Blockchain and Environmental Impact

What are Blockchain and Bitcoin for?

Bitcoin was born as a cryptographic virtual currency which allows users to carry out peer-to-peer transactions without the need for intermediaries and that are not subject to authorisation or control by any central authority; the legitimacy of the transactions is provided by the network itself.

Blockchain, according to the definition of the Digital Innovation Observatories of the School of Management at the Politecnico di Milano, "exploits the characteristics of a computer network of nodes and allows to manage and update, in a univocal and secure way, a ledger containing data and information (for example transactions) in an open, shared and distributed manner without the need for a central control and verification entity”.

Operationally, Blockchain is a technology that is based on a distributed ledger, which can be managed thanks to the collaboration of the Network participants, responding primarily to the need for disintermediation and decentralisation: in a system of this type, banks, financial institutions, notaries etc potentially no longer have any purpose.     

In addition to this, the advantages of Blockchain technology also include the traceability of transfers, transparency and verifiability, the immutability of the ledger and the programmability of the transfers.

After their birth, cryptocurrencies experienced a sensational media hype that began to decline in 2018, when a collapse in capitalisation led to the so-called ‘Crypto Winter’.

In particular, three fundamental factors intervened to undermine the stability of cryptocurrencies:

1. the risk of becoming an easy tool for financial speculation,
2. the slowness of the transactions,
3. the too high consumption of energy during mining, that is, occurring during the validation process of the Bitcoin network.

A relatively short 'winter', if we consider that during 2021 cryptocurrencies began flying again: the company ChainAnalysis has in fact highlighted how between the end of 2019 and mid-2021, the use of cryptocurrencies increased by +2500%.

On the other hand, the technology underlying cryptocurrencies has never known down phases: indeed, the blockchain is not onlycontinuously evolving, but more and more companies are observing it with interest and attention, acknowledging one of the most revolutionary technologies of recent years.

Where are Bitcoins/cryptocurrencies stored?

Bitcoins are a virtual currency, as such not issued by any central bank (a mechanism that was questioned in the G7 in Washington in October 2021, during which there was talk of a Central Bank Digital Currency, that is, the possibility that central banks could issue cryptocurrencies was addressed).

In any case, there are shared databases within which Bitcoins are stored and which, thanks to cryptographic systems, keep track of transactions, generate new currency and attribute this to the owners.

These Cryptocurrencies are then stored in a virtual wallet and saved in a specific wallet which is associated with a private key that allows the owner of the address to control his/her own 'account', as well as to receive and make payments and carry out transactions.

There are many types of wallets, with different characteristics depending on the needs of the holder; just to name a few, there are the full wallet, the lightweight wallet, the hardware wallet, the paper wallet, the hot wallet and cold wallet, the HD wallet, the SPV wallet.

The technology behind the Bitcoin blockchain is defined as ‘proof-of-work’: as we have seen, its operation is based on the need to use ever more powerful computers to increase the odds of winning the race.

The energy impact of this technology is therefore devastating. Numerous studies have in fact shown that the carbon emissions generated in the mining process equal the quantities of entire nations, such as New Zealand and Argentina.

In February of this year, a paper by the Bank of Italy found that the blockchain behind Bitcoins consumes a truly impressive amount of energy, with an impact on CO2 emissions 40,000 times higher than, for example, the 'instant' payment system adopted by the ECB for the euro (TIPS, Target instant payment settlement).

However, as we will see shortly, not all blockchains pollute in the same way, and it is possible to speak of eco-sustainability in this case too.

They are those that are characterised by low energy consumption, whose operation is based mainly on renewable sources and which are capable of not producing waste.

The green, or eco-friendly cryptocurrencies are those that belong to two macro-families: those with low consumption, which offer the services of a classic blockchain but with low energy consumption, and cryptocurrencies born with eco-friendly purposes.

The www.criptovaluta.it website, an online magazine entirely dedicated to the world of cryptocurrencies, has drawn up a list with the 7 best eco-friendly cryptocurrencies:

- Cardano

- IOTA

- Ripple

- Stellar

- Tron

- Eos

- Hedera Hashgraph

Governments with public policies designed to regulate the sector and direct the mining industry towards more sustainable choices will also play an important role in guiding the operator’s attention towards green and eco-friendly cryptocurrencies.