By Ananya Dhawan
The contemporary times are characterized by adoption of technology-driven systems in almost every aspect of life thereby reshaping civilisation in terms of work, education, entertainment, economy, and commerce, at a rapid pace. Blockchain is one such technology, the advent of which has caused a stir. While blockchain is a remarkable innovation, there are environmental concerns that are anchored to it. This Article delves into a discussion with respect to – the damaging effects of blockchain to the environment, existing legal framework on the same and measures that can be taken to neutralize blockchain’s detrimental impact on the environment.
Unpacking Environmental Challenges of Blockchain Technology
What is Blockchain?
Before we dissect its environmental implications, let us delve into the intricacies of blockchain technology. Imagine blockchain as a super cool digital playground where everyone can trade toys directly with each other and every trade is recorded in a special invisible diary that everyone in the playground can peek into, making sure it’s all fair and square. In other words, blockchain technology is a decentralized digital system that facilitates peer-to-peer exchange without needing any central authority and records transactions in a secure and transparent manner thereby serving as a public ledger.[1] This digital ledger consists of a chain of blocks, connected through a process called hashing. Under this process, information is fed into a special tool called hash function which generates a unique secret code called the hash. What’s fascinating is that using the same hash function on the same information always produces the same hash. A tiny change in the information leads to a completely different hash which ensures the integrity and security of the information.[2]
What Environmental Costs does Blockchain Bear?
Blockchain and hashing are largely utilized in and famously linked to cryptocurrencies. Generation of cryptocurrencies involves a large network of computers contesting to decipher complex mathematical problems in the shortest possible time. The winner is rewarded with crypto tokens. This process is called Proof-of-Work (PoW) system.[3] It is majorly employed in obtaining Bitcoin, one of the highest valued cryptocurrencies; and is referred to as “mining” of Bitcoin.[4]
To solve these math puzzles, high-powered computer systems are required. The ‘Application-Specific Integrated Circuit (ASIC)’ is widely used to mine Bitcoin since 2012 as it is extremely efficient.[5] However, the downside is that it consumes tremendous power and requires electrical infrastructure that is capable to handle the power load. ASIC miners are also loud and generate a lot of heat. Moreover, reaching the correct solution to the mathematical algorithms requires a lot of trial-and-error, and availability of higher energy would increase the chances of receiving the rewards which acts as incentive for miners to engage systems with significant computational power to perform numerous calculations quickly. It is also concerning that not every mining effort would reward a miner with Bitcoin which means that the energy employed by many miners would go to waste.[6] It is also imperative to note that Bitcoin has a limited supply which is reduced every four years.[7] Hence, its demand in terms of investing remains massive. This offers further encouragement to miners to engage energy-extensive systems to procure maximum reward.
These factors contribute to Bitcoin’s elevated energy consumption rate. As per the Cambridge Bitcoin Electricity Consumption Index, the estimated yearly energy consumption of Bitcoin is 144.23 TWh (annually).[8] In 2018, this figure was 31.29 TWh.[9] Therefore, there is a significant rise in energy usage.
Another major worry is blockchain’s reliance on non-renewable sources of energy which leaves huge carbon footprints. Research shows that majority of Bitcoin mining takes place in Kazakhstan, China, and the United States and depends on fossil fuels for energy to a large extent.[10] Bitcoin already has a significant carbon footprint i.e., 76.79 Mt. CO2 annually.[11] This is extremely harmful to the environment considering the large number of investors in the market presently and the potential escalation of the same.
Lastly, cryptocurrency generates a lot of e-waste owing to the short life cycle of hardware used in its mining which becomes obsolete. According to Digiconomist, annual total electronic waste from Bitcoin is as high as 71.33 kt.[12]
Hence, environmental concerns that come attached to blockchain are immense especially considering that Bitcoin is not the only crypto coin in the market, however, they go unchecked due to lack of regulatory mechanisms.
Legal Strategies for Blockchain’s Environmental Accountability:
Even though blockchain technology is in its nascent phase, its environmental impact requires proper legislative intervention.
An effort towards the same has been made by the U.S. through the introduction of a bill in this regard i.e., -The Crypto-Asset Environmental Transparency Act 2023. The Bill mandates reporting carbon dioxide emissions under the Clean Air Act for crypto mining operations exceeding 5 megawatts, categorizing emissions into Scope 1 and Scope 2, addressing direct and indirect greenhouse gas emissions respectively. It would also mandate a detailed Environment Protection Agency (EPA) led study of environmental impacts of mining of cryptocurrency in the U.S.[13] The U.S. Senate Committee on Environment and Public Works Subcommittee on Clean Air, Climate, and Nuclear Safety held a hearing on this bill and highlighted the importance of the law as well as praised the proof of stake system of blockchain and its energy efficiency.[14] This is a positive step.
