How Blockchain technology can support Environmental Sustainability in the globalized economy

In a globalized economy, transparency, inclusiveness, and environmental sustainability are goals many individuals, corporations and international entities strive to achieve. With the global economy rapidly expanding, many fear that growth and sustainability will come into conflict as more and more natural resources are needed to fuel it.

Furthermore, with the growing economic and political power of multinational corporations, others fear that local producers will become excluded from the global economy; unable to compete with the low prices and international infrastructure enjoyed by multinationals. There is also fear that corporations will take advantage of marginalized peoples in developed countries as they lack the resources to properly sustain themselves. As corporations grow more powerful, the need for transparency and accountability has become more pressing. Without transparency, corporations can lie about their corporate social responsibility, claiming to be sustainable while extracting resources from unsustainable sources or by unsustainable methods, and allow governments to ignore their obligations under environmental treaties.

These are issues currently undermining the success of our global economy. In a global economy, there is no perfect information--consumers do not always know where the product they are buying is coming from, who handled it from point A to B and even what it is made of. This information is often withheld by many parties, either financial institutions or bureaucracies, who conduct the transactions but do not always make these crucial facts public.  But what if we could allow more inclusiveness, transparency, and sustainability in the market? What if we could connect local producers to the international market, without having to go through middlemen who slow down the process and raise prices? What if we could create more transparency and more perfect information for consumers to be more informed on what they are buying?

These are all questions people are looking to answer with a new technology called a blockchain. A decentralized technology that allows for almost instantaneous peer-to-peer transactions,  blockchain can connect local producers in Indonesia to retailers in the UK, can track the exact movement of products from point A to Z, and allow for peer-to-peer sharing of renewable energy; it can streamline transactions, reduce costs and save time. All this may seem like a lot for a technology that is relatively new and obscure to the majority of the population, but these results are achievable. Already blockchain technology is making its way into the sustainable food and renewable energy sector, proving it can save time, money, food, and energy. By examining how blockchain technology functions, we can observe how it will benefit sustainable development in the food and energy sectors by creating more transparency, decentralization, and inclusiveness.  

How Blockchain Works   

Blockchain technology is set to disrupt many industries in the global economy. Understanding the properties that make blockchain so disruptive and innovative will help clarify how it can be useful in sustainable industries and promote inclusiveness in our global economy. Here’s how a blockchain works: two parties who want to make a transaction each have a unique private and public key, to ensure a secure digital identity. A smart contract, which is simply a normal contract written in code, is electronically conducted with the transaction, letting everyone know party A is interacting with party B. Party A’s private key is then attached to party B’s public key, along with a timestamp of when it occurred and the relevant information of the transaction, for example, what is being bought or sold. This is the “block.” In order for this block to be verified, it needs to be sent to the “nodes” in the network.

These “nodes” are just computers diverting CPU or GPU power to perform mathematical equations to “verify” the transaction. Once they all come to the same solution the “block” is added to the existing chain of other “blocks” which can then be observed by anyone. This verification process makes the blockchain unique as anyone with a computer can divert their CPU or GPU power for the maintenance of a blockchain. On most cryptocurrency blockchains, people are incentivized to do this as a monetary reward is given to one of the “nodes” who participated in verifying a block. This aspect gives a blockchain its decentralized feature as the verification does not rely on a single corporation or entity but the collaborative self-interest of many individuals. This whole process takes only minutes, eliminating the need for tedious paperwork as it is all electronically verified and recorded.

Furthermore, once on the chain, a block cannot be altered unless authorized by its owner, reducing the risk of fraud. Most people will talk about “the blockchain” when they should be talking about “a blockchain,” as saying “the blockchain” implies that all blockchains are interconnected to one another. In fact, the fact that each blockchain is distinct is one of the method’s unique advantages. It does not operate like the world wide web. Instead one can have different blockchains operating for different purposes, that is to say, a blockchain can be worldwide and public like the internet, but not necessarily connected to every other blockchain. For example, the cryptocurrency Bitcoin operates on a public blockchain where anyone can see the open ledger of bitcoin transactions, anyone can participate in the maintenance of the servers and anyone can partake in the transactions of bitcoins on the blockchain. However, one could code a private blockchain, where only certain parties are allowed to view the ledger, participate in the maintenance of servers and partake in transactions.

Blockchain in Agriculture

With the understanding of how a blockchain works, we can now turn to its potential to create a fairer, greener economy. Many companies and venture capitalist are starting to invest in blockchain technology for their own operations and startups. One major implementation is in supply-chain verifications. In theory blockchain technology can create more transparent supply chains for consumers. A consumer will be able to trace the origin of a product on the blockchain as it automatically records where and when an item was transacted. Through an electronic payment, in minutes a verified transaction is recorded on the blockchain, another transaction is recorded when an item is transferred from one party to another, and one final transaction is recorded upon receipt by the seller. This ensures that a consumer knows where a product came from and who handled it.

