How blockchain technology can support ESG and sustainability

For some critics, blockchain and sustainability do not go hand in hand. Blockchain technologies can be a driver for more sustainability and supporting environment, social and governance.

Blockchain technology can effectively support sustainability.

Blockchain technology is the infrastructure of Web 3.0. While Web 2.0, the Internet, only allows the transfer of information, Web 3.0 can be used to transfer assets. The difference between the two processes can be illustrated using the example of “Email and Internet”. The Internet is the infrastructure for sending e-mails. We send information, usually images or documents, by e-mail.

In Web 3.0, the Internet is blockchain and email is a token. Here not only information is sent with an “e-mail”, but also values ​​such as money. All this happens without an intermediary, that is, directly between the sender and the recipient of the valuable object. You don’t need an intermediary provider such as Gmail for mail traffic.

What is sustainability?

In recent years, caring more sustainably for our planet, but also for society, has become increasingly important. Climate protection, respect for human rights and diversity in business are, to name just a few examples, three aspects of sustainability.

Sustainability, also described by the abbreviation “ESG”, is also becoming increasingly important in financial investments. New investment funds are being launched that can only invest in ESG-compliant companies (equities). ESG stands for Environment, Social and Governance. In German, the “E” stands for efficient use of resources and emissions – i.e. for the environment. The “S” takes into account social aspects such as labor rights or diversity. Finally, the “G” stands for corporate governance, ethics and policies.

In the meantime, the EU has also defined a regulatory framework (EU taxonomy) for sustainable investments. The United Nations Sustainable Development Goals, which fund managers follow, also play a role. However, the current set of rules still leaves a lot of room for interpretation. Investment companies can define their own way of dealing with ESG, i.e. they can also define their own sustainability criteria. Some investment funds then do not invest in German car manufacturers, but in arms companies. At first glance, this seems paradoxical with regard to ESG compliance, but is authorized by the current guidelines. Moreover, this leads to inconsistent comparability and measurability of ESG criteria.

How Blockchain Supports Sustainable Development (ESG) Efforts.

For some critics, blockchain and ESG do not go together. First, with regard to the “E”, reference is made to the high energy consumption of the Bitcoin network. Second, according to critics, blockchain is being instrumentalized for money laundering, which goes against the “S”. Third, compliance and good governance cannot be created in a system without a central intermediary, which does not seem to align with the “G” of ESG.

In fact, however, blockchain technology is a key lever for all three dimensions of sustainability. First of all, contrary to what is often claimed, the blockchain is much more energy efficient than alternative technologies. This even applies to the particularly maligned use of bitcoins. Because compared to other monetary transactions, for example using a credit card, not only the direct energy costs, which are particularly high when using Bitcoin and negligible when using a credit card, must be taken into account, but also the costs of the entire network, which make the transaction possible in the first place are included in the invoice.

If these network costs are taken into account when using traditional means of payment, i.e. servers and the general infrastructure for payment traffic, a completely different picture emerges. A recent study by ARK Invest, the investment firm owned by fund manager Cathie Woods, calculated that traditional banking consumes 40 times more energy than the Bitcoin blockchain. In addition to the Bitcoin blockchain, which is based on the Proof-of-Work protocol, there are now also very energy-efficient blockchains. Blockchains, such as Ethereum 2.0, based on the Proof-of-Stake protocol, consume about 99% less energy than Bitcoin.

Cryptocurrencies and crime

Money laundering often has its roots in social imbalances such as corruption, prostitution or drug trafficking. Critics claim that cryptocurrencies, and therefore the blockchain as a whole, encourage such abuse. This criticism is unfounded. The opposite is happening: with the help of blockchain, money laundering patterns can be identified very quickly and reliably. The blockchain thus becomes an instrument that helps to discover the crimes mentioned. Because every transaction is visible and transparent. Patterns can be discovered very easily this way.

Blockchain and governance

Blockchain technology also offers some examples of applications related to ethical governance. The blockchain is a decentralized peer-to-peer network and allows the secure transfer of assets without an intermediary thanks to its protocol. Every wallet-to-wallet transfer is logged and can be viewed by anyone. No transaction can be tampered with or corrupted due to human error. This is done using cryptography. In this regard, blockchain enables sustainable governance.

Conclusion: promote the blockchain!

In summary, it can be said that blockchain technology and its applications not only promote sustainability in terms of energy efficiency, social standards and proper governance, but are also significantly more efficient than traditional technologies. So we need to promote this technology and do all we can to help it spread as quickly as possible.

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