The EU plans to adopt the MiCA regulation covering crypto-assets, issuers, and service providers. It mandates significant Crypto-Asset Service Providers (CASPs) to publicly disclose their environmental impact, climate footprints, and energy consumption prominently on their websites. The European Securities and Markets Authority (ESMA) will draft standards for disclosing environmental information, and the European Commission is assigned to report on the environmental effects of crypto-assets. The European Commission shall prepare a report which includes implementing minimum sustainability requirements for consensus mechanisms like the proof-of-work (PoW) system within two years.[15]
In 2021, the European Commission engaged in initiatives promoting blockchain, notably in the European Blockchain Partnership (EBP) and the European Blockchain Observatory Forum.[16] EBP focuses on a unified EU blockchain strategy, introducing the European Blockchain Services Infrastructure (EBSI) as a regulatory sandbox.[17] The European Blockchain Observatory and Forum work towards accelerating blockchain innovation and fostering the EU’s blockchain ecosystem growth.[18]
Internationally, Article 6 of the Paris Agreement allows nations and private firms to cooperatively pursue approaches for transferring Internationally Transferrable Mitigation Outcomes (ITMOs) through bilateral agreements. At the global level, the BITMO platform, aligned with Article 6 of the Paris Agreement, employs blockchain to enable countries and private companies to voluntarily transfer carbon credits as NFTs on the Ethereum blockchain.[19] Therefore, this platform is helpful in terms of achieving climate-related goals and would also help in avoiding double counting of emission reduction.
Another international initiative is the report released by The United Nations Environment Programme (UNEP) and the South Alpha Foundation (SAF) which discusses how blockchain can accelerate the transition to clean energy and combat climate change in developing countries.[20] There are various projects that have been created for this purpose. One example is the Sun Exchange in South Africa which allows anyone with an internet connection to buy solar panels online and rent them to businesses, hospitals, schools, and other organizations in Africa.[21]
In the Indian context, while there aren’t any specific legal mechanisms that pertain to the environmental aspects of blockchain technology, the same is being utilized by the government in various capacities. NITI Aayog’s paper on the Indian strategy proposes the following-
- The Indian government aims for 30% electric vehicles by 2030. To overcome challenges like high costs and limited charging, they suggest swapping depleted EV batteries. Blockchain could help by ensuring accurate battery information, promoting renewable energy usage, and simplifying battery swaps with smart contracts.
- Organic food exports from India are growing, but certification complexities limit their potential. Blockchain can help by improving trust through traceability, reducing costs with peer-to-peer certification, and enhancing efficiency in the supply chain.
- In India, where many people lack access to energy and there’s a reliance on fossil fuels, renewable energy microgrids are seen as a solution, especially in areas without a central power grid. The current process involves multiple authorities and intermediaries, making it complex. Blockchain technology can simplify this by allowing direct connections to the central grid through smart agreements, creating digital assets for energy trading, fostering innovation, and enabling community-driven solutions for better access.[22]
Power Ledger, an Australian company, uses blockchain for electricity and environmental commodity trading. The Uttar Pradesh Government has introduced blockchain for rooftop solar power trading, making it the only state to enable controlled peer-to-peer energy trading using Power Ledger’s software.[23]
There are certain judicial principles as well that have relevance. In a plethora of judgments in the matters of Vellore Citizens Welfare Forum[24], M.C. Mehta[25] and N.D. Jayal[26], courts have held that a balance must be struck between environmental protection and developmental activities which would safeguard the needs of the present as well as future generations.[27] In the context of blockchain technology and the environment, this balance can be achieved through the responsible and sustainable use of blockchain in various industries as demonstrated above.
Certain other measures discussed hereinunder, backed by established legal sanctions, can help in reducing the contribution of blockchain in the deterioration of the environment.
- Switching to the Proof-of-Stake (PoS) System:
In this system, miners do not compete to solve complex mathematical problems to validate transactions and create new blocks. Instead, validators are randomly selected based on the amount of cryptocurrency owned and put on “stake” by them.[28] Think of choosing a student to grade assignments. Proof of Work is like picking the one who does the most push-ups, rewarding effort but using plenty of energy. Proof of Stake picks someone randomly who has the most classroom supplies, favouring those with more but saving energy. Both get the job done, but in different ways.
Post switching to the PoS system, Ethereum’s electricity requirement has reduced significantly. The electricity requirement annually is 0.01 TWh. The carbon footprint is 0 Mt CO2 annually.[29]
This system is therefore a better alternative.
To make Bitcoin miners adopt this system, the best way is through legislations in this regard, with hefty penalties upon failure. Compensatory mechanisms for expenditure on hardware can also help in a smoother transition.
