Web3 and sustainability - A chance or a contradiction?
We are living in an era of ever more rapid technological progress with the potential to fundamentally change the way we live. On the other hand, we are in the midst of a climate crisis with constantly new natural disasters and extremes, making a rethink and adjustment of our lifestyles indispensable. The topic of sustainability is therefore becoming increasingly important and the demand for sustainably produced consumer goods is growing steadily.
One of the most forward-looking technologies of recent years is Web3, whose advantages lie in its decentralized and transparent way of working. Many companies have already recognized the potential of this technology and are striving to develop use cases to exploit it for themselves. However, the underlying blockchain technology on which all Web3 applications are based is repeatedly criticized because of its enormous energy consumption. Is this criticism (still) justified? Does the use of Web3 preclude sustainable action? Or are there possibilities to use the potentials of this technology also in terms of sustainability? In order to clarify these questions, we first need to look at how Web3 technology works.
Proof-of-Work vs Proof-of-Stake
Web3 and all applications built on it are based on the so-called blockchain technology, whose foundation is a decentralized network of computers that is responsible for managing all transactions. Since the underlying architecture of the blockchain is very complex, large amounts of computing power and thus energy were required in the past to perform and confirm transactions. The process used for this purpose is called "Proof-of-Work" (PoW).
When we talk about Web3 we are not just talking about "the one blockchain" - we are talking about many different blockchains that are based on the same fundamental technology but have been developed for different purposes and applications. Probably the best-known blockchain, which has always been based on the Proof-of-Work process, is the Bitcoin blockchain. It was the first blockchain ever and has been developed to provide the digital currency carrying the same name and to perform and validate the necessary transactions that go along with it. The University of Cambridge regularly studies the power consumption of the Bitcoin Blockchain with the help of the specially developed Cambridge Bitcoin Electricity Consumption Index. The electricity consumption thus determined for 2022 was estimated at 107.65 terawatt hours (TWh). By comparison, Germany's annual electricity consumption is around 566 TWh. (Source: Weltenergierat Deutschland).
However, there are also blockchains that were designed right from the start with the aim of being converted to an energy-efficient method in the long term. The best example of this is the Ethereum Blockchain, which is primarily known for trading NFTs. At the beginning, Ethereum was also based on the PoW method, but, in the course of the so-called "The Merge", it was switched to the "Proof-of-Stake" (PoS) method in September 2022. This method is considered to be much more energy-efficient and is expected to save up to 99.9% of the previous energy consumption. (Source: Cambridge Blockchain Network Sustainability Index). It is estimated that the average annual electricity consumption since the conversion is 6.62 gigawatt hours (GWh), shrinking to the annual energy demand of an average of 1,833 person households (Source: Cambridge Blockchain Network Sustainability Index) (Status: 06/01/2023).
Additional sustainability potentials of the Web3 technology
In addition to the energy consumption, there are other aspects that need to be considered with regard to the compatibility of sustainability with the Web3 technology.
Promoting sustainability through transparency
A decisive advantage of the Web3 technology is the transparency it brings. With the help of the Blockchain technology, information and data are stored in an immutable way for all to see. This can lead companies and organizations to be more transparent about their sustainability goals and practices, which in turn can lead to higher levels of accountability and environmental protection.
Decentralization and democratization
The Web3 technology holds the potential to decentralize resources. This can have a positive impact, particularly in the area of energy generation and distribution. Decentralized energy solutions, such as the use of solar energy, could be made more efficient and accessible through Web3 technologies, which in turn can lead to a more sustainable energy supply.
Web3 as a chance for sustainability
The Web3 technology often has to struggle with criticism with regard to environmental and climate protection, in regard to the mostly still high energy demand. PoW-based algorithms are the trigger for this. However, the transition to PoS-based mechanisms drastically reduces energy consumption and offers a solution to this problem. Blockchains like Ethereum are already based on these energy-saving algorithms. In addition, Web3 offers some advantages, such as transparency and decentralization, which can have a positive impact on sustainability by helping to move companies and organizations towards more transparency and sustainable processes.
In the end, the compatibility of Web3 with the aspects of sustainability depends on the way the potentials of this technology are used. With the introduction of PoS methodology and its drastically minimized energy requirements, now there is nothing standing in the way of the sustainability promise using Web3 technologies.
