The Future of Sustainable Blockchain Technology is Here

In 2021, the value of the cryptocurrency market soared past $1 trillion, then $2 trillion and is now approaching $3 trillion in market capitalization.

While the tremendous gains in the market have generated value for investors, critics question whether the cost can be justified given the high rate of energy consumption associated with the broader decentralized finance (DeFi) space.

The energy problem really boils down to a blockchain problem because of the carbon footprint associated with the mining process for crypto assets like Bitcoin. Luckily, not all blockchains are created alike, and DeFi users don’t need to simply accept higher energy use as a cost of doing business.

Algorand, a leading blockchain company, announced recently that its technology is fully carbon neutral, another step in its mission to be the most sustainable blockchain. In September, the Algorand Foundation launched a $300 million Viridis fund to support DeFi innovation and enable sustainable development. A negative footprint for the broader industry is a realistic goal, particularly as perceptions begin to evolve, according to Sean Lee, CEO of Algorand Foundation.

As “one of the cleanest” blockchains, Algorand has an opportunity to exert a broader-reaching impact, Lee noted during a fireside chat as part of the Reuters Momentum Virtual Global Conference on Oct. 27. “If you think about blockchain being the core infrastructure, then applications that are being built on this infrastructure can automatically inherit the carbon footprints alongside with it.”

Developers have a choice of platforms when creating new assets, like non-fungible tokens (NFTs), and no longer need to sacrifice sustainability for platform functionality. While some of the negative perceptions about the industry are starting to change, it is incumbent on companies like Algorand to continue to educate and innovate so that adoption of green practices becomes more widespread, according to Lee.

Moving beyond the “negative blockchain narrative”
Still, there’s a lot of work to be done. Bitcoin production alone is estimated to generate more than 22 million metric tons of carbon dioxide emissions each year, which is on par with the levels produced by countries like Jordan and Sri Lanka, according to a 2019 study in the scientific journal Joule. That said, 74% of bitcoin mining is powered by renewable energy, according to a June report by CoinShares.

While bitcoin commands a lot of attention, it’s a relatively small piece of the overall blockchain space, and there are signs of progress of applications that use comparatively less energy, Lee noted. “The rest of the industry is rapidly moving toward a much cleaner, a much healthier carbon footprint in that space, led by next generation blockchains, such as Algorand” he said.

Another sign of progress? There are companies that are leveraging the Algorand blockchain to address environmental challenges – and serve as use cases of using blockchain to bring about positive change related to sustainability efforts, according to Lee. For example, PlanetWatch is using the technology as part of its efforts to improve global air quality, while Gaiachain is tracking forest landscape restoration through a system built on Algorand.

Defining sustainability and the future of blockchain
As more developers adopt green blockchain technology, the industry can also begin to look at sustainability in a broader context. “If you think about sustainability, it isn’t just about the environment; it’s also about the people,” Lee said. “I would normally define sustainability as meeting our own needs without compromising for future generations. Therefore, sustainability isn’t just about the environment but also about economic and material resources and about social equality.”

Encouraging more widespread adoption of DeFi is also key. The Viridis DeFi fund is a call-to-action for people interested in building on Algorand and was established to help accelerate the adoption of the DeFi ecosystem. The foundation also launched two "SupaGrants" that will support the creation of critical DeFi infrastructure.

In the near term, however, Lee expects continued debate about the use of blockchain technology, along with more scrutiny about potential regulation – two issues that go hand-in-hand and are necessary for bringing about more widespread adoption of this technology in the future.

“I think it’s healthy, but also up to us to continue to educate and work with the government entities, the regulators and academic institutions to really think about the nuances of what this technology brings so that we are indeed doing the right thing,” he said. Those efforts also help ensure a longer-term goal: Sustainable blockchain “becomes the fabric of the next generation of technologies and ways that developers and students – the younger generation – can continue to build upon.”