Criminal money, climate killers and privacy violations

Technology for criminals, the reason why the Earth will warm up even faster and breaches of privacy: I have participated in all sorts of lively discussions, recently, that discussed the impact and use of the blockchain technology. I partly blame the current negative sentiment of the trade in cryptocurrencies and a number of unfounded and erroneous articles published in the media for the many misconceptions that still linger in relation to blockchain technology and everything that comes with it. The time has come to provide a substantiated response to the most important issues.

1) The Obscene Amount Of Energy Consumed For Blockchain Contributes Strongly To Global Warming

A frequently noted, negative attitude towards blockchain technology is that it requires a massive amount of energy to keep the technology going. A recent article in the respected magazine Nature calculated that the energy needed to maintain the Bitcoin blockchain network will cause the Earth to heat up by 2 degrees. Other newspapers that I like to read, such as The Guardian, also gave wide coverage to this claim. Unfortunately, all articles made it clear that those researchers sharing their analysis have not yet fully grasped the technology.

Almost all articles discuss only the technology behind Bitcoin, the so-called “consensus method” (“Proof of Work”) and the “hash rate” which, in the case of Bitcoin, consumes a lot of energy. Unfortunately, it is never mentioned that Bitcoin accounts for only 50% of all cryptocurrencies and that more than 50 other “consensus methods” have already been developed that significantly reduce the hash rate and therefore consume much less energy.

If the blockchain were run only on fossil fuel, you would indeed have the calculated consumption that all media point out. Considering the many projects that already exist whereby the blockchain fully runs on clean energy, these calculations and claims will be considerably watered down. For example, the massive amounts of energy that are left over at wind farms in Morocco and hydroelectric power stations in Canada now have a purpose. Europe is increasingly witnessing how these mining operations (maintaining the blockchain network; securing and validating transactions) are moving to Iceland. This country is 100% dependent on clean energy.

Unfortunately, the researchers fail to consider what it is that the blockchain technology is going to replace. For example, if the blockchain is going to replace certain aspects of banks, the notarial office, etc., as is currently anticipated, various calculations conclude that this will require less than 30% of the energy currently used for this. Gone are the days of the need for infrastructures like physical bank buildings, equipment or traveling employees. That will save energy too.

A comparison with new technologies, ranging from computers to cars, shows that these have always been very energy-consuming during the introduction. The rapid development of these has ultimately resulted in electric cars and quantum computers. When we only consider the super-fast developments of, for example, the Bitcoin blockchain, such as the implementation of ‘Segwit’ and ‘Lightning’, which ensure a higher transaction speed and sharply reducing energy consumption, then it will be, once again, only a matter of time before the impact decreases.

2) Bitcoin And Blockchain Is Mainly Used By Criminals

Unfortunately, criminals tend to prefer various cryptocurrencies, just like fiat money such as Euros and Dollars. Its use for the illegal online marketplace “Silk Road”, where all transactions were done in Bitcoin, was the main reason that cryptocurrencies such as Bitcoin shot to fame among the general public. Research by the US Drug Enforcement Agency has already concluded that less than 5% of global crypto transactions can be linked to criminal activities. US government specialists have now even reversed this discussion, stating that Bitcoin is one of the best traceable currencies in the world. Blockchain technology provides various tools with which to identify the owners, track transactions and recognize patterns by which criminal activities can be identified.

Experts claim that the new cryptocurrencies that try to offer an alternative for this, such as Monero and ZCash, are too small for big criminals to provide a meaningful purpose. Experts are also still able to track transactions.

3) Our Privacy Is Being Swept Away By The Blockchain

The basic principle of blockchain technology, as introduced by the mysterious founder Satoshi Nakamoto, raises many questions about the privacy of the data stored on the blockchain. Some components are at odds with European GDPR legislation and many people are concerned about the decentralization of data storage.

It is very positive to see that all kinds of new developments completely eliminate these concerns. The Enigma project from MIT ensures that data can be stored anonymously on the blockchain since it is distributed among the various participants in the network (nodes), who each cannot see the data themselves, but can prove that nothing wrong has happened with it. The “secret contracts” the team has managed to develop on this basis ensure optimum privacy when creating so-called “smart contracts”, as the transactions themselves are not even disclosed.

Many of the companies, consortia, and governments that are currently fully implementing blockchain technology also use so-called “private blockchains”, which ensure that only pre-approved participants can participate in the network. This not only satisfies a few important GDPR obstacles inherent to existing public blockchains but also ensures that the privacy of the data is better guaranteed.

There are also several startups that, using blockchain technology, want to increase the privacy of its users in different ways. A good example of this is the Dutch start-up Faktor, which offers consumers full control of their data.

4) Blockchain = Bitcoin

Like wine and a beautiful cigar, Blockchain and Bitcoin can go very well together, but can also operate perfectly stand-alone.

As they were both launched at the same time, many people still consider them to be the same. However, Bitcoin is really the original form of a cryptocurrency, just like the 2,000+ other cryptocurrencies that have been introduced since. What all these currencies have in common is the technology on which they run; the blockchain.

5) This Will Only Have An Impact On The Banking Sector

Perhaps because of the publication of the original “white paper” about the Bitcoin and Blockchain, which mainly discussed a “Peer-to-Peer Electronic Cash System”, many tens of thousands of blockchain projects have been created in all possible sectors and countries. I discussed this in a previous post. From medication in healthcare and the registration of refugees in war-torn countries to vegetables in the supermarket and the collection of plastic; the special and practical applications the blockchain technology offers globally are endless.
Blockchain is indispensable in our society and will lead to many bizarre and beautiful developments in the time to come. As CEO of two companies in the industry, I will enthusiastically continue to follow this every day! Read my previous posts about blockchain here.

Jan Scheele is active in the web3 (blockchain, crypto, NFTs, DeFi) industry since 2013. Besides (former) CEO of a web3 scaleup and founder of an advisory boutique (working for governments, family offices and several multinationals), he is Digital Leader at the World Economic Forum and Board Member at the Blockchain Netherlands Foundation (BCNL). He is writing, consulting, speaking and training regularly about everything web3, all over the world. Furthermore, he is currently finalizing his book about the rise and global impact of blockchain technology.