Although all this seems complicated, because it is all electronically recorded, there is little need for human involvement, greatly reducing the risk of error.  This benefits the consumer most in the agricultural industry. The demand for locally sourced and organically grown food has been rising since the turn of the century. With a blockchain, consumers can see where the food they are buying is coming from, who is producing it, and whether or not it has the certain qualities they want. Consequently, sustainable producers of agricultural products can become more connected with their consumer base and play a more active role in a global economy without incurring the heavy transactions costs that, pre-blockchain, made business prohibitively expensive.

It can also prevent sources of unfair labor and even slave labor from entering the market. For an example of both of these trends,  a company called Provenance is connecting the supply chain of sustainably caught yellowfin tuna in Indonesia to a blockchain, along with fair trade coffee and coconuts, thereby assuring consumers that their products are coming from sustainable and nonexploitative sources. Consumers want to know where their food is coming from and a blockchain can create this transparency; under the old model of transactions, information about the origins of products can be lost in the vast paperwork of bureaucracies or otherwise hidden from consumers.

Major retailers have also begun using blockchain for their own supply-chains, as it gives the ability to track a single product all the way from its origin. Walmart is experimenting with blockchain to track produce in the US and pork from China. They conducted an experiment in which they assigned employees to trace the origins of a single pack of sliced mangos. It took them six days to complete the task, conducting the same experiment using a blockchain, it took only 2.2 seconds. This can prove useful in the case of produce contamination as stores can quickly identify which items came from the contaminated areas and dispose of them. As a result, stores can save money and reduce food waste as uncontaminated food will not have to be unnecessarily wasted.

Blockchain in the Energy Sector

Perhaps one of the biggest innovations blockchain can bring to any industry is in the energy sector. The energy sector as we know it today consists of centralized grids where the energy comes from power plants, usually some distance away from the sources using the power. They have been known to create an inefficient distribution of energy, and unused energy surpluses. Blockchain is revolutionizing the way we exchange energy with one another and on energy markets. Essentially, a blockchain will allow for peer-to-peer trading of homegrown energy. This would work through microgrids, where buildings or households that generate energy through renewable resources, such as solar energy, would automatically trade any surplus energy to households or buildings with an energy deficit. This reduces the need to transmit energy over long distances and eliminates the need for energy storage. It creates energy efficiency as customers automatically take power from their nearest supply. This creates further incentives for individuals to switch over to renewable energy as it gives them the ability to earn passive income from the energy they generate.

How would all this work? The blockchain would be linked to a smart meter that measures the energy production and usage of the buildings linked to its network. When one building produces an energy surplus, the smart meter can determine where that surplus could be used most efficiently. A transaction via the blockchain automatically purchases the energy, which is then recorded in the chain and the energy is then sent to the location that needs it, all within minutes. The effort of managing demand and supply of energy between consumers and an array of micro-energy producers is completely left up to computers. In energy, this decentralized model of distributing energy yields a more efficient and therefore less costly allocation of energy. Currently, a Brooklyn based company called LO3 Energy is experimenting with this method of energy sharing.  

Current Limitations of Blockchain

In order to successfully implement blockchain technology in our everyday lives, it is also important to examine the current problems that appear to limit the technology. First, there is the question of how to make it interoperable—that is, how can we be sure that blockchains can work with one another in a way that facilitates transactions? Due to the technology being in its infancy, there are no current international standards on it, meaning a blockchain can vary from place to place. Because they are not connected through any central infrastructure like the internet, the blockchain infrastructure that the cryptocurrency Bitcoin operates on is not connected to the one Provenance records its supply chains on. Second, because it is, in essence, a public ledger for all to see, this creates privacy concerns. Individuals may not want all their transactions to be made public; effectively implementing blockchain technology thus creates the question of how to ensure and respect privacy while maintaining much-needed transparency. This is mainly an issue for peer-to-peer interaction than for transparent supply chains. Third, even though the blockchain allows for transparency, in reality, there is no way of stopping someone from inputting false information onto the blockchain.

For example, someone could label GMO fruit as organic and once their transaction is verified it will be placed in the blockchain falsely as organic.  Inputting false information in a blockchain, just line in any transaction can completely undermine the effectiveness of a blockchain by destroying its integrity; once information is inputted into the blockchain it is very difficult to remove. Fourth, how do we create incentives for consumers and producers to migrate to blockchain from more conventional methods of doing business? As stated earlier, a blockchain needs a collaborative effort of people diverting CPU or GPU power from their computers to verify transactions. On the bitcoin blockchain, people are incentivized to do this by the possibility of a monetary reward. This has the unintended consequence of being environmentally unfriendly, as the amount of energy that is used to power that infrastructure is greater than the entire energy usage of the country of Serbia. A new method must be conceived to incentivize people to upkeep the blockchain while not being so energy inefficient or cumbersome as to render blockchain a niche transaction tool.

Lastly, we should be concerned about decentralization, scalability, and security. Blockchain technology can currently only support two out of the three. This is because a blockchain can only support as many transactions as a single node can and these nodes store the information of a blockchain and process transactions, keeping it secure, but hindering scalability (Tomaino). Although no one has come up with a blockchain that can effectively implement decentralization, scalability, and security, it does not mean it cannot be achieved in the future. Although these flaws seem to limit the effectiveness of the technology, it does not mean they cannot be overcome.

