Sustainability with decentralized data | Opinion

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Blockchain technology has enabled businesses to gain unprecedented visibility into the sustainability of their supply chains, making them more environmentally sound and efficient. Industry giants tried to take full advantage of this advantage.

Ford, for example, has ten blockchain patents as of the second quarter of 2024 and has applied for many more as it continues to develop methods for using decentralized technologies to minimize waste, optimize energy use, and ensure ethical practices across its operations. The company is joined by companies like Walmart, Amazon, and UPS in their mission to improve traceability, carbon footprint tracking, and recycling initiatives in their supply chains.

A more unusual example is the Internet of Forests, or IoF, an initiative that uses a system of decentralized sensors to monitor, report, and ultimately protect tropical rainforests and their biodiversity.

However, while the adoption rate in these businesses is encouraging, many small businesses find the benefits of the technology too inaccessible to take advantage of. The investment required to implement the technology can be significant, especially for businesses unfamiliar with the technology. However, if this obstacle is overcome, there will be significant savings in time and resources in the race to become carbon neutral.

By integrating blockchain tools for long-term sustainability, businesses can reduce operating costs by up to 60% without the trial and error that comes with less accurate data management. And with 90% of businesses planning to implement blockchain in the near future, this will be a necessary integration for companies looking to compete.

Promoting sustainable supply chains

The precise environmental data provided by blockchain technology eliminates much of the work required to maximize the impact of green initiatives. This is especially true for supply chains, as blockchain can incentivize all suppliers and partners to achieve predefined sustainability goals.

For example, smart contracts can integrate with IoT devices and sensors to collect real-time information about sustainability performance. Once implemented, businesses can use them to verify compliance at all points in the supply chain using pre-defined metrics such as reducing carbon emissions, reducing waste and using renewable energy, in line with their broader strategy. When suppliers achieve these goals, they can be automatically rewarded with financial bonuses, increased order volumes, and even access to exclusive partnerships and markets.

Automated by blockchain technology, these incentives drive broader sustainable activities and result in incredibly rapid improvements to supply chains, allowing businesses to easily and cost-effectively reduce their environmental impact in a much shorter time than would otherwise be the case.

Transparent and tamper-proof

The transparency and accuracy of blockchain data allows businesses to share comprehensive impact reports with consumers and stakeholders and develop effective strategies to achieve carbon neutrality well before the upcoming Paris Agreement deadlines.

This clarity also allows businesses to prove sustainability claims to stakeholders and supply chain partners with tangible, tamper-proof evidence, attracting new customers from the 66% of consumers who consider sustainability in their purchases.

Blockchain also gives businesses the opportunity to engage in market-based sustainable activities such as trading carbon credits. Tokenizing carbon credits on a blockchain increases liquidity in the market and enables easier and simpler trading across borders and jurisdictions. Decentralized carbon trading also reduces the risk of manipulation or fraud in the carbon credit market, increasing trust among participants. Smart contracts can then automate trades, eliminate intermediaries and accelerate transaction speeds in a process similar to automatic compliance rewards.

When fully implemented, this technology requires only a light touch and helps businesses work towards carbon neutrality without taking too much time away from their regular operations.

Resolve proof of work issue

Finally, when choosing a blockchain to aid sustainability, businesses must first ensure that the technology’s energy consumption does not undermine their efforts.

Newer blockchain networks have attempted to solve the problem of excessive energy consumption; Many major networks have switched from the energy-intensive proof-of-work consensus mechanism to the more environmentally friendly proof-of-stake alternative.

In addition to adjusting the consensus algorithms used even among POS-based networks, factors such as the energy mix used for electricity generation and the potential emergence of new energy-consuming processes can also have a significant impact on sustainability.

Blockchain networks should be thoroughly researched, particularly their current energy use and future sustainability plans, to ensure they align with the business’s purpose and strategy. Decision makers should look for platforms that use renewable energy sources and learn about emerging blockchain applications that can offer greater energy efficiency. AI applications can be useful in analyzing and optimizing energy consumption on blockchain platforms, such as facilitating smart energy management in peer-to-peer energy trading systems.

It’s hard work but worth it

Making and implementing these decisions effectively will require experienced teams and specialized knowledge; whether by upgrading existing staff or bringing in new talent to ease the business’ transition to blockchain. This may not be simple, but if done right, it would be a smart move given the looming deadlines for compliance with international rules on carbon neutrality.

With decentralized sustainability efforts, businesses not only build trust and good reputation around their operations and supply chains, but also encourage their supply chain partners to improve their own sustainable activities through financial and operational incentives. Blockchain has the potential to completely standardize sustainable initiatives around the world, and forward-thinking businesses will help shape what the future will look like.

Kostas Chalkias

Kostas Chalkias, chief cryptographer and co-founder of Mysten Labs, leads cryptography innovation, research and development of new product features. Prior to Mysten Labs, Kostas was the lead cryptographer for several major technology companies, including Meta and R3. Founder of the largest Big Data Meetup group in Athens, Greece, with a healthy and growing community of over 2,000 members. He has received the Best Paper award three times, applied for eight US patents, placed 1st in his Computer Science Master’s studies, received one of the most highly acclaimed national scholarship programs (four years in a row), and twice placed in the top three in National IT Innovation Competitions.