Cryptocurrencies and the environment: How blockchain technology can reduce carbon footprints

Blockchain is a decentralised technology based on multiple independent entities whose data is stored in a tamper-proof, non-modifiable and non-erasable form. This technology provides enhanced security for storing information, making it particularly useful for creating digital certificates of authenticity for luxury goods. Blockchain helps combat counterfeiting and counterfeiting of second-hand goods by providing reliable traceability.

In a legal, economic and social context that places increasing demands on transparency and consumer information, blockchain is becoming an important tool for addressing the social responsibility of luxury brands. In addition, its use can help companies build consumer trust by providing reliable information about the origin and production of goods.

Towards a more sustainable blockchain

While blockchain can be an effective tool for implementing and monitoring greener practices in companies, paradoxically, the technology has a strong environmental impact, especially in the cryptocurrency industry. The high energy consumption associated with mining and transaction processing is one of the main reasons for this impact.

High resource-consuming technology

Bitcoin, the most famous cryptocurrency, is often stigmatised for its high energy consumption, equivalent to the energy consumption of Finland. Bitcoin and first generation cryptocurrencies are based on the Proof of Work mechanism. This means that in order to make a transaction on the blockchain (adding a new block), all miners (the participants that make up the blockchain) must confirm the transaction. This principle is known as mining. The more miners in the blockchain, the more secure the transactions are, but more energy is consumed, which results in carbon emissions when it comes to fossil fuels.

Today, the environmental impact is such that some countries such as China, Kazakhstan and Sweden are banning cryptocurrency mining. Unless a greener solution is found, the entire functioning of the blockchain will be jeopardised. Initiatives are emerging to create a more sustainable and eco-friendly blockchain along the lines of bitcoin, which can utilise any energy source, including energy from waste.

More efficient work opportunities

The Proof of Work algorithm is gradually being replaced by the more environmentally friendly Proof of Stake, supported by Greenpeace and other environmental groups. Proof of Stake does not require all miners to confirm each transaction, which significantly reduces energy consumption. The second largest cryptocurrency, Ethereum, reduced its energy consumption by 99.9% by switching to Proof of Stake.

The Zumo initiative, inspired by the Paris Agreement and part of the Crypto Climate Accord, aims to achieve zero carbon emissions in the cryptocurrency sector by 2030 by utilising renewable energy. New, greener blockchains such as Solana, Polkadot, Tezos and Cardano are gradually taking their place in this area.

An asset to control the product lifecycle

In France, blockchain, originally conceived as a tool for product traceability, was launched in 2019 and quickly found its way into a strategic contract for the Fashion&Luxury sector. The technology enables the traceability of a product's entire lifecycle, from raw materials to the end consumer, ensuring transparency and authenticity at every stage. Thanks to blockchain, companies in the luxury industry can ensure that their products meet high standards of quality and environmental responsibility.

Improving product traceability

Traceability is one of the application areas where blockchain has gained the most traction. It applies to all goods: textiles, jewellery, leather goods, cosmetics, etc. Thanks to this technology, brands can:

• Track environmental practices: Monitor internal and external supply chain processes;
• Record production data: Capture information on raw materials, production steps and certifications;
• Compliance: Ensuring that products meet environmental standards and obligations;
• Key KPIs: Analysing energy sources and using sustainable materials throughout the product life cycle.

New standards and initiatives

From January 2023, with the AGEC law coming into force, luxury brands are required to provide their customers with environmental data through mandatory mapping. By utilising blockchain technology, companies can ensure that the information transmitted to end consumers, for example through a unique code, has not been tampered with or distorted.

Several collaborative initiatives have been launched at the industry level in recent years. One example is the Aura Blockchain consortium, which allows customers to track the history of a product from its creation to distribution using a digital certificate via a closed blockchain. The initiative, launched by LVMH, Prada and Cartier, aims to create the first international luxury blockchain to communicate authenticity, sustainability and supply chain information. Another example is the collaboration between Kering Group and Richemont Group to track jewellery supply chains.

Conclusion

Blockchain technology is playing a key role in bringing transparency and sustainability to various industries, including cryptocurrencies and luxury goods. Adopting greener algorithms and introducing innovative initiatives are helping to reduce carbon footprints. These efforts are aimed at preserving the environment and building consumer trust in brands.