There have been a number of headlines in recent months calling attention to the massive and growing carbon footprint of Bitcoin. While Bitcoin's spectacular rise (and semi-fall, Bitcoin is down nearly 50% from all-time highs) is driven almost entirely by speculation, there is a much more interesting story in the background. Bitcoin itself may or may not be the currency of the future, but the underlying technology - the blockchain - is here to stay. While Wall Street has largely steered clear of Bitcoin mania, they have been investing in the blockchain technology that underpins Bitcoin and other crypto-currencies.
The Blockchain Rises
A blockchain is "shared ledger technology", essentially a shared public record of all past transactions. The ledger is stored an maintained by a distributed network, as opposed to a centralized or decentralized third-party. All participants in the blockchain share a copy of the ledger that is continuously updated and verified in real time by "miners". Currently blockchains exist mainly as ledgers for a number of crypto-currencies, including Bitcoin, Ethereum, Litecoin, Ripple and others. While the future of these new age digital currencies is uncertain (name one thing you can buy with Ethereum?), the blockchain is a game changer.
The advantages of a blockchain
Blockchains offer some advantages over traditional record keeping:
They eliminates the need for a trusted-third party to conduct and verify transactions
They're comparatively low-cost for users
At present they're virtually fraud-proof (although as we've seen from a number of high-profile recent Bitcoin hacks, this is not the same thing as being secure).
In the Bitcoin network, "miners" donate their processing power to solving complex mathematical puzzles which is required to verify transactions (called "proof of work"). The miner(s) who successfully solve the current puzzle are rewarded with Bitcoin (at present 12.5 Bitcoin are created every 10 minutes), at which point a new puzzle is generated, and the process starts again. In theory, in order to manipulate the ledger, a bad-actor would need to apply more computing power to the task than the rest of the network of miners combined. At present, the aggregate computing power of the Bitcoin network is 100,000 times that of the world's top 500 supercomputers combined. To defraud the Bitcoin blockchain is effectively impossible in the traditional sense.
Blockchains when applied to a currency like Bitcoin are inherently energy intensive. As the value of the currency rises, mining becomes more profitable, and more people are incentivized to participate. As the network grows, so too does it's energy consumption and carbon footprint. The Bitcoin network's energy consumption is currently about 31 terawatt hours per year - greater than 159 individual countries, and growing rapidly. The current and potential carbon footprint of the Bitcoin network is one of the most recent and serious threats to emissions reductions efforts.
Carbon Currency - 'Green' Blockchains
The good news is that blockchain technology also has the potential to revolutionize how we deal with these very same carbon emissions. While regulation can be both useful and even necessary in the move to a sustainable economy, there is no comparing to a properly incentivized market as a mechanism for change. As long as carbon is a waste product, too often an externality in the global economy, it will be difficult to manage. But now a new movement in 'carbon capture and utilization' is upon us - technologies aimed at transforming carbon emissions from waste product to something of value, a commodity.
In addition to carbon credits and offsets, carbon as a currency or commodity is likely to feature large in the future of industry and the construction sector. The inherent simplicity and transparency of blockchain networks have the potential to revolutionize the way carbon is handled and traded by governments and businesses. But the real impact might be on consumer behaviour. A blockchain based carbon market could allow consumers to view the carbon footprint of products on their price tag.
Imagine you're shopping for a portable air conditioner. Air conditioner 'A' costs $200, while air conditioner 'B' costs $250 but has half the carbon footprint of air conditioner 'A', unfortunately $250 is just outside of your budget. So you whip out your iphone, sell $35 worth of carbon credits on the blockchain and invest your proceeds in air conditioner B. Your cost of 'going green' is no longer $50, but $15, and you will recognize it in real time. Two of the biggest barriers to consumers 'going green' are lack of transparency and cost, blockchains can help facilitate solutions to both these problems.
Ironically, while Bitcoin and other crypto-currencies pose perhaps the fastest growing threat to global emissions reductions targets, blockchain technology itself could elsewhere facilitate a desperately needed transparent and accessible global carbon market - giving business, individuals and consumers the tools to we need to transform our relationship with carbon emissions.