Tl:dr – Is Web3 environmentally friendly, Cheat Sheet
- The computers that power Bitcoin use large amounts of energy. However, much of it comes from sustainable sources
- Proof-of-stake and proof-of-work are the mechanisms on which the biggest blockchains work.
- Proof-of-stake uses up to 100% less energy than proof-of-work
- During the Merge, the Ethereum blockchain switched from proof-of-work to proof-of-stake
- The Aura luxury blockchain offers brands the tools to experiment in web3 with sustainable, proof-of-stake blockchain solutions
You might have heard that Bitcoin consumes a lot of energy. The world’s biggest cryptocurrency is blamed for accelerating climate change and using as much electricity as Japan. It’s been suggested that if everyone used Bitcoin, it would cost more in energy than the world could create.
And even though these claims are exaggerated – its actual emissions and CO2 footprints are lower than often cited – Bitcoin remains an exception among blockchains in terms of energy consumption. The Environmental Working Group (EWG) says, following the Merge, BitCoin is the “lone cryptocurrency climate polluter.”
The Merge? What is the Merge? You might well ask
To understand what the Merge is and what it means, we first have to talk about ‘proof-of-work’ and ‘proof-of-stake’, the two principal mechanisms that confirm transactions on a blockchain.
What is proof-of-work and why is it bad for the environment?
Bitcoin uses a ‘proof-of-work’ consensus mechanism. Wait! Don’t go, it’s not as complicated as it sounds, I promise. Bitcoin transactions are validated by computers that have to ‘solve’ complex puzzles. You could think of this as a race that the fastest, most powerful computers win. Those running (called miners) the computers are rewarded with Bitcoin for being the first to solve the puzzle.* The good news is that according to estimates, between 52% and 78% of Bitcoin operates on renewable energy. But how much energy are we talking?
Cambridge University estimates Bitcoin uses between 40 and 445 TWh of energy per year. A very wide range. The Bitcoin Mining Council puts the figure at 189 TWh, or 0.2% of global energy consumption. The Aura Blockchain team use a good analogy: one Bitcoin transaction requires the energy of three refrigerators for one year. A nice reminder for next time you take a cold drink. By comparison, gold mining uses 132 TWh per year and the physical banking infrastructure 4981 TWh. Yes, you read that right.
What is proof-of-stake and why is it better for the environment?
Hold on to your hats, we need to get technical again. Instead of miners and complex puzzles, ‘proof-of-stake’ blockchains use randomly chosen ‘validators’ to confirm transactions. This means there is no need for energy-intensive computers, which means very little electricity is needed to validate transactions, which in turn means very little electricity is needed to ‘power’ the blockchain. Perhaps an oversimplification, but it gives you a good idea why proof-of-stake blockchains like Ethereum are so much more energy sustainable.
So, What is the Merge?
Ethereum is the second largest blockchain network. Bulgari, Givenchy, Kenzo, Tag Heuer, Le Parisien, Hennessy and Tiffany all used it for their Web3 projects. Until September this year, Ethereum used the same ‘proof-of-work’ mechanism as Bitcoin. The Merge was the name given to Ethereum’s move to ‘proof-of-stake’. It will reduce its Co2 emissions by 99%.
Aura: The sustainable luxury blockchain solution
Developed by Vuitton in 2018, funded by LVMH, Prada, Richemont, OTB and Mercedes, Aura, the luxury blockchain consortium, is a non-profit association based in Geneva and available to all luxury brands.
Aura has two main blockchain solutions luxury brands can use to launch Web3 projects. The first is a private, custom built blockchain used for product traceability, authentication, transparency and ownership. From sourcing, manufacturing and logistics, to selling, aftersales and the secondary market, Luxury brands can use this blockchain to track every point of the product and customer journey.
Private blockchains are better for the environment as they require less resources and energy to run. Remember I told you one Bitcoin transaction uses the energy of three refrigerators for a year? By comparison, one transaction on Aura requires the energy of one lightbulb for six minutes.
Aura’s second solution is the public blockchains, most notably Ethereum and Polygon. We’ve already spoken about Ethereum, what about Polygon?
What is Polygon?
Polygon is a scaling solution that runs alongside – and in conjunction – with Ethereum. You’ll be happy to read we won’t get into the technology here. Suffice to say, it has faster transaction times and lower fees. Tiffany and Bulgari make very exclusive, very expensive NFTs. €50 transaction fees don’t affect the experience. For luxury brands creating more accessible NFTs, that becomes an issue. For the time being, Polygon is the solution.
“A whopping 99.91% of Polygon’s network carbon emissions will be cancelled out post Merge.”
Luxury brand strategy: Looking forward
Product history, ownership transfer, omnichannel communications, transparency and privacy are just the beginning. Blockchain could give exciting opportunities to merge the digital and the physical, create immersive experiences and build upon the unique culture and history of each and every luxury brand. As the technology improves, this doesn’t have to be at the expense of the environment. In fact, cleaner and more sustainable Web3 solutions are already with us.
Givenchy brought its environmental ambition to Web3 and used the Tezos blockchain for their Cryptobees collection. Tezos is known as the Green Blockchain. How green? Its total carbon footprint for 2021 equalled the carbon footprint of 17 people.
