Why is it time to start talking about blockchain ethics?
While Blockchain technology is changing the nature of money and organizations – we are witnessing a global situation that indicates the need that as a society we should start thinking about the positive and negative impacts of new technology, but also work on improving existing regulations.
How does blockchain contribute to improving ethical performance?
Key attributes of blockchain such as
transparency, immutability and trust
– allow this technology to greatly contribute to countering unethical action. It is precisely the nature of blockchain that implies that we can trust each other, because trust is not a problem here. It is like information – distributed and secured, because it depends on all participants in the blockchain.
Due to all these characteristics, blockhain technology has a promising effect in numerous activities and areas such as finance, property rights, personal data, donations, humanitarian actions. In one of our previous blogs, we told all about blockchain, and singled out several different applications, such as: political elections, health and sciences, buying and selling real estate.
Risk assessment of new technologies
When there is a development of new technologies, as it was in the case of blockchain during the 80s – a risk assessment is needed to set up a lawful and ethical model at the outset. If we want a certain economic benefit to be realized from new technology – it must be usable and applicable. In doing so, it must not violate the laws of the market to which it wants to place itself, and must establish a relationship of trust with users of technology.
All supervisory authorities in the EU have already taken decisions on when such assessments are mandatory. This decision covers all new smart technologies, such as smart devices, smart cities, tracking, GPS devices and the like. In fact, this ensures that risks to fundamental rights and freedoms are anticipated in advance, and that safeguards are incorporated in a timely manner that are necessary to reduce the risks. Such assessments should not be a secret document, but should be made public to ensure the transparency of a particular technology or project.
Ethics and Blockchain - together!
Although the world of cryptocurrencies is often mentioned in the context of fraud, according to academia and scientific institutes – not only does it make sense to discuss “blockchain ethics”, but it is also necessary. If blockchain technology can reasonably be expected to make a significant difference in society, then it deserves its own area of ethics.
How can we positively shape the development of this technology?
At the Cryptoeconomic Systems group summit – a gathering of blockchain developers, economists, financial engineers, lawyers, whose academic disciplines are relevant to technology – an open question for a new academic field focused on many interdisciplinary aspects of blockchain development. The ethics of blockchain could be considered under the category of this.
Recent events that we can refer to, which support the need for and importance of ethics in the context of blockchain:
- The recent collapse of the FTX exchange and shaken customer confidence;
- The emergence of different currents within the crypto world, the crypto market;
- Development of different consensus mechanisms, and different approaches to mining;
- Cases of hacker attacks and the question of security.
- Energy consumption and the impact of carbon dioxide on the environment.
Increased awareness of the impact of mining on the environment was triggered by the event in May 2021. One of the most important “opinion-makers” in the crypto industry, Elon Musk decided to withdraw the decision to allow tesla cars to buy with Bitcoin. With this move, he, as well as Tesla, as a company oriented towards sustainable development, positioned himself as a fighter against increasing energy consumption and carbon dioxide emissions. Take a look below at the statement Elon shared on Twitter to publicly communicate his decision.
What followed was bitcoin’s more than $1,000 drop in less than an hour. Furthermore, his message set off an avalanche of countless articles about bitcoin’s environmental impact.
Recently, the situation has changed somewhat from the original statement, when Elon stated that Tesla will continue to accept Bitcoin payments at the moment when mining becomes more sustainable by at least 50%. According to the Bitcoin Mining Council, Bitcoin mining is currently at 58.9% of the sustainability level, relying on sustainable energy sources in that percentage.
Why is Bitcoin mining not environmentally friendly?
Most cryptocurrencies rest on the so-called proof-of-work (PoW) consensus mechanism. This mechanism ensures the security of the blockchain by requiring that all transactions on the network be validated by computers that are part of the network. As a reward for transactions that have been confirmed, the miner receives a reward – which is also his main motivator for mining. Due to the complexity of mathematical operations carried out on hardware, and the constant desire of miners to find the next piece of hardware that will be faster, more powerful and more efficient than the previous one – it has come to the point that today mining processors are used that are several thousand times stronger than those of the first processors of 2009. This also increases the amount of energy required for the process. Given that coal is still the main source of energy globally, it is evident that mining indirectly affects the consumption of non-renewable sources and the increase in CO2 emissions.
How much energy are we talking about?
In fact, it is not at all easy to estimate the exact amount of CO2 emissions caused by Bitcoin mining. The parameters that need to be taken into account are: exactly how much electricity is consumed, how many mining platforms there are in the world, how much coal is needed to produce this amount of electricity, and how much CO2 is produced by burning that coal. However, estimates are not optimistic, with reports estimating that Bitcoin has contributed to emissions of about 40 million kilotons of CO2 over the past two years.
Let’s also look at energy consumption and the environmental impact of a particular cryptocurrency
If we put everything in perspective to better understand the relationships in total consumption, we will see that Bitcoin mining produces more CO2 from:
- American Airlines – one of the largest airlines globally;
- Coca-Cola and Nike together.
- 20 million cars;
- Total greek spending.
According to other estimates – nearly 50% of Bitcoin’s energy comes from other energy sources that are more sustainable, so these statistics are not entirely accurate.
What's in favor of cryptocurrencies and mining?
From the aforementioned parallels, we have seen that the crypto industry, as well as other industries engaged in the production of commodities, inevitably leave the so-called . “carbon footprint” (eng. Carbon footprint). In comparison, let us ask ourselves what is the impact of traditional financial institutions on the environment: banks, treasuries and funds use millions of computers, telephones, devices and even air conditioners in branches, etc. Who knows how much spending this is about; The world banks are too big a lobby that is not interested in moving to a decentralized monetary system. According to other estimates, the company of another crypto “promoter”- Square, Jack Dorsey, has released a memo stating that Bitcoin will be key to a cleaner future. How are they
solar and wind energy more favorable, it is likely that the miners of the future will switch to these alternative sources, thus contributing to the energy efficiency of mining. In China, the shift could occur to hydropower as the energy of miners given the huge potential of water as a resource in the area of individual regions in China.
Solution to the consumption problem
The solution to the problem of consumption lies in:
- Moving towards new sources of energy
- Switching to alternative mining methods
- Switching to new cryptocurrencies that are mined differently
With Bitcoin, higher energy consumption occurs due to the “Proof-of-Work” consensus mechanism, which, although the safest and most decentralized , because of the way it works – still consumes the most energy. We can talk about the fact that the Proof of Share (PoS) mechanism to which Ethereum has switched through the process “MERGEA” eliminates this problem because in the PoS approach, miners do not confirm transactions, and the blocks are not mined based on the processing power of the hardware – but on the basis of the amount of coins they own and that they “acquire”.
In other words, the PoS mechanism does not rely on the hadrver you use, but “asks” that you own the cryptocurrency and invest it in a set of stakes. Proportional to how many coins you own – you also get new coins.
There are other more innovative mechanisms such as Proof of Capacity (PoC) and Proof of Space-Time (PoST),and whose environmental footprint is much smaller because they rely on hard drives and storage space. Although they consume significantly less electricity, they are criticized for increased demand and consumption of hard drives, which also poses an environmental problem. These mechanisms are definitely not without flaws, and raise a long line of other issues, but in the context of sustainability – they are much more promising than PoW.
We’ll see what the future holds, but one thing is certain – change is inevitable.
Until the next blog,
Your Kriptomat.hr Team