A recurring question we receive is: “I thought Blockchain technology was bad for the environment as it uses so much electricity”. So, we decided to analyse how this technology is helping to meet the challenges of climate change. A report from the World Economic Forum (WEF) has illustrated how ‘Blockchain technology can be used to help commodity mining companies reduce their emissions’. The WEF has also published its finding on ‘How blockchain and cryptocurrencies can help build a greener future’.
Seven ways Blockchain can help the environment
Source: Future Thinkers
The website, Future Thinkers, cites seven ways in which Blockchain technology is able to help improve our environment, and we have also given examples of various organisations in each category:
- Supply Chains – Provenance
- Recycling – Plastic bank
- Energy – Lo3nergy
- Environmental Treaties – Dr. Mike Troilo talks about Blockchain Technology and Sustainable Development
- Non-Profits – Charity digital
- Carbon Tax – IBM Blockchain Labs
- Changing Incentives – Smart key
Adelyn Zhou, from ChainLinks labs, recently wrote an article in an WEF publication explaining how smart contracts could help fight climate change and cope with its impact, giving three examples:
i) Regenerative agriculture – incentivise communities around the world to reduce their carbon footprints through more sustainable land-use practices (usually a combination of planting trees and conservation) an example being, the Green World Campaign in collaboration with Cornell University’s Initiative for Cryptocurrencies and Contracts (IC3).
How smart contracts technology incentivises regenerative agricultural practices
Source: Chainlink Labs
ii) Conscious consumption – smart contracts can also empower environmentally conscious individuals and organisations. As an example, Blockchain-powered energy grids such as the Brooklyn Microgrid Project are using smart contracts to give consumers the ability to produce and trade solar electricity with their neighbours through an exchange which uses a blockchain as a coordination mechanism.
iii) Hedging risk with crop insurance – farmers across the globe (the vast majority of whom are entirely uninsured) are especially vulnerable to changes in weather patterns, be it rainfall, drought, wind, and more. It is believed that 75% of agricultural risks remain uninsured, which has encouraged companies such as Arbol and Etherisc to offer smart contract-powered crop insurance to farmers across the world.
It is not only the World Economic Forum that is supportive of Blockchain technology, but also the United Nations (UN): “The UN believes that blockchain, the technology lying behind these online currencies, could be of great benefit to those fighting the climate crisis, and help bring about a more sustainable global economy”. The UN has practical experience of working with blockchain projects, having been rolling out its Building Blocks in different countries. Building Blocks enables the UN to distribute money to refugees – directly, securely and quickly – without the need to go through a local bank. It has been successfully deployed in refugee camps in Jordan, enabling the UN to create an accurate on-line record of who has received what, and when. It is thought by the authors of a report commissioned by the UN environment agency, UNEP, that Blockchain technology could also improve the livelihoods of waste pickers, who eke out a living in the informal economy.
Looking back at 2017 and 2018, there was so much hope and promise as to how Blockchain technology could help the 1.8 billion unbanked globally as well as being a force for good to help improve our environment creating a cleaner, fairer economy by breaking down many of the existing ways of doing business. It is encouraging to see from some of the above examples it really would seem that the hopes and dreams of some of the early adopters and enthusiasts behind Blockchain technology are beginning to gather tangible evidence of how this technology is able to make a palpable difference!
How stable will some stablecoins prove to be?
There has been considerable interest in stablecoins which now have grown to be worth almost $112billion. Even more impressive is the amount of turnover/trading that some of these stablecoins enjoy.
Top five stablecoins
However, were there to be a sudden loss in confidence resulting in investors wanting to cash in their stablecoins for actual US dollars (a number of these stablecoins that claim to be backed/pegged/linked to), would investors get $1 for every stablecoin they held?
Looking at the assets that the two largest stablecoins, Tether and USDC, hold who knows? When USDC was launched in 2018 it was claimed: “Using Circle’s platform, individuals and institutions can deposit US dollars from bank accounts and convert them into USDC tokens. The equivalent US dollars then held in reserve by Circle’s banking partners.” Less than 3 years later, in July 2021, Circle, one of USDC’s creators has revealed in an attestation report that 61% of its tokens were backed by “cash and cash equivalents“. Yankee Certificates of Deposit – meaning Certificates of Deposits issued by foreign (non-U.S.) banks – accounted for a further 13%, with US Treasuries accounting for 12%, commercial paper accounting for 9%, and the remaining tokens being backed by municipal and corporate bonds. Presumably, this was one of the reasons why Coinbase’s website now describes USDC as: “Each USDC is backed by one dollar or asset with equivalent fair value, which is held in accounts with US regulated financial institutions”.
Meanwhile, if you find this at all confusing have a look at the assets that Tether hold. In its latest report, Tether disclosed that of the $63billion of assets that support its US$ stablecoin it held- “Secured loans not related to any of Tether’s affiliates amounted to $2.5 billion. The company also held over $4.8 billion in corporate bonds, funds and precious metals. A little over $2 billion were held in “other investments” including digital tokens.” Hardly US Dollars in their purest sense! While the assets that these stablecoins hold ought to be liquid and therefore redeemable/sellable in the event of stablecoin holders wanting their money back, is it of no surprise that some (including regulators) must shake their heads in disbelief? If you say you are backed by US Dollars, why not hold US Dollars?
However, try popping into the branch of your local bank and asking to withdraw £10,000, $10,000 or €10,000 and you will possibly be interrogated with: “Why do you want your money back, and what are you going to spend it on?” Assuming you pass this grilling, you are most likley to be asked to come back in a few days when the bank will actually be able to give you your cash! A situation all too painfully familiar for depositors who in August 2007 were forced to cue as they tried to get their cash out of the Northern rock building society
Oh, the joys of fractional banking since the banks do not hold sufficient cash to meet the cash deposited with them by their customers. But at least clients with UK banks do have the Financial Services Compensation Scheme whereby if you are defaulted by a bank, you will get up to £85,000 (or in some cases up to £1million) of your money back. Meanwhile in the US, the Federal Deposit Insurance Corporation offers protection for up to $250,000 and in Europe, the Deposit Guarantee Scheme offers protection on bank deposits up to €100,000.