Recent discussions have focused on the environmental sustainability of blockchain technology and digital currencies, with critics quick to highlight their potentially harmful impacts. Often, these arguments are out of context or without reference to the negative externalities other financial services in the global economy have on the environment. At the same time, some of the most innovative solutions to environmental issues are rooted in blockchain technology; however, they are consistently overlooked or misunderstood. Now, blockchain-based solutions are beginning to be implemented that have the potential to re-invent how clean energy is organized and produced.

New Business Models

As technology improves and devices are made “smarter” in terms of their ability to monitor and transmit data, more precise measurements of the production of clean energy and emissions of carbon-based gases can be obtained. A blockchain-based ecosystem can connect the data being recorded to a digital token, and quantify the energy created in a digitally transmittable form. This would involve connecting a blockchain to a windmill or solar farm, and integrating the data flows collected into the distributed network.

This tokenization of energy allows for an unprecedented level of transparency into who is producing or emitting the cleanest possible energy and carbon emissions, resulting in new business and incentive models between enterprises and governments. For example, governments could grant tax exemptions or credits in exchange for digital tokens linked to clean energy productions, incentivizing companies to use clean energy. Using distributed ledger technology, the data becomes quantifiable and proof of production is made a reality.

Natural Resource Management

Blockchain also enables natural resource extraction, public land management, and pollution levels to be made easily visible to citizens and city officials. By recording asset ownership on a blockchain, the amount of resources being extracted from the ground at a certain time, or levels of air and water pollution can be integrated into a single secure data flow that can be made visible to any interested party.

For city officials, this can improve the way resources are managed, and for citizens it can provide the opportunity to make more educated or environmentally conscious decisions. Meanwhile, large-scale projects involving land registries and industrial resource extraction can be precisely measured and inspected to verify that no resource has been unduly extracted or that all legal restrictions on particular resources and geographies have been observed.

Proactive Decision-Making

Altogether, blockchain offers the possibility to digitize and monitor clean energy production and consumption in a manner where more proactive decisions can be made, and more enduring and sustainable energy initiatives created. As a new digital age arrives, blockchain-based solutions oriented towards clean energy management stand to be automated through smart contracts, with additional decision making being done by artificially intelligent and “big-data” based machinery. In many ways, the tip of the iceberg is just being discovered.

Not Comparing Apples to Apples

In light of these possibilities, there are now certain factors to keep in mind with regard to the overall environmental sustainability of blockchain-based ecosystems. The high amount of energy consumed on the Bitcoin network refers to the infrastructure of an entire decentralized payments ecosystem.

Experts mistakenly compare this number to the energy cost of a single transaction in traditional finance, however the real comparison must be made on a structural level to the current global payments system of centralized banks, servers, and ATMs. When the two payment systems are compared, it is clear the physical and digital infrastructure of banks and servers around the world are more energy-intensive.

More importantly, Bitcoin’s energy consumption is due to its Proof-of-Work Consensus Mechanism. As many experts have noted (among them Ambrosus Solutions Architect, Professor Roger Wattenhofer), there has been a clear shift away from Proof-of-Work models in favor of more efficient and less energy intensive mechanisms. The real value of a technology or system – especially with regard to its environmental sustainability – must be considered in light of its function and the effect it promises. Blockchain, as an original and widely applicable general purpose technology, is nothing short of revolutionary in its ability to bring trusted, transparent, and accessible data to problems in environmental sustainability.

By Angel Versetti, Global CEO and Founder, Ambrosus