DLT and its complex relationship with ESG
Image problem or reality problem?
We know blockchain has an image problem when it comes to energy consumption and carbon emissions. In some areas this problem is well earned. Afterall, all the offsetting in the world will never cancel out the fact that proof-of-work is energy intensive by design.
The industry is seemingly aware of this – the highly praised, successful Ethereum ‘merge’, and the adoption of the proof-of-stake consensus mechanism went off without a hitch and cut the network’s emissions by orders of magnitude overnight.
However, a fundamental problem for distributed ledger technology (DLT) remains – it’s usually always more energy efficient to exchange information using the cloud or a mainframe than it is a blockchain. This is why as the biggest blockchain players point to all energy savings they are making, the comparisons they make are only to other energy intensive blockchains.
To truly be an advocate for green and sustainable initiatives, energy-consumption comparisons need to be far more holistic. Afterall, while it may be a good thing that your blockchain mechanism is 10 times more efficient than Bitcoin, the lustre starts to tarnish when you find out it is still many times more energy intensive than a spreadsheet sent via email.
This is not to take away from the significant progress already made by the DLT-based industry on many fronts, where many of these projects continue to transform business operations in a continued perseverance towards true modernization. However, selective quoting and the incomparable mixing of units of measurement seen in marketing materials from a few players in the industry borders dangerously close to greenwashing.
Distributed Ledger ≠ blockchain
Before diving deeper, it must be acknowledged that not all distributed ledgers are blockchains; Corda is a perfect example of this. As a private permissioned ledger, consensus is built around smart contracts rather than energy intensive algorithms, eliminating the need for complex cryptographic overhead. And while this approach is not suitable in all cases, it is perfectly positioned to reduce emissions in the financial services settings it was designed for. Case in point – look at the emissions per transaction of the major blockchain and ledgers against typical mainframe and cloud deployments:
|Blockchain||Transaction Finalisation||Energy consumed per transaction (Joules/Tx)|
|Bitcoin||Proof of work||125,000,000|
|Ethereum||Proof of work||125,000,000|
|Polkadot||Proof of stake||1663|
|Corda||Corda Notary Service||24.6|
No place to hide
As the table shows, distributed ledger can play a part in reducing emissions at source. On top of this, the technology is ideally suited to verify the environmental, sustainable and governance (ESG) properties of financial services products too.
Greenwashing is corrosive to our efforts to protect the environment; it undermines confidence and creates fatalism around the problem being ‘too big’ for individuals to address. However, if you can reliably identify and verify the personal impact of your actions on the world around you, the gamification of environmental responsibility is once again an option. This is what DLT can add to corporate ESG efforts, as well as enable future development of green-focussed solutions transforming the economy.
True innovation can take many forms – whether through you are building the world’s first regulated carbon market in Abu Dhabi, the creation of ‘Nature Credits’ by Rebalance Earth to provide a more holistic approach to environmental impact, or simply making carbon accounting a native feature of a Corda Network (à la GuildOne). In each case, DLT is creating the understanding and the certainty needed to build the foundations for true environmental transformation – where every individual understands their impact through accurate and trusted data.
These applications extend further still, with DLT having the potential to unlock circularity in our supply and waste chains. This can finally put an end to the practice of burying gold and rare earth metals from our waste electronics. The applications are as broad as our imagination – with the common denominator being the clarity and trust products, like Corda, can bring to an infinitely complex system.
The road ahead
As with any green and sustainability initiative, this is still only the beginning. Pioneers in the enterprise blockchain space must continue to embrace transparency and collaboration, where DLT can be harnessed for not just green tech initiatives, such as offsetting carbon emissions, but also applied to verify the impact of ESG initiatives across businesses.
Debates surrounding the effectiveness of the underlying technology itself vs energy emissions of these DLT-based solutions are likely to continue. However, if we acknowledge and embrace more accurate reporting and comparative measurements, alongside a rejection of ‘greenwashing’ as the easy way out, we’re moving in the right direction.