How blockchain technology (can) contribute to carbon neutrality

Discover blockchain opportunities to create a sustainable environment

Over the past few years, the pursuit of crypto has become a massive phenomenon. The global blockchain market size was estimated to be approximately $4.8 billion in 2021 and is expected to increase to $69 billion by 2030. Sounds amazing for a technology no one really believed in, right?

People became comfortable investing in cryptocurrencies and earning crypto assets. But there is a price for comfort that could increase significantly in the future.

For years, people have expressed concern about the environmental costs of blockchains. Cryptocurrencies have often been accused of consuming huge amounts of energy, and are an absolute climate disaster.

Some crypto-assets, such as Bitcoin, have a massive annual carbon footprint calculated in energy consumption compared to a medium-sized country such as Argentina or the United Arab Emirates. One Bitcoin transaction would generate CO2 equivalent to 706,765 swipes of a Visa credit card. Considering the need to mine the most famous cryptocurrencies, this is not just about Bitcoin.

Blockchain mining is often powered by the Proof-of-Work (PoW) consensus mechanism, which means decentralized validation of new transactions by performing some mathematical calculations, adding them to the blockchain and getting a reward. Since huge energy resources support this process, the environmental effects worsen with the rapidly increasing number of crypto users.

In response, the crypto industry must change course, moving towards carbon neutrality by adopting green blockchain strategies. Fortunately, this sector is under constant improvement and development due to the increasing number of green blockchain solutions.

Recognizing the power usage issue, the main question is how the crypto industry can contribute to carbon neutrality, or mainly carbon neutral blockchain initiative. There are several alternatives to mining-dependent systems, although they are not yet widely adopted.

Let’s examine some options:

Proof-of-Stake working algorithms

Like PoW, the Proof-of-Stake (PoS) protocol also has the main task of ensuring trust in a blockchain network. But there is a significant difference – Proof-of-Stake requires far less work to validate a transaction since it does not solve any mathematical problem, unlike Proof-of-Work, and thus uses less energy. It seems that the PoS consensus mechanism could be the future of a green blockchain.

Ethereum, one of the world’s most popular cryptocurrencies, decided to transform its ecosystem. Recently, it switched the way of obtaining tokens to a more sustainable one – PoS, and in addition to achieving better energy efficiency, Ethereum is also becoming a more decentralized and scalable solution.

A few more consensus mechanisms are considered energy efficient:

Evidence of combustion: a mechanism that requires you to burn some tokens to get the right to mine the next block, so you have to spend some money to receive an opportunity for mining.

Proof of capacity: a system that uses free storage space on a hard drive for validation. This way, the more storage space you have, the more solutions you can store and reuse.

Proof of elapsed time: another consensus mechanism that prevents high resource utilization and energy consumption by using a lottery to decide who will update the blockchain, so it is fairly random.

Carbon emissions to credits with blockchain

So what’s next after reducing energy consumption? The answer is carbon credits. After establishing the carbon credit market due to the Kyoto Protocol, companies can buy carbon credits to offset their emissions. Usually, these carbon credits are reinforced by projects that can balance emissions.

For example, let’s say that one ton of carbon emissions is a carbon offset that costs $100. When you buy ten carbon credits from a company that supports an afforestation project, you are investing in afforestation to offset your emissions.

The carbon market includes two different markets depending on the end user: compliance and voluntary. The first is used by the government signatories and their large sending companies. Typically, these companies receive carbon credits to offset their emissions up to a certain point. The company will have to pay a fine if the emissions are higher. But if the company emits less carbon than it is entitled to, it can sell those carbon credits on to another company and make some money instead.

In contrast, voluntary markets are not explicitly defined. Companies, individuals or private entities are free to choose whether or not to buy carbon offsets and to which project these credits can be linked – a solar/wind energy park or an afforestation initiative.

There is a problem with the voluntary carbon market – it lacks transparency and quality control, which deters potential participants.

Blockchain technology is at this time ideal to solve the issue of transparency and the availability of the voluntary market for everyone. The role of blockchain in the carbon credit market is quite simple but effective.

With blockchain, we can create a system to collect carbon dioxide measurement data on the ground and store it permanently in the blockchain with further validation. The collected data will be converted to carbon offsets while maintaining transparency and security. Basically, this approach turns carbon emissions into verified blockchain carbon credit tokens that can be exchanged to offset the carbon footprint.

One way to measure carbon footprints is to use IoT technology with remote sensing. Quantum’s Geo Analytics platform is just the right tool for that. The platform has all the necessary functions to estimate carbon dioxide emissions from the forest.

We will definitely be sharing how we detect carbon dioxide emissions with our GeoAP, so be sure not to miss this topic!

As for today, we look up our experience with the first fully carbon neutral blockchain network, Algorand.

We are currently collaborating with the Vigee.Art team on a green blockchain technology project with a sustainable mission. Vigee.Art is the world’s first NFT community with the main focus on supporting the artist community with all means through the lowest fees, various bonuses, charity auctions, and supporting cultural initiatives with the opportunity to receive solidarity funds from the network.

Choosing Algorand as the foundation of the network was important due to the fact that it matches a number of our technical requirements, such as low fees and transaction costs, secure and fast protocols, and reduced energy consumption required to build a block. As a niche leader due to its efficiency and environmentally friendly approach and a partner of the Climate Trade organization, Algorand expands its customer audience by offering innovative services and leveraging carbon offsetting capabilities.

As a bonus, Algorand allowed us to build a versatile product architecture base that we can reuse in many other projects, so consider this technology for your project. Still hesitating whether it will suit your business mission? Write to us and get competent advice.