1. Improving carbon emission trading

The potential for blockchain and crypto projects to stimulate and facilitate global carbon markets as become a hot topic, recently covered in Forbes, the Times and WSJ. This is key to implementing Article 6 of the Paris Agreement, which seeks to develop cooperative approaches to bilateral and multilateral carbon trading and the development of voluntary markets.

Blockchain applications can: improve data accuracy and transparency, addressing the issue of double counting of credits; help grow nascent carbon removal markets by verifying smaller projects; and drive up the price of carbon credits by enabling them to be purchased and held as a kind of currency.

Since October 2021, KlimaDAO and Toucan Protocol have worked together to bring over 13 million tonnes of carbon onto the blockchain, almost 5% of the world’s global voluntary carbon market. More on this project will be covered in later blog posts.

2. Enabling peer-to-peer renewable energy trading

Blockchain technologies can facilitate markets and platforms for the trade of small scale, locally generated renewable energy- for example rooftop PV. Users can buy, sell or exchange assets with one another using tokens or digital assets stored on the blockchain, reducing curtailment and enabling the development of regional energy economies.

3. Enhancing climate finance flows

Financing certain climate related projects remains a challenge for traditional banks, such as those that are small-scale or in politically risky or remote regions. Blockchain technology can create access to decentralised finance (DeFi) applications, enabling money to be transferred in a way that enables small transactions in a trustworthy, secure and accessible way. This also has huge implications for sustainable development, discussed further below.

4. Better tracking and reporting of emissions reductions and climate data

Blockchain technology can also be applied to recording a country’s progress towards implementing their Nationally Determined Contributions under the Paris Agreement. This enables climate policy makers to record and access transparent data and reporting of climate action.

It can also improve access to accurate climate data by all organisations in relation to better understanding climatic patterns to prioritise, protect and insure certain projects. This can assist in accelerating sustainable forest and land regeneration, a major new initiative agreed by leaders at COP26.

🌍 Opportunities to address the Sustainable Development Goals (SDGs)

While Climate Action is represented as SDG 13, there are an additional 16 United Nations SDGs that can benefit from blockchain technologies in a bid to accelerate a just, low carbon transition.

Some examples of blockchain applications are identified below, however there are many more in this fast innovating space:

SDG 1: No poverty

Blockchain based cryptocurrencies have the potential to provide financial access to the world’s 2 billion strong unbanked population, an example being BitPesa. It can also vastly improve the cost and efficiency of the global remittances market by enabling decentralised money transfers, an opportunity being developed by Celo.

SDG 3: Good health and wellbeing

Blockchain projects can enable the sharing of patient healthcare records and data more securely and efficiently, with GEM for example leveraging this to improve disaster response.

SDG 12: Responsible consumption and production

Blockchain can bring transparency to complex global supply chains, an example being the Mining and Metals Blockchain Initiative, which unites cross sector organisations to track carbon emissions and supply chain transparency.

SDG16: Justice and strong institutions

Public institutions can benefit from blockchain technology in relation to improving the transparency of public procurement, with Columbia for example adopting a proof-of-concept blockchain model to reduce corruption

Thank you for reading, please share if you found this useful 🙏🙌
This is part one of the ‘Blockchain for Net Zero’ series. I will delve into the topics of energy, electric vehicles, carbon markets and circular economy over the coming weeks.