The beginning of the new economic paradigm with blockchain technology could be transformative in enabling a new business model to minimise the environmental footprint on the planet
The changes that have occured in Internet technology in the last 40 years, can be classified into three technologically distinct stages of development: web1, web2, and web3. The internet came into common usage in the early-to-mid-1990s, before smartphones. Websites were primarily static, providing only text and a few images.
The advent of Web2 in the early 2000s brought us interactive websites, portable devices (smartphones, tablets, smartwatches), and social media that allowed users to utilize and create content. This was made more manageable with the further advancement in storage and execution of web properties with the Cloud Technology, which was introduced in late 2006 via S3 storage from AWS. Cloud technology further advanced web2 because it made the complete integration of life in society on computers – from finance to personal life.
The 2020s brought us a new internet, web3, which represents the decentralization of everything. The egalitarian model of decentralization allows for not having a central agency responsible for major decisions; the opposite of this would be a service such as Google, which singularly manages many domains and transactions on web2. On the surface, web3 will introduce everyday use of 3D video, augmented reality applications, faster-moving and more impactful video games, Artificial Intelligence/ Machine Learning (AI/ML) powered applications for business and entertainment, and several other things we don't usually see on today's Web2. Decentralized finance (DeFi), will be another central resident of web3. The first principal cryptocurrency, Bitcoin, was also the first web3 project to succeed in this sector.
If you've been paying attention to the financial news, you've probably noticed that the value of one bitcoin skyrocketed from around $11,000 in October 2020 to over $62,000 in April 2021, before plummeting to under $32,000 two months later. You are not alone if you’re perplexed by these price movements. Most people, including government officials, are unfamiliar with the underlying technology of bitcoin (blockchain) and its potential impact on our lives.
According to Coinmarketcap.com, as of July 2022, over 20,000 cryptocurrencies totalled over $9.57 trillion in market capitalization. At its annual meeting in May 2021, the UN Commission on Science and Technology for Development (CSTD) focused on the importance of blockchain in the real economy, examining trade, logistics, and supply chains. Following discussions at the CSTD, UNCTAD recently published a report on how blockchain can be used to promote sustainable development.
Blockchain is fundamentally a trusted technology, but transformative possibilities to broadly benefit society are emerging. Blockchain technology's core competencies — transparency, data auditability, privacy, value transfer, process efficiency, and automation — can be used to drive the systemic changes required to deliver usable infrastructure. It makes blockchain technology a promising enabler for sustainable development through facilitating digital transformation, transparency, provenance, and balanced growth across communities and multidisciplinary services.
Blockchain's appeal derives from its ability to support transparent data sharing, optimize business processes, reduce operating costs, improve collaborative efficiency, and develop a system that does not need explicit incorporation of trust in its control. Among the other advantages, blockchain can address various environmental sustainability challenges, supporting environmental sustainability through three fundamental underlying mechanisms relating to resource rights, product origins, and behavioural incentives. It could facilitate new means of green production, monitoring and storing data-related activities responsible for pollution and environmental degradation, real-time collection and analysis of green or low carbon data for timely decision making, and favouring the development of a green supply chain.
Blockchain for Sustainable Energy and Climate in the Global South: Use Cases and Opportunities explores how the technology can accelerate the transition to clean energy and help combat climate change in developing countries. It's a publication that comes as global temperatures are on pace to rise by at least 2.7°C by the end of the century, a number UN Secretary-General António Guterres has called catastrophic. But as web3 matures and truly begins to scale, concerns about its carbon footprint will creep back to the fore—what's the point of building a tokenized, decentralized pocket metaverse if you're only going to be vilified for it? Bitcoin and Ethereum rely on "proof-of-work "—forcing machines to solve puzzles as proof of the blockchains' integrity, for which they're rewarded with tokens—ensuring a colossal use of energy.
One solution is to switch to renewables through a short-term fix with carbon credits or long-term investment in dedicated generation. Another is to switch from using blockchains relying on proof-of-work to those utilizing proof-of-stake, which is vastly less energy intensive; however, it demands more crypto to get the financial rewards from the blockchain. This returns us to the traditional financial problem of the rich getting richer and the poor getting poorer. However, suppose enterprises work at the intersection of sustainability and web3. In that case, we can not only scale faster but also enable financial inclusion for approximately 1.5 billion people who do not have access to traditional banking.
Meanwhile, a Sustainable Proof-of-stake (SPoS) can become the answer to the dilemma. SPoS is a new consensus algorithm incorporating a new weighing mechanism that adds to the overall proof of stake (PoS) weight. By decentralizing and digitizing the adjudication of what is trustworthy, blockchain also can empower broader communities of stakeholders and improve the slow, costly intermediation associated with our current models of environmental governance.
Further, SPoS blockchains use-case solutions that are particularly relevant across environmental applications tend to cluster around the following cross-cutting themes: enabling the transition to cleaner and more efficient decentralized systems; peer-to-peer trading of resources or permits; supply-chain transparency and management; new financing models for environmental outcomes; and the realization of non-financial value and natural capital. By integrating sustainability and social impact at the consensus mechanism level, this technology gives economic rewards to organizations that support sustainable practices and empowers these organizations.
Unimaginable value is about to be unlocked by the advent of Web 3. The internet's next chapter heralds a new economic paradigm, and these emerging technologies will enable new business models that will change the world. Harnessing these opportunities will be a defining challenge for all businesses over the next few decades.
(The author is Founder and CEO of 5ire, a blockchain unicorn)