Blockchain technology & Sustainability

Market Insights Jan 15, 2021

Investors are paying more and more attention to environmental, social and corporate governance (ESG) principles when investing in both traditional and digital assets.

The blockchain technology (Bitcoin main technology) has intrinsic characteristics that make it relevant for sustainable investments.

This technology is mostly used to record cryptocurrency transactions and allows a lot of progress in the field of traceability and transparency.

As mentioned in the Blockchain & Sustainability’s article from Wealth Monaco (Nov 20), the principles of transparency and trust enshrined in Blockchain’s foundations, coupled with its immutability and ability to digitally represent assets moving along value and supply chains, make blockchain the clear choice to introduce traceability into industrial processes. Through the adoption of blockchain technology businesses will improve data collection and accelerate monitoring, reporting and verification processes.

Blockchain technology can help ESG reporting so it is more consistent, standardised, and effective.

But all blockchain protocols are not environmentally equal, in particular when we compare Proof-of-Work (PoW) and Proof-of-Stake (PoS) consensus.

While they both share the same goal of reaching consensus in the blockchain, the process to reach the goal is quite different:

  • The PoW technology used to mine or release new bitcoins into the network takes up a lot of energy as this consensus relies on huge amounts of computing power to verify if a transaction is valid.
  • On the other hand, the PoS consensus that uses transaction fees as a reward is less power consuming. It addresses part of the sustainability concerns of the network. The initial benefits include a fairer and more equal mining system, more scalable transactions and less reliance on electricity.

According to Laurent Barocas, Product Manager at Trakx: “We strongly believe that energy efficient blockchains leveraging Proof-of-Stake consensus combined with the transparency and immutability of this technology will help companies to efficiently monitor and improve their ESG’s impact.”

Ethereum 2.0 is the next step in the blockchain’s move from a proof-of-work consensus protocol to a proof-of-stake algorithm.

Ethereum blockchain is in the process of moving from PoW to PoS. This is an integral part of Ethereum’s development to make the blockchain more scalable, secure and sustainable. The goal is to support thousands of transactions per second in order to make applications faster and cheaper to use.

Security is a chief concern and a move to proof-of-stake needs to ensure that the protocol is more secure against all forms of attack. Last, but not least, the shift away from PoW is integral in limiting the negative environmental effect the Ethereum network has. The network, in its current state, requires a lot of computing power and electricity to remain sustainable.

In early December 2020, ConsenSys founder Joseph Lubin suggested that the transition to the next phase of Eth2.0 could happen faster than expected. The foundation was laid for Ethereum 2.0 in 2020 and expectations are positive for the future of the smart contract platform in 2021.

Please contact Laurent at Trakx for additional questions.

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Carole Laizet

Senior marketing manager with 15+ years of experience in the Financial Industry (traditional Banking as well as Crypto Assets). Responsible for market research