Dr. Najwa Aaraj discusses the future of blockchain, how it could provide a solution for the world’s unbanked population and overcoming its environmental challenges
Anyone following banking, investing or cryptocurrency developments over the last decade, would have heard about ‘blockchain’. At its simplest, it is the record-keeping technology behind the Bitcoin network. While blockchain technology has faced considerable scrutiny over the years, businesses around the world are now speculating about what the technology is capable of and the future possibilities for it.
The easiest way to understand blockchain today is that it is a type of database or a collection of information stored electronically on a computer system. The difference between blockchain and any regular database is simple, it stores information differently. Blockchain stores data in blocks that are then chained together. All new data coming in gets entered as a separate block, chaining the data in chronological sequence. While it enables us to store different types of information, the most common use so far has been as a ledger for transactions.
While the ledgering function is the most common application presently, blockchain is certainly gaining ground and becoming a preferred trading platform. For instance, due to the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed by either having a personal node or by using blockchain explorers that allow anyone to see transactions occurring in real-time.
By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the information, rather than the entire network, would be compromised. Blockchain transactions are, therefore, more efficient, secure, private, and transparent.
One good use case for blockchain would be to bank the unbanked population. According to the World Bank, some two billion of the global population do not have bank accounts or any means of storing their money or wealth. If they can access Bitcoin, whose keys can be stored on a piece of paper or as a single code on their phones, we will have empowered these people.
Blockchain was first proposed as a research project in 1991, and largely due to Bitcoin and cryptocurrency, it is finally making a name for itself. However, there are many other practical applications for the technology that are already being implemented and explored. Blockchains of the future are looking for solutions to not only serve as a unit of account for wealth storage, but also to store medical records, property rights, and a variety of other legal contracts.
Today, the primary challenges for blockchain are political and regulatory, of course, a huge challenge to highlight is the economic costs and time incurred in custom software design and back-end programming that are required to integrate blockchain into current business networks. Although users can save money on transaction fees, blockchain technology comes with a hefty price tag. For example, the ‘proof of work’ system that Bitcoin uses, consumes vast amounts of computational power. In the physical world, the power from the millions of computers on the Bitcoin network is close to Denmark’s annual consumption.
Despite the huge costs attached to mining Bitcoin, users continue to incur surging electricity bills to validate blockchain transactions. Having all the nodes working to verify transactions takes a considerable amount of electricity, making blockchain-based transactions more expensive and creating a huge burden on the environment.
Bitcoin’s decentralized structure drives its huge carbon emissions footprint. That’s because to verify transactions, Bitcoin requires computers to solve ever more complex math problems. This is the basic concept that the cryptocurrency world refers to as a “proof-of-work” system, and it’s drastically more energy-intensive than verifying transactions on centralized networks. The inherent nature of cryptocurrency’s technology ensures that the math puzzles will get more complex as more people compete to solve them. To keep pace, more powerful computers will enter the fray, consuming a huge amount of electrical and computational energy to keep reaping the dividends.
The answer to this challenge does not lie in going back to a centralized system. Reverting to the Bitcoin example, the fundamental promise of this technology is to eliminate the middlemen and extra procedures. Today, approximately 39% of proof-of-work mining is performed using renewable energy. So perhaps the most obvious path to a green future for Bitcoin is simply increasing that figure. The introduction of carbon credits to incentivize companies producing less than their allotment of emissions could be one way.
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By integrating blockchain technology into every aspect of economic life, we could ensure a lowering of the carbon footprint for many businesses. For example, automating the bulk of their infrastructure and systems might enable companies to reduce the number of employees who need to commute into an office to process orders, resulting in fewer transportation-related carbon emissions.
Although the full potential of the green applications of blockchain technology may not become apparent for years to come, it can help companies log their carbon emissions. In the future, we may even be using blockchain-powered carbon credits to move to a carbon-neutral future.