- Mandating use of Renewable Energy:
Instead of using fossil fuels, solar, wind, and hydro power can be utilized in mining Bitcointo reduce carbon emissions.Non-renewable sources like coal are cheaper than the investments that would go into creating solar, wind or hydro power plants therefore, to encourage the latter, subsidies or other incentives can be introduced which would reduce reliance on non-renewable resources.
- Regulating emissions through Carbon Tax and Carbon Credit:
A mandatory Carbon Tax, i.e., a fee on burning of coal, oil and gas must be imposed on greenhouse gas emissions over prescribed thresholds to regulate its usage.[30] This would discourage Bitcoin miners from making use of non-renewable sources.
Carbon credit permits greenhouse gas emissions up to a certain limit and allows companies, nations, and other entities to trade in leftover emissions that they were entitled to utilize but did not. This practice is very common and there are carbon exchange trade platforms as well for this.[31] Carbon Credit therefore acts as incentive for parties involved in its trade to not go over the permissible limits and in fact, ensure that they have some surplus credit saved up for selling.
- Creating mechanisms for checks and balances:
Blockchain technology’s supply change management system serves as a tamper-proof record of information. It can be utilized to track countries’ adherence to commitments made under international agreements that pertain to the environment and to also keep a check on whether companies comply with environmental laws.[32]
Therefore, embracing eco-friendly blockchain practices like transitioning to energy-efficient mechanisms, promoting renewable energy and implementing checks and balances will align blockchain technology with sustainable environmental practices.
Challenges in the Implementation of Laws and Other Measures
While the solutions we discussed offer promising steps, challenges remain.
- Defining the exact “environmental impact” of blockchain is difficult owing to a diverse range of applications of the same. Accurately measuring the impact of specific uses of this technology is an issue.
- Identifying responsible parties would also pose an arduous task- whether miners, developers, platform operators or users should be held accountable?
- The international nature of blockchain calls for global coordination and alignment of regulatory framework for there to be no jurisdictional questions. This is also a big ask.
- As indicated in the above section, blanket bans and extremely stringent limitations would stifle innovation. Instead, let’s encourage adoption of renewable energy and alternative crypto-generation methods while ensuring transparent reporting. This fosters a healthier digital ecosystem. Ultimately, taming blockchain’s footprint isn’t about crushing progress; it’s about responsible stewardship.
The road ahead requires prudence and collaboration. By embracing responsible practices, seeking global solutions, and prioritizing transparency, we can navigate the challenges and unlock the true potential of blockchain – a potential that benefits not just technology, but our planet and its inhabitants. Let’s move forward with purpose and hope, paving the way for a brighter, greener tomorrow.
Conclusion
While blockchain shines with innovation across industries, its harmonization with environmental sustainability and legal frameworks hangs in the balance. The clock ticks ever louder on its carbon footprint, demanding proactive measures before it eclipses its own potential.
Globally, legislative efforts like the US Crypto-Asset Environmental Transparency Act and the EU’s MiCA regulation rise to the challenge, aiming to scrutinize and regulate mining operations. International initiatives like Article 6 of the Paris Agreement and platforms like BITMO harness blockchain’s transparency to facilitate carbon credit trading and support clean energy ventures. Closer to home, India explores applications for electric vehicles, organic farming, and renewable energy microgrids, weaving blockchain into the fabric of its sustainability goals. Judicial principles, too, emphasize a delicate dance between development and environmental protection.
Mitigating the adverse impact on environment involves a waltz of solutions: transitioning to energy-efficient consensus mechanisms, mandating renewable energy use, imposing carbon taxes, and utilizing carbon credits. Blockchain’s inherent transparency offers the potential for checks and balances in every step.
In essence, responsible blockchain integration, guided by robust legal frameworks, is the melody for a sustainable future. As the technology evolves, so must our commitment to its responsible application. Our collaborative action today ensures that blockchain becomes a symphony of progress for our planet.
Let’s leverage the power of blockchain not to fuel environmental degradation, but to pave the way for a greener, more responsible tomorrow.
The author, Ananya Dhawan, is an undergraduate law student at the Symbiosis Law School, Noida.
[1] Arya Taghdiri, The Cost of Innovation: Why Bitcoin Mining Requires International Regulation 50 Texas Environmental Law Journal 181 (2020).
[2] Köhler, S., Sustainable Blockchain Technologies: An assessment of social and environmental impacts of blockchain-based technologies, Aalborg University (2021) available at https://doi.org/10.54337/aau4550130
[3] Surajit Mandal, Blockchain Technology and its effect on Environment: A Comparative Study between Proof-Of-Work and Proof-Of-Stake, 7 International Journal of Rural Development, Environment and Health Research 1, 2 (2023), available at 1IJREH-MAR20232-Blockchain.pdf (aipublications.com)
[4] Supra. 1
[5] Carla Tardi, Application-Specific Integrated Circuit (ASIC) Miner, INVESTOPEDIA available at https://www.investopedia.com/terms/a/asic.asp#toc-asic-miner-considerations , last seen on 22/03/2023.
[6] Singh, R., Dwivedi, A.D., Srivastava, G. et al. A game theoretic analysis of resource mining in blockchain. Cluster Comput 23, 2035–2046 (2020). https://link.springer.com/article/10.1007/s10586-020-03046-w
[7] Euny Hong, How does Bitcoin Mining work? INVESTOPEDIA (Nov. 14, 2023) https://www.investopedia.com/tech/how-does-bitcoin-mining-work/
[8] Cambridge Centre for Alternative Finance (CBECI), https://ccaf.io/cbeci/index (last visited Nov. 14, 2023).
[9] Supra. 2
[10] Nathan Reiff, What’s the Environmental Impact of Cryptocurrency? INVESTOPEDIA (Mar. 23, 2023, 2:13 AM). https://www.investopedia.com/tech/whats-environmental-impact-cryptocurrency/.
[11] Bitcoin Energy Consumption Index, DIGICONOMIST, available at https://digiconomist.net/bitcoin-energy-consumption, last seen on Nov. 14, 2023)
[12] Bitcoin Electronic Waste Monitor, DIGICONOMIST, available at https://digiconomist.net/bitcoin-electronic-waste-monitor/ (last visited Nov. 14, 2023).
[13] Crypto-Asset Environmental Transparency Act of 2023 (Pending).
[14] Hearings, U.S. Senate Committee on Environment and Public Works, available at https://www.epw.senate.gov/public/_cache/files/e/8/e84eaabc-1c9f-4084-a645-7d575b677ba5/82C69B7363887CC1525612C90C838F3B.spw-03072023-.pdf, last seen on 11/01/2024.
[15] Regulation (EU) 2023/1114 of the European Parliament and of the Council (2023)
[16] Logan J. Losito, Decentralizing Sustainably – How Blockchain Can Benefit Environmental Goals, 47 William & Mary Environmental Law and Policy Review 249, 260 (2022).
[17] Policies, European Commission, available at https://digital-strategy.ec.europa.eu/en/policies/blockchain-partnership, last seen on 10/01/2024.
[18] Home, EU Blockchain Observatory and Forum, available at https://www.eublockchainforum.eu/, last seen at 10/01/2024.
[19] The BITMO Platform, Blockchain for Climate Foundation, available at https://www.blockchainforclimate.org/, last seen on 30/11/2023.
[20] News, Stories & Speeches, United Nation Environment Programme, available at https://www.unep.org/news-and-stories/story/battle-against-climate-crisis-dont-overlook-blockchain, last seen on 10/01/2024.
[21] Blockchain for sustainable energy and climate in the Global South: Use, cases, and opportunities, 2022, United Nations Environment Programme (UNEP) (19.01.2024) available at https://www.unep.org/resources/report/blockchain-sustainable-energy-and-climate-global-south, last seen at 10/01/2024.
[22] Ministry of Planning, Government of India, NITI Aayog Draft Discussion Paper- Blockchain: The India Strategy 2020, available at https://www.niti.gov.in/sites/default/files/2020-01/Blockchain_The_India_Strategy_Part_I.pdf, last seen on 10/01/2024
[23] Supra 20.
[24] Vellore Citizens Welfare Forum v. Union of India, (1996) 5 SCC 647
[25] M C Mehta v. Union of India, (2002) 4 SCC 356
[26] N.D. Jayal v. Union of India (2004) SCC 9
[27] Green Blockchain Technology for Sustainable Smart Cities, 199 Saravanan Krishnan, Raghvendra Kumar, and Valentina Emilia Balas, 2023.
[28] Jake Frankenfield, What Does Proof-of-Stake (PoS) Mean in Crypto? INVESTOPEDIA (Nov. 23, 2023, 12:13 AM) What Does Proof-of-Stake (PoS) Mean in Crypto? (investopedia.com)
[29] DIGICONOMIST (Ethereum Energy Consumption Index) Ethereum Energy Consumption Index – Digiconomist (last visited Nov. 14, 2023).
[30] Julia Kagan, What Is a Carbon Tax: Basics, Implementation, Offsets, INVESTOPEDIA (Nov. 20, 2023, 11:00 PM) What Is a Carbon Tax: Basics, Implementation, Offsets (investopedia.com)
[31] Will Kenton, Carbon Credits and How They Can Offset Your Carbon Footprint, INVESTOPEDIA, (Nov. 21, 2023 10:30 PM) Carbon Credits and How They Can Offset Your Carbon Footprint (investopedia.com)
[32] Miriam Allena, Blockchain Technology for Environmental Compliance: Towards a “Choral” Approach, 50 Environmental Law 1055, 1083-1084, (2020).
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