Bitcoin transactions pose a growing environmental threat
A new study assesses tax and regulatory options to encourage the development of “green” blockchain technologies and discourage the use of polluting applications.
Study published in Energy Research & Social Science warns that failure to reduce the energy use of Bitcoin and similar blockchain designs could prevent countries from meeting their climate change mitigation obligations under the Agreement from Paris.
The study, written by Jon Truby, PhD, Assistant Professor, Director of the Center for Law & Development, College of Law, Qatar University, assesses the financial and legal options available to lawmakers to moderate blockchain energy consumption and foster a sustainable and innovative technological sector.
Based on this rigorous review and analysis of technologies, ownership models, and case law and jurisdictional practices, the article recommends an approach that imposes new taxes, fees or restrictions to reduce demand from users, minors and manufacturers of miners who use polluting technologies and offer incentives that encourage developers to create a blockchain that uses less energy and is carbon neutral.
“Cryptocurrency mining is the first major industry developed from Blockchain because its transactions alone consume more electricity than entire nations,” said Dr Truby. “It must be geared towards sustainability to realize its potential benefits.”
“Many developers did not consider the environmental impact of their designs, so we must encourage them to adopt consensus protocols that do not result in high emissions. Doing nothing means we are subsidizing energy-intensive technologies and making future Blockchain developers follow the same wrong path. But we also need to encourage the advancement of this important technology to unlock its potential economic, environmental and social benefits,” explained Dr Truby.
As a digital ledger accessible and trusted by all participants, Blockchain technology decentralizes and transforms the exchange of assets through peer-to-peer verification and payments. Blockchain technology has been advocated as being able to deliver environmental and social benefits as part of the UN Sustainable Development Goals.
However, Bitcoin’s system has been built in a way that is reminiscent of the physical exploitation of natural resources, costs and effort increase as the system reaches the ultimate resource limit and the extraction of new resources requires more and more resources, which consume huge amounts of electricity.
To put this into perspective, said Dr Truby, “The processes involved in a single Bitcoin transaction could provide electricity to a UK home for a month, with the environmental costs socialized for private benefit. Bitcoin is here to stay, and therefore, future models must be designed without depending on energy consumption so disproportionate to their economic or social benefits. ”
The study assesses various Blockchain technologies based on their carbon footprint and recommends how to tax or restrict types of Blockchain at different stages of production and use to discourage polluting versions and encourage cleaner alternatives.
It also analyzes legal measures that can be introduced to encourage technology innovators to develop low-emission blockchain designs. Specific recommendations include the imposition of royalties to prevent inertia from hampering innovation:
- Listing fees collected by brokers from buyers of cryptocurrency
- A “Bitcoin Sin” tax on cryptocurrency ownership
- Green taxes and restrictions on purchases and imports of machines (for example, Bitcoin mining machines).
- Smart contract transaction fees
According to Dr Truby, these findings may lead to new taxes, fees or restrictions, but could also lead to financial rewards for innovators developing a carbon neutral blockchain.