Following our last event on ESG and Web 3.0, we wanted to come back with a deeper analysis of the stakes evoked during the round table.
As Web 3.0 is growing in adoption, we can ask ourselves if it is compatible with today’s ESG goals: What is its impact on environment ? on society ? and what challenges is it facing ?
“Bitcoin consumes more energy than Argentina”, if you are interested a bit in Bitcoin, you probably already heard this statement (or with Poland or Belgium). Indeed, one of the most significant environmental concerns associated with Web 3.0 is the energy consumption of blockchain networks. Of course, this high energy consumption is in contradiction with ESG matters.
To limit its impact on environment, Web 3.0 has first to avoid negative externalities: As you may know, more and more Bitcoin miners are using renewable energy. Iceland is a great example: the host country of the 2nd largest mining farm. Iceland provides a cold climate, limiting the necessity of cooling systems but above all, geothermal power which is extensively utilized for mining operations. We estimate that today, around 57% of Bitcoin’s hashing power comes from renewable energy, allowing us to avoid some of the negative externalities caused by mining. For the remaining part, a lot of miners are helping balancing grids, by using energetic surplus that sometimes cannot be stored due to the lack of infrastructures in third-world countries.
Another reduction of externalities is embodied by the Merge: Ethereum (ETH) transitioning from a proof-of-work (PoW) to a proof-of-stake consensus (PoS), another way of securing the blockchain. This upgrade eliminates the energy-intensive mining process, alleviating environmental concerns associated with ETH.
Limiting negative externalities is not enough, Web 3.0 must create positive dynamics. The utilization of blockchains and Web 3.0 can incentivize individuals to engage in sustainable practices. For example, a lot of projects are rewarding individuals for recycