A type of record-keeping technology that’s based on a distributed network, rather than a centralized hub. It’s commonly used to create digital currencies, as well as trusted data records and self-enforced (smart) contracts.
Blockchain is a technology that creates trusted, decentralized records by bundling transaction records (described as a ‘block’) and linking them in a chronological way (in other words, making them into a chain).
The term was initially derived from the work of Satoshi Nakamoto, the anonymous creator of Bitcoin. In order to create a secure digital currency, one has to solve the problem of double spending. Records have to permanently and indisputably indicate when money has digitally changed hands, or fraud is inevitable. Bitcoin addressed this problem by creating a highly secure and decentralized database of transactions. This way, one can trust which transaction happened before and after, but no single entity has power of the system. The content of the records is encrypted, which is why it’s called cryptocurrency. Bitcoin and other cryptocurrencies are a well known application of blockchain, but they’re far from the only application.
This video from the Centre for International Governance Innovation explains how blockchain works and goes into some potential use cases.
We can think of three main tools that blockchains offer when one is designing sustainability solutions:
innovative digital currencies
trusted data records
Put together, these tools can prove helpful when digitizing market transactions. For example, consider a carbon offset project, where multiple developers, sensors and auditors need to validate the merits of a particular project in reducing emissions. This process involves agreeing on the underlying data and its traceability (the trusted data records), certifying that the project and its units if they comply with a methodology (automated contract), and trade those units between parties (digital currency). Blockchain can potentially be used to automate all of those transactions in a way that all parties involved can trust, without the need for a central recordkeeper.
Blockchains, however, are still in an early phase of technology development and present several shortcomings. Networks like Bitcoin and Ethereum depend on a consensus protocol —the mechanism used to agree on the valid records —which requires high energy consumption. Essentially, all the computers in the system need to crunch a very large amount of data, and crunching data requires a large amount of energy. Also, the large data volumes can lead to slow processing speed for transactions, which is potentially a problem when dealing with a lot of information that needs to be processed quickly.
Like any technology, there are trade-offs to using blockchain. In some circumstances, blockchain offers attractive benefits over existing methods of recording information. In other circumstances, it may be simpler and more effective to resort to a more traditional database.
Here are some helpful explanatory resources on blockchain:
Blockchain is useful for sustainability applications, such as supply chains or carbon offsets, because it creates trusted records among different stakeholders operating on the same system. The use cases broadened even further after the development of the Ethereum network, a type of blockchain designed to support smart contracts. These contracts automatically trigger transactions if certain conditions are met. This is very relevant to the sustainability space since, for a consumer to trust that a product or process was done in a sustainable fashion, a certificate of quality should be issued only if the data records of the product comply with a standard methodology. If the information is reliably recorded via blockchain, then this certificate can be issued via a smart contract. By digitizing this whole process, the cost to confer sustainability is significantly reduced.