How does blockchain reduce the level of corruption?

Distributed ledger technology The blockchain has unimagined environmental protection potential

Author / Editor: Arman Sarhaddar / Vivien Deffner

Everyone is talking about sustainability. In this context, blockchain is more of a negative example. The question arises: energy guzzlers or environmentalists? Arman Sarhaddar, CEO of Vault Security Systems AG, in an interview about blockchain and sustainability.

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Sustainable economic models are becoming more and more important to companies and end users. At the same time, blockchain technology is being treated as a major topic of the future, although it is often associated with high energy consumption and low environmental compatibility.

Mr. Sarhaddar, is the blockchain's bad reputation justified?

It's true that blockchain doesn't have a good reputation for its ecological footprint. This has to do with the fact that, despite growing knowledge, the term is often still strongly associated with crypto currencies such as Bitcoin. These are indeed energy intensive. The mining, i.e. the proof-of-work algorithm (PoW), through which transactions are verified and new coins are generated, is associated with a very high computing effort. This is particularly important with Bitcoin. Every single transaction now consumes as much energy as 1.5 average American households a day. The scalability of this currency is rightly called into question.
The high energy consumption should also be viewed critically because a particularly large amount of mining takes place in China, for example. The electricity required there often comes from coal-fired power plants, so it is extremely harmful to the climate.

But bitcoin is not blockchain and blockchain is not bitcoin. The energy-intensive PoW algorithm actually has some advantages. It is exciting to see how many large energy service providers around the world are already active in Bitcoin mining, and some are now even building their own computer chips.

What about blockchain applications apart from cryptocurrencies, are they automatically more environmentally friendly?

In the area of ​​blockchain as a technology for companies, there are now many alternatives to PoW that consume less or even net zero energy. For example, a node (an “access point”, to put it simply) can be set up on an existing server. When using the latest hardware, this consumes a maximum single-digit percentage of performance. Depending on the type of application, a protocol with PoW can also make sense and does not have to be environmentally harmful. However, most companies rely on less energy-intensive methods: In a company network or network between known consortium participants, such strong protection as with Bitcoin is simply not necessary. Today we can choose from many different algorithms. Each option has advantages and disadvantages that have to be weighed up in relation to the application as well as to environmental compatibility.

Most blockchain or distributed ledger technology (DLT) applications that are developed for corporate purposes can do without the energy-intensive PoW. The prerequisite for this are networks that are not freely accessible like the Bitcoin Network, but require permission (permission-based). Instead of a proof-of-work, for example, a proof-of-stake can be used for verification and consensus building. This reduces the required computing power and thus the energy requirement many times over, but these solutions still achieve the desired performance.

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Can blockchain technology make a contribution to environmental protection?

Like any technology, the blockchain can be used for different purposes. In principle, blockchain technology can enormously reduce paper consumption through the secure and permanent recording of constantly retrievable data. In addition, it is noticeable that there are many business models that address social and ecological problems directly with SDGs (Sustainable Development Goals).
Due to its ability to record data unchangeably, the blockchain has particularly great potential for environmental protection. It is currently being used to record data about the natural environment and to record changes in ecosystems. In retail there are, among other things, applications that make responsibly caught fish traceable and provide evidence of organic certification.

Monitoring the supply chain enables inferior products to be identified earlier. The extent of new production and recalls can thus be reduced, which has a positive effect on the greenhouse gas balance and other resources. Another important topic is protection against counterfeiting. Counterfeit products are often very polluted and therefore pose a threat to the environment.

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Sustainability does not only have an ecological dimension. What about the social compatibility of blockchain solutions?

The protection against counterfeiting and the tracking of the production have an ethical component in addition to the ecological one. Aside from consumer protection, the blockchain can ensure that goods have been produced under responsible conditions. These solutions are gradually establishing themselves not only in the fair trade goods segment and guaranteeing fair working conditions in accordance with human rights.
Another aspect: in some markets up to 70 percent of drugs are counterfeit. An estimated 100,000 people die each year worldwide from taking counterfeit drugs. A technology that can prove the authenticity of medical products helps to reduce the risk and to level the discrepancy between countries that are badly and less affected.
On the technology side, blockchain enables smart contracts that come into force automatically under certain, mutually agreed and unchangeable conditions. The “if-then” principle can be used for automatic payments, for example. Delays in payment or withheld payments are therefore not possible.

The entire business world can benefit from more trusting, transparent, and immediate relationships. This also corresponds to the basic idea of ​​the technology: In the Genesis block of Bitcoin, the inventor Satoshi Nakamoto linked an article that deals with the crash of Lehman Brothers and the start of the financial crisis. A transparent network in which transactions can be viewed and tracked by everyone would rule out any corruption in the event of an adoption.

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What has to happen in order to upgrade the ecological balance and the image of the blockchain?

An important prerequisite is that public awareness of the difference between blockchain technology and cryptocurrencies increases. The fact that Bitcoin has a very high energy consumption, which, for example, exceeds that of countries like Switzerland, is sometimes discussed in the media. We need more education that there are fundamental differences between Bitcoin and the blockchain applications that are now slowly being put into practice.

Driven by the increasing demands for environmentally friendly economic models, the technical development of blockchains, which are used for corporate applications, is advancing steadily. We are already well on the way - the applications that work for a better world and, for example, enable energy savings or waste avoidance, more than make up for their energy consumption. This balance will be even better in the future.

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