United Nations: Is cryptocurrency a sustainable solution or a climate disaster?

This article comes from un.org ECONOMIC DEVELOPMENT, Odaily Planet Daily Translator | Moni

Despite widespread media coverage of the negative environmental impacts and high volatility of cryptocurrencies such as Bitcoin, the United Nations believes that blockchain, the technology behind cryptocurrencies, could be a big help in addressing the climate crisis and even help achieve a more sustainable global economy.

Is Bitcoin Mining Really a “Pointless Use of Energy”?

The energy consumption required to ensure the security and normal operation of the Bitcoin network is so staggering that Tim Berners-Lee, the inventor of the World Wide Web, even described "Bitcoin mining" as "one of the most meaningless uses of energy."

Bitcoin is not a physical thing, but the new digital currency is “mined” or put into circulation through a process that uses powerful computers to solve complex math problems. This process requires a lot of energy, and it is estimated that the Bitcoin network consumes more energy than countries such as Kazakhstan and the Netherlands. And because fossil fuel power plants still make up a large part of the global energy mix, Bitcoin mining can be said to be partly responsible for the production of greenhouse gases and causing climate change (although so far, Bitcoin's energy consumption has had a much lower impact on the climate than the "hardest hit" sectors such as agriculture, construction, energy and transportation).

Another problem is that each Bitcoin transaction consumes a huge amount of energy compared to traditional credit card transactions. For example, each MasterCard transaction uses only about 0.0006 kWh of energy, while each Bitcoin transaction consumes 980 kWh, which some market analysts say could power an average Canadian home for more than three weeks.

Above: Waste pickers clean up a municipal landfill in Zambia. (Photo courtesy of UNDP Zambia)

Is cryptocurrency actually an important driving force for sustainable development?

Despite the high energy consumption problem of cryptocurrencies, UN experts believe that cryptocurrencies and the blockchain technology behind them can play an important role in sustainable development and can even effectively improve environmental governance.

For the United Nations, one of the most useful aspects of cryptocurrency is transparency. Because blockchain technology is resistant to tampering and fraud, it can provide a trusted and transparent record of transactions, which is particularly important in areas where regulation is weak and corruption is rampant.

The World Food Programme (WFP), the largest UN humanitarian funding agency, has found that blockchain technology can ensure that cash is sent to those who need it most. According to a pilot program in Pakistan, the World Food Programme can safely and quickly deliver cash directly to beneficiaries without going through local banks. The pilot project, called Building Blocks, is currently being successfully implemented in refugee camps in Jordan, in addition to Pakistan, ensuring that the World Food Programme can create a reliable online record for each transaction.

If blockchain technology works for refugee funds, it could also work for other vulnerable groups. According to a report prepared by the United Nations Environment Programme (UNEP), blockchain technology could improve the livelihoods of waste pickers and help them make a living in the informal economy. The report said a transparent monitoring system could accurately track where and how recycled waste is used, and identify who is picking up waste, ensuring that the right people are properly rewarded for their efforts.

Above: Air pollution is damaging our health, but there are no clear solutions due to a lack of available local data. (Image from Unsplash/Chris LeBoutillier)

Blockchain technology can prevent further environmental degradation

In terms of environmental protection, the potential of blockchain technology has also been verified in projects of the United Nations and other organizations. For example, the World Wildlife Fund (WWF) has developed:

* Blockchain tools to eliminate illegal fishing in the tuna industry

* CarbonX, a cryptocurrency platform, can convert people's reduced greenhouse gas emissions into tradable cryptocurrencies, providing manufacturers and consumers with an economic incentive to make sustainable choices that benefit the environment.

UN Environment, together with the Technical University of Denmark and the Danish Ministry of Foreign Affairs, has launched a collaborative project: DTU Partnership, which believes that blockchain technology can accelerate climate action in three main areas:

1. Transparency

2. Climate industry financing

3. Clean energy market

The DTU Partnership project said that many countries have incomplete and unreliable data on harmful greenhouse gas emissions, but blockchain solutions can provide a transparent and trustworthy way to better show how countries are taking action to reduce their impact on the climate. If the carbon market continues to expand, companies and industries will transition to low-carbon technologies, the amount of climate industry financing (industry investment that helps slow the pace of climate change) may increase.

Blockchain could be an important component in accelerating the adoption of renewable energy applications such as wind and solar, which require new forms of energy markets because they are intermittent and decentralized in nature. Tools using blockchain technology could help create these new energy markets and end our reliance on fossil fuels.

The cryptocurrency industry has begun looking for low-energy solutions

Despite the many potential benefits of blockchain technology, the huge energy consumption associated with the technology remains one of the main obstacles that needs to be overcome. Of course, many blockchain industry players have already begun working to address this issue.

For example, the Ethereum Foundation, the organization behind Ethereum, is working on a new way to verify transactions, called proof-of-stake consensus, which could reduce the energy cost of each transaction by 99.95%. Meanwhile, many blockchain industry players also want to ensure that the industry as a whole can eventually become completely carbon-free.

In April 2021, three important organizations - the Energy Web Foundation, the Rocky Mountain Institute and the Alliance for Innovative Regulations - created the Crypto Climate Accord, which is supported by organizations spanning the climate, finance, NGOs and energy sectors. Its goal is to "decarbonize the crypto industry within an agreed time frame" and achieve net zero emissions in the global crypto industry by 2030.

Above: Gold has always played an important role in the international monetary system. (Image from Unsplash/Jingming Pan)

The ups and downs of cryptocurrencies

Cryptocurrencies are still in their infancy and therefore volatile, and there are still many technical and political challenges to overcome:

* A single tweet from Tesla founder and billionaire Elon Musk could cause the value of Bitcoin to soar or plummet;

* El Salvador announced in June that it would make Bitcoin its legal tender, a month after China announced a crackdown on Bitcoin mining;

* Dogecoin (DOGE) is also widely traded, and despite the cryptocurrency starting out as a joke, it has seen huge, widely reported rises and falls in value (also thanks in part to Elon Musk fanning the flames on Twitter).

Nevertheless, many financial experts believe that all these issues will eventually be resolved and cryptocurrencies and other financial instruments based on blockchain technology should enter the mainstream:

* Central banks in many countries are beginning to prepare to issue their own digital currencies;

* “Stablecoins” pegged to precious metals such as gold or fiat currencies may also become a stable and reliable investment opportunity.

If the most vulnerable are to benefit from the promise of blockchain technology while also having a positive impact on the global climate crisis, more research into the technology and more international dialogue between experts, scientists and policymakers is needed.

Minang Acharya, one of the authors of a UN Environment brief analyzing blockchain applications, recently said:

“The United Nations should continue to experiment in the blockchain space. The more we experiment, the more we will learn about this emerging technology. This may ultimately lead to a greater understanding of blockchain technology worldwide, the environmental and social impacts of cryptocurrency mining operations, and the opportunity to conduct in-depth analysis of how to address potential issues that blockchain technology may bring in the future.”