According to a study reported in Energy Research & Social Science, failure to reduce the energy consumption by Bitcoin and analogous Blockchain designs can prevent countries from fulfilling their climate change mitigation commitments under the Paris Agreement.
Jon Truby, PhD, Assistant Professor, Director of the Centre for Law & Development, College of Law, Qatar University, Doha, Qatar, authored the study, which assesses the legal and financial options available to lawmakers to regulate the energy consumption of blockchain technologies and nurture an innovative and sustainable technology sector. Considering this stringent analysis and review of the jurisdictional case law and practices, technologies and ownership models, the article proposes a method that imposes new charge, taxes, or constraints to lower the demand by miners, miner manufacturers, and users who use polluting technologies, and also provides incentives that inspire developers to produce Blockchain that is less energy-intensive and carbon-neutral.
Digital currency mining is the first major industry developed from Blockchain, because its transactions alone consume more electricity than entire nations. It needs to be directed towards sustainability if it is to realize its potential advantages.
Many developers have taken no account of the environmental impact of their designs, so we must encourage them to adopt consensus protocols that do not result in high emissions. Taking no action means we are subsidizing high energy-consuming technology and causing future Blockchain developers to follow the same harmful path. We need to de-socialize the environmental costs involved while continuing to encourage progress of this important technology to unlock its potential economic, environmental, and social benefits
Jon Truby (PhD), Assistant Professor & Director of the Centre for Law & Development
Blockchain technology is a digital ledger that is used and trusted by all participants. It decentralizes and changes the exchange of assets via peer-to-peer substantiation and payments. It has been advocated that Blockchain technology can deliver social and environmental benefits under the Sustainable Development Goals of the UN. Yet, the system of Bitcoin has been developed in such a way that it reminds of physical mining of natural resources – as the system reaches the final resource limit, efforts and costs rise while the mining of novel resources needs more and more hardware resources, which use a great deal of electricity.
Putting this concept into perspective, Dr. Truby stated, “the processes involved in a single Bitcoin transaction could provide electricity to a British home for a month – with the environmental costs socialized for private benefit.
“Bitcoin is here to stay, and so, future models must be designed without reliance on energy consumption so disproportionate on their economic or social benefits.”
The study assesses different Blockchain technologies through their carbon footprints and proposes how to limit or tax Blockchain types at various stages of production and use to encourage cleaner options and discourage polluting versions. The study also examines the legal measures that can be launched to enable technology innovators to come up with low-emissions Blockchain designs. The particular recommendations include imposing taxes to avoid path-reliant inertia from limiting innovation:
- “Bitcoin Sin Tax” surcharge on digital currency ownership.
- Registration fees gathered by brokers from digital coin buyers.
- Smart contract transaction charges.
- Green taxes and limitations on machinery imports/purchases (for example, Bitcoin mining machines).
Dr. Truby said that while these discoveries may lead to new charges, taxes, or constraints, they may also result in financial rewards for innovators creating carbon-neutral Blockchain.