Moving forward with Blockchain

Over the past four years, the potential of blockchain technology has caught the interest of many businesses. Between 2014 to 2016, around 1 billion dollars was invested in blockchain startups alone and this year total investments are predicted to reach $2.1 billion dollars with the most investments coming from the financial sector. This trend in increasing investment and interest in the technology can only benefit it in the future. Still in its infancy, the experiments in energy and agriculture discussed above will help to identify and fix its flaws and help us find new ways to bring blockchain to bear on everyday problems.  Interest is particularly high in the energy sector. From the second quarter of 2017 to the first quarter of 2018, more than $300 million dollars was invested in the technology by that sector alone. Although investment is one way to advance the technology, there are other methods available, especially if we are willing to compromise on certain capabilities, at least for the time being.

As mentioned earlier, one can program a public or private blockchain for various uses. In theory, I believe sacrificing the aspect of decentralization can solve many of the current issues that underlie blockchain technology. A blockchain can still be inclusive while not being decentralized. How does this solve some of its current problems? First off, with a private blockchain, one can choose who sees the information on the blockchain and thus ensure privacy as only selected people will be able to see the information, change it and verify it. Second, with a private blockchain, one can limit who actually is able to transact on it. Although sounding exclusive, it can very easily be inclusive. One can hold certain individuals to standards before permitting them to access the blockchain. Such standards can keep those who would abuse the system and enter illegal or false information onto the blockchain out and ensure a blockchain’s integrity. For example, if Provenance wants to ensure that all the products being put onto their supply chain is actually from sustainable sources they can make sure the producer has a license confirming that they are a sustainable producer and then allow them to enter their system through a smart contract; private contracting of this kind can protect purchasers and sellers alike.

A private blockchain can also be more eco-friendly and energy efficient than a public one. This is because, in a private blockchain, only certain people or entities have permission to run the nodes, unlike a public one in which anyone could participate. This solves the question of how to incentivize people to act as nodes as organizations, through their private blockchains, can run the nodes themselves. One could also program a blockchain to be more energy efficient as well. Until there is a way to effectively implement a blockchain that can have decentralization, scalability, and security, decentralization should be sacrificed. However, this does not mean it should or will be exclusive, especially for green initiatives who seek to use the technology to empower sustainable producers and energy efficiency. Instead, it should be as inclusive as possible to allow for more people to partake in the system while having a centralized system of nodes for verification which will allow for scalability.

To ensure for the future that decentralization will become an aspect for all blockchains, a smart contract should be put in place to not only allow the ledgers to be public for all to see, but that the ones in charge of verifying the transactions will not indefinitely retain all the information for themselves, as they are the ones who store all the information of the chain.  When it does become possible for a blockchain to have decentralization, scalability, and security, it should be widely implemented. The aspect of decentralization is important for streamlining transactions and inclusiveness.

Conclusion

Through examining how blockchain technology works and taking into account the current problems with it, as nothing is inherently perfect, we can more clearly see how this innovative system can lead to a cleaner and more responsible world. Blockchain technology has the potential to revolutionize the way we interact with one another, exchange energy, and record information. Its ability to conduct transactions in minutes and log them for all to see will create more inclusiveness as smaller and more sustainable producers can directly connect to their consumer base, thus, empowering smaller, sustainable producers, and allowing them to play a bigger role in our global economy.

Automatic instantaneous transactions will create decentralized local energy grids, incentivizing renewable energy and eventually replacing the old, inefficient system of centralized power grids. Blockchain technology will solve the old problem of how to share energy at the local level allowing for peer-to-peer trading of energy. This can dramatically help the developed world reduce its carbon footprint while helping the developing world obtain cheaper clean energy. The massive amount of funding needed for the infrastructure of centralized power grids will no longer be necessary with these microgrids, powered by solar energy.

Many people already recognize the harmful effects globalization has had on the environment and how it has marginalized people in favor of profit. Blockchain can empower the individual, helping them make more informed decision making in the market, keeping supply chains transparent, and allow for me peer-to-peer interaction without having to go through financial intermediaries who raise costs and withhold information. Overall, with continual experimentation and trial and error, blockchain technology can be implemented in our everyday lives to empower a greener future.

 

 

 

 

Works Cited 

Magee, Tamlin. “What is Blockchain? Can it live up to the hype?” ComputerworldUK, IDG, 16th Feb, 2018.  https://www.computerworlduk.com/data/what-is-blockchain-will-live-up-hype-3636352/. Web. 30th April, 2018

Dabbs, Alistair. “What blockchain can do for the environment.” GreenBiz, 14th March, 2017. https://www.greenbiz.com/article/what-blockchain-can-do-environment. Web. 1st May, 2018

Tomaino, Nick. “On the scalability of blockchains.” TheControl, TheMedium, 23rd March, 2018 https://thecontrol.co/on-the-scalability-of-blockchains-ec76ed769405. Web. 1st May, 2018

“Smart Contracts.” Investopedia. https://www.investopedia.com/terms/s/smart-contracts.asp. Web. 2nd May, 2018