Real conversations about blockchain sustainability require better data

Sustainability.  It has become a loaded topic generally and even more so in the blockchain industry. Unfortunately, the mainstream conversation has led to a lot of misconceptions about blockchain’s environmental impact. Regardless of how familiar one is with the applications of blockchain technology or use cases for cryptocurrency, mentions of blockchain and proof-of-work consensus mechanisms are now synonymous with high energy use—without a parallel focus on the actual value being generated behind the energy use. 

That’s a shame because there is so much more to understand about blockchain sustainability. Blockchain technology is a valuable utility that is powering improvements and much-needed innovation in our financial system today. Its adoption is growing because it improves upon pervasive pain points related to cost, speed, access, and friction. So as blockchain usage grows, we must work toward a more critical examination of its sustainability in tandem with the sustainability of legacy financial systems, and a balanced consideration of the benefits this technology delivers.

But in order to move forward with meaningful conversations on this topic, we need a shared understanding of what we’re trying to achieve with this technology and where we find ourselves right now.

If we can agree that…

• most of us are here because we’re motivated to contribute our expertise to build a more open, efficient, inclusive, and interoperable financial system by leveraging blockchain technology;
• figuring out how to use less energy on the path to building a better financial system is a good thing; and
• there is always room for improvement when it comes to how much energy we consume.

Then from here, how do we equip ourselves to advance the state of sustainability in blockchain, crypto, and financial services more broadly—toward the direction we need?

I’d argue that there are three crucial prongs to address: 1) more comparable, quality data on energy consumption; 2) rigorous study about energy consumption and sustainability across both the blockchain and traditional financial services industries; and 3) a broader understanding and acknowledgement of the value that blockchain technology delivers to society. These are significant challenges to tackle, but the good news is that progress on the first prong is already underway. I want to invite you to join us in leveraging the work we’ve done on the first prong, and help us build more widespread collaboration to advance prongs two and three. 

My team set out to understand the energy consumption of blockchain and see how it measures up against traditional finance, but when we explored, we found that this type of data and the research are generally lacking and not easy to come by. When it comes to blockchain, in particular, data that is publicly available lacks consistency or a broadly applicable research methodology that could be applied to a range of blockchain protocols; for the research that is out there, this makes it challenging to compare results.

That needed to be fixed – and that ushered in research from a third party to measure and understand the energy usage of different kinds of consensus mechanisms (this work was focused on consensus mechanisms as this is the underlying algorithm that powers a blockchain). 

The output was a blockchain sustainability report and an assessment framework, including a methodology that quantifies the environmental impacts of a blockchain protocol. This framework can serve as a guide for other blockchain networks to assess sustainability through the lens of three key impact areas: energy use, greenhouse gas emissions from energy use, and e-waste/embodied carbon. It serves as a resource to assess the comparative impact of blockchain protocols — namely, the electricity used in running the blockchain software responsible for handling transactions, and electricity consumed by data transmission and storage.     

This research when applied to blockchain networks can help understand electricity consumption, give protocols the ability to evaluate what further opportunities there are to mitigate their carbon footprint and develop better tools to help the blockchain and financial services industries as a whole.

This brings me to address the second prong: the rigorous study of energy consumption and sustainability across both the blockchain and traditional financial services industries. Notably, we came away with a framework that can inform future research efforts, and that others can leverage for their own assessments. If more players from traditional financial services and blockchain are willing to study their energy consumption and share their own data, we’ll grow a deeper understanding of where we stand, what other tools we need, and what needs to be improved so that next generation financial infrastructure is more efficient and transparent than what came before it. 

And finally prong three: building a broader understanding and acknowledgement of the value that blockchain technology delivers to society. We believe that as more players in the space share data on energy consumption, we’ll be able to show that blockchain adoption and growth do not have to necessitate the environmental impact that some fear it will have, especially considering the benefits it provides to the global financial system—with better environmental outcomes to boot. Bringing a full picture of the diverse blockchain-powered solutions that touch our daily lives to the forefront will grow awareness of the outsized social good that this energy consumption begets. On this front, it is incredibly exciting to envision the impact our collective voice as an industry can have.

If blockchain is to help power a more inclusive, equitable future of finance, it is critical that the underlying technology is also sustainable. The research SDF has done is simply a starting point, but we hope it serves as a tool and foundation for future research, more transparent data sharing, and more mainstream, solution-oriented conversations related to blockchain technology and sustainability.