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While the European Union and the United States are currently adopting regulations on digital assets, the question of the environmental footprint of the blockchain is crucial. According to the Cambridge Bitcoin Electricity Consumption Index, Bitcoin's annual consumption is currently estimated at 137.2 TWh, which is greater than the annual consumption of countries, like the United Arab Emirates (122 TWh) or Norway. 

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Can we really consider an alternative model? What balance should be drawn between the environmental footprint of the technology, its security and its governance? 

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To answer these questions, Jacques-André Fines Schlumberger, Operations Director at the non-profit organization Blockchain For Good, supported by the "Blockchain & Platform" Chair at Ecole Polytechnique and Doctor of Information and Communication Sciences, shares his thoughts on the environmental challenges related to blockchain.

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When it comes to blockchain, can we really talk about sustainability?

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The association of the terms “blockchain” and “sustainable” implies that some blockchains are unsustainable. However, just because a blockchain consumes energy doesn't make it unsustainable. We have to dig deeper. 

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Bitcoin, a major, worldwide innovation, is secured because it consumes energy; in fact, it hasn't been hacked since 2008, and many blockchains now are based on its model. We should be asking whether services offered are worth the energy they consume in view of what it provides: a universal system of peer-to-peer electronic money. Moreover, I should point out that miners buy the cheapest energy available, and these days, is the surplus of renewable energy, especially hydraulic. Miners have no incentive to be environmentally conscious; the choice of energy is entirely economic. 

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To date, three generations of blockchain exist. 

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The first generation is Bitcoin. Transactions are validated by a mining operation that consists of completing a proof of work algorithm, which is a cryptographic calculation. This highly energy consuming operation is one of the steps in the process that secures transactions on the network and generates new bitcoins. Mining computers compete to validate new transaction blocks: only the first to solve the calculation is compensated, causing the others to have worked (and consumed energy) for nothing.

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The second generation, led by Ethereum, is also based on proof of work. What differentiates it from other algorithms is its creation of smart contracts, which run based on how they are programmed and do not need to be validated by a trusted third party. 

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Finally, the third generation is built on proof of stake. Contrary to proof of work, this method is not built on energy consumption but “asks the user to prove that they have a certain amount of cryptocurrency to be able to validate the additional blocks in the blockchain” (Blockchain for Good, Blockchain et développement durable, 2020). This generation of blockchain aims to address scalability and interoperability issues. 

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As such, the energy expenditure for the first two generations of blockchain is much greater than that of the third. 

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Is proof of stake the future of blockchain? 

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First of all, the goal is not for all blockchains to be built on proof of stake. TTo be more precise, the validation of transactions on Bitcoin, will likely always rely on proof-of-work. The algorithm on which blockchains rely is consistent with their governance. As for Ethereum, the transition from proof of work to proof of stake could take place in 2022. The Ethereum Foundation, which has named the transition the “merge”, has systematically pushed the date back. It’s currently expected to happen in the next six months. Vitalik Buterin, the founder of Ethereum, says that the change will reduce its energy consumption by more than 99%.

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Despite blockchain innovations being fairly recent, we've still seen many developments in the third generation of blockchain, which allow the deployment of autonomous contracts, validate transactions on proof of stake, and solve problems of scaling up and interoperability between blockchains

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Moreover, proof of stake is often critiqued for its prerequisite, which requires the user to possess a certain amount of cryptocurrency in order to be able to validate transactions. Would it be right to switch to a more capitalistic model?  

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Finally, proof of work and proof of stake are the main blockchain consensus protocols, but several others exist ‒ that do not depend on energy expenditure.

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Can private and public blockchains be compared?

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Bitcoin was designed in 2008 to be a decentralized cryptocurrency, for which transactions are validated and secured by the users themselves: it's a permissionless public blockchain. Like Ethereum, Cardano or Tezos.

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Generally, blockchains do not have these characteristics. Four kinds of blockchain exist: public or private, permissioned and permissionless.

"The public blockchain fundamentals (decentralized and open to all) are absent in the cases of permissioned and private blockchains. Given that private blockchains have validating nodes, it becomes mainly a matter of optimizing processes."

It's necessary to know which promises behind blockchain projects are truly based on public blockchains, and those that are not.

There are many private blockchain projects in the industrial world. Certain exceptions apply in some fields, like energy, where public blockchains with permission took root, such as the Energy Web Foundation. A company cannot create a public blockchain alone: it's the sort of project that has to come about through a business consortium. This creates co-opetition, meaning an alliance is formed between various economic actors ‒ and competitors ‒ that is characterized by both cooperation and competition.  

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"These days, the challenges posed to implementing public blockchains are more political than technical. It's a question of altering the mentalities and habits born of pyramids and centralized models."

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Is regulation the right means of tending toward more sustainability?

Note that the Regulation on Markets in Crypto-assets is part of the greater European Green Deal. European regulations that limit the use of proof of work blockchains will hold some actors back from adopting them, while allowing others to get ahead. 

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Limiting the use of Bitcoin in the European Union will also slow the innovation of solutions, like Lightning Network, a payment protocol built on Bitcoin that accelerates the transaction time between nodes. This innovation addresses Bitcoin's scalability and energy consumption issues.

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