Blockchain consensus mechanisms and their role in blockchain sustainable development

Gwendolyn Regina is investment director at BNB chainthe blockchain developed by major crypto exchanges Binance.
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Sustainability in blockchain has become important. As the technology scales, new blockchains must be green.

You may have heard the saying, “Bitcoin uses more electricity than Argentina,” which is no longer true. Bitcoin miners are increasingly using renewable energy. Blockchain protocols that do not need energy-intensive consensus models are also emerging.

This article explains how the blockchain industry is revamping its technical architecture to ensure growth and sustainability.

What is ESG and why does it matter?

ESG (Environmental, Social, and Governance) measures the environmental, social and governance consequences of a company or an investment. Socially conscious investors use it to filter potential investments based on a set of globally agreed standards for a company’s operations.

Global businesses, enterprises and organizations must improve ESG scores to remain relevant and competitive. This helps to combat climate change and other challenges.

Plan A states that companies must decarbonise, create ESG frameworks and reporting, achieve net-zero emissions and create a robust and sustainable supply chain.

Blockchain technology can alleviate some of these difficulties by using Bitcoin (BTC)’s distributed ledger technology (DLT). Supply chain management, which affects carbon emissions the most, can use DLT to improve ESG.

Blockchains can synchronize organizations’ record-keeping systems, allowing them to openly disclose ESG indicators and confirm their environmental commitment.

Blockchain makes supply chain tracking more efficient, transparent and verifiable. It stores supply chain and sustainability data immutably.

In recent years, the number of investment funds with ESG issues has grown rapidly and is likely to continue to rise in this decade. ESG investments could reach tens of trillions of dollars over the next few decades.

Blockchains aiming for carbon neutrality – a big win for ESG

Bitcoin introduced us to blockchain, and its success is built on the network security maintained by the Proof-of-Work (PoW) mining consensus mechanism. It requires large amounts of computing power, and thus electricity, to verify transactions to add new blocks to the chain.

Since the first Bitcoin block was mined, the crypto industry has improved technologically and produced more environmentally friendly blockchain solutions. For example, PoW-to-PoS transition is key to greener technology.

Proof-of-Stake (PoS) is a more sustainable consensus process than PoW. To verify transactions and add new blocks, PoS validators stake their currencies. This reduces electricity use and carbon emissions. Block rewards are split between node validators, with validators with higher stakes having a better chance. Even Ethereum (ETH), the second largest crypto asset, has switched to PoS.

Many of the previous Layer-1 blockchains are slow, have high transaction fees and leave a larger environmental footprint than is acceptable.

All the top developers are working on cutting-edge protocols to solve Ethereum co-founder Vitalik Buterin’s blockchain trilemma, which is how to balance security, speed and scalability. When all blockchains achieve this, the Earth will benefit.

One of the biggest challenges to massive blockchain adoption is scalability

As blockchain adoption grows, most networks’ designs create operational bottlenecks that stop them from growing. Layer 2, which combines transactions and sends them back to Layer 1, is one of the most common ways to fix this problem. This speeds up the process and frees up block space.

Many of these Layer 2s are also better for the environment. For example, validators consume approximately 0.00079TWh of electricity per year, while Bitcoin – the largest PoW chain – consumes ~9000TWh. There is a big difference.

Scalability is an issue for both Proof-of-Stake and Proof-of-Work networks. Bitcoin, which after the Ethereum merger is the only major chain that still uses PoW, has solutions for scale-up that also minimize power consumption.

For example, Lighting, which is used in El Salvador to scale daily Bitcoin transactions, can grow in a way that is not proportional to the amount of energy it consumes.

This minimizes the required energy supply. Energy optimization goes hand in hand with scalability, which is necessary to expand the use of blockchain technology.

Proof-of-stake is not the only sustainable consensus mechanism

PoW and PoS are the most widely used consensus algorithms. However, PoS is not the only consensus mechanism that does not require a lot of energy. Proof-of-Authority (PoA) leverages the value of identities. This means that block validators do not stake coins, but rather their reputation. PoA does not require mining or any specific amount of energy (besides being operational).

The technical architecture allows high transparency and speed, which makes POA quite a good solution for logistics (supply chain) applications.

Consequently, it is the consensus mechanism used by veChain, the most relevant crypto protocol used for logistics. PoS is a more efficient consensus mechanism for other types of use cases such as decentralized finance (DeFi), non-fungible tokens (NFT) or GameFi due to lower entry barriers, reduced hardware requirements, etc.

Many of the methods blockchain can be used to solve problems are ESG compatible.

Look forward to

Global blockchain leaders reduce carbon emissions. According to research from Bitcoin Mining Council, the worldwide Bitcoin mining sector will use 58.5% renewable energy by Q4 2021. BNB Chain, Avalanche, Near Protocol, Algorand and other public chains are continuously upgrading their technology to increase efficiency and minimize emissions. Ethereum consumes at least 99.5% less energy post-merger after completing its major protocol modification.

The blockchain sector is committed to ESG and sustainable development as global stakeholders. With climate concerns on the minds of a new generation of users and investors, it is more important than ever to take steps to ensure the industry’s long-term sustainability.

Together, the blockchain industry can achieve environmental sustainability.

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Learn more:
– Ethereum Merge Live: Latest News and Updates
– A misunderstanding and serious design flaw in the Ethereum merger

– Bitcoin Mining Efficiency Up 63% This Year, ‘Sustainable Electricity Mix’ Jumped 59% – Bitcoin Mining Council
– Bitcoin & Crypto Mining in 2022: New Locations, Technologies and Major Players

– Bitcoin Mining CO2 footprint is below 0.08% of the global total
– “Bitcoin is being embraced” by governments and regulatory future is “bright” – MicroStrategy’s Saylor