Blockchain is often associated with high energy usage, writes Matt Lucas from IBM's blockchain team. But, is the environmental impact of this much-hyped technology as bad as we’ve been led to believe?

With a resurgence in the price of Bitcoin and the hype surrounding Facebook’s Libra cryptocurrency, blockchain continues to be one of the hot topics for the computing industry.

However, blockchain is often accused of having an extraordinarily high energy requirement. Reports vary, but the Bitcoin blockchain is estimated to use 0.1-0.3% of global electricity, or more than the total electricity usage of a country like Switzerland.

Why is this amount of electricity being used? What is the blockchain community doing to lessen its environmental impact? And are there ways in which blockchain could help, rather than damage, the environment?

Bitcoin and proof of work

The blockchain technology that underpins systems like Bitcoin is simply the implementation of a ledger that is shared between multiple computers on a network. A ledger is a log of transactions, and blockchain uses cryptographic proofs to ensure that everyone on the network agrees on the content and order of these transactions – a process known as consensus.

This is important because of the nature of distributed networks: data can arrive at different times, out of order, lost or corrupted on different nodes on the network. For example, if I wanted to simultaneously send a Bitcoin each to Alice, Bob and Charlie, but only have a balance of 2 Bitcoins, different nodes may disagree on which two people get paid and which one doesn’t; the network needs to agree an order. Alternatively, if Alice wants to send a Bitcoin to Bob, the network needs to agree what Alice and Bob’s before and after balance is, otherwise she might be able to spend the same money twice.

The reason why Bitcoin requires so much energy is due to the innovative method it uses to prevent situations like these from occurring. It’s called ‘proof of work’ and is used to ensure the integrity of the ledger across the network.

To explain proof of work, consider a class full of students – each with a sudoku in front of them – and a teacher who states that if someone wants to ask a question, they must first solve the puzzle. The effect of doing this is to remove the incentive for asking bad questions, because we know that a student must be pretty serious about their question if they’re happy to go to the lengths of solving a puzzle to do so. Crucially, it’s easy for others to quickly verify a student’s answer without having to first solve the puzzle for themselves.

In simplistic terms, this is what proof of work is. To agree on which transactions are added to the ledger and in what order, computers around the world devote computing power to solving difficult cryptographic puzzles – ones that require brute force calculations. Computers that solve each puzzle first get rewarded in Bitcoin and their copy of transactions is accepted by the network.

In effect, Bitcoin is using the fact that burning computer processing capacity consumes electricity and costs money. This adds an artificial cost to transactions and helps remove the incentives for fraud. What’s more, people around the world are willing to devote computing power to solving these difficult problems because there is a chance they’ll get the Bitcoin rewards – a process known as mining.

Alternatives

While proof of work is reasonably effective at maintaining a consistent ledger, it’s true that the associated energy cost is significantly high. Still, the blockchain community recognises the inefficiencies of proof of work; several other approaches are emerging that perform transaction verification with similar levels of robustness, but without the environmental impact.

For example, the Ethereum blockchain is moving towards an alternative algorithm called ‘proof of stake’, which requires transaction validators to stake a balance of cryptocurrency in order to be considered trustworthy. To return to our classroom analogy, it’s like requiring our students to put £20 on a table at the front the class before they can ask a question, which is then forfeited if the question turns out to be bad.

Another blockchain implementation – the Linux Foundation’s Hyperledger Fabric – favours a process of selective endorsement. This is where each transaction has a set of pre-agreed rules that state which users need to sign it off (or endorse it), while a separate ordering service asserts transaction order. Businesses often favour this approach, as it closely mirrors how real-world transactions work: if Alice wants to buy Bob’s car, then it’s only Alice and Bob who need to endorse that transaction, not the whole network.

This can help ensure confidentiality and is much more energy efficient, because all Alice and Bob need to do is apply their digital signatures to the transaction. It is also good for regulated businesses that have a need to know who they are dealing with; it increases transparency but makes it less suited to use-cases that require anonymity.

Blockchains for good

While the environmental impact of blockchain is being lessened by technological innovations such as these, are there any ways we can harness the benefits of blockchain to lessen society’s impact on the environment? To answer this, it’s first important to realise that blockchain’s reach is far wider than cryptocurrencies. Ledgers can be used to track anything of value, and blockchain ledgers are already being used to track diamonds, pharmaceuticals, property rights, and lots more besides.

The benefits of using blockchain for this kind of tracking are often centred around improved transparency in the business network. Blockchain ensures that transaction data cannot be tampered with, even by administrators of the network. It gives the participants of the blockchain what we refer to as non-repudiation: primary evidence that multiple parties agreed to a transaction. This directly increases transparency and helps lower the costs of lengthy dispute resolution processes.

One area in which blockchain is already making a positive effect on the environment is through the automation of paper-based processes. In shipping, for example, the cost of transporting paperwork often outweighs the cost of transporting the goods to which it refers.

The environmental impact alone of having to send paper-based documentation around the world is a key concern, before we even consider the prevalence of fraud and manual process inefficiencies that paper-based systems exacerbate. Customs certificates, phytosanitary documents, tax documents, bills of lading and certificates of origin are all potential areas for digitisation on blockchain.

In these scenarios, the blockchain becomes a store of proof – a means of digitally storing the signatures associated with the documentation of a shipment as it moves through a supply chain. It gives companies and regulators the ability to easily see what information has been supplied and agreed to, while keeping transport costs down to a minimum.

World Bank data suggests that the cost of doing trade is US$1.8 trillion annually, with the potential for savings of around 10% from the introduction of more efficient processes such as these. The TradeLens blockchain is a live example of how shipping can be made more efficient, the scope of which now extends to more than half of the world’s ocean container cargo.

Blockchain is also being used to reduce food wastage. Between 40% and 50% of root crops, fruit and vegetables are wasted annually; food losses and waste amounts to roughly US$680 billion in industrialised countries. The IBM Food Trust blockchain provides insights into the end-to-end inventory flow of food to minimise the time food spends in storage, which is helping to increase shelf-life, reduce wastage and create a more sustainable food ecosystem.

Elsewhere, Plastic Bank is a start-up company that is aiming to reduce the amount of plastic that is polluting our oceans. It is using a blockchain to create a plastic recycling marketplace, incentivising people in the world’s poorest countries to convert collected plastic into digital tokens that can be exchanged for cash, healthcare, school tuition among other things.

Blockchain-based marketplaces have also been used to good effect in the energy sector. Blockchain has been used to match the fluctuating supply of energy from increasing sources of power such as solar panels, to the demand for energy from things like batteries in electric vehicles. This will ensure the distribution of energy to where it is required; thus minimising expensive energy storage requirements.

Blockchain could also be used to lessen the impact of extreme weather on people’s lives. Just 13% of Californian homes have earthquake insurance and as anyone who lives on a flood plain will surely attest, getting insurance in areas particularly affected by extreme weather is difficult and costly. It is possible to spread any inflated risk across multiple insurers using assets such as catastrophe bonds, but without technology like blockchain, resolving claims can take months because of the manual business-to-business interactions involved. Blockchain could be used to automate the resolution of such claims between insurers, and therefore enable affected people to rebuild their homes and lives without having to wait months for insurance money to arrive.

Summary

These are a small collection of example blockchains that have been designed for the benefit of society and the environment, while simultaneously delivering business benefits to the participants.

So, while early blockchain applications have had a bad reputation for high energy utilisation, we’re now seeing the dawn of a new generation of applications that will instead use the technology as a shared, irrefutable source of truth that provides greater transparency, more efficient processes and, crucially: lessen our impact on the environment.

It’s undoubtedly early days for blockchain adoption; we really are just scratching the surface when it comes to blockchain applications, but the future for this intriguing technology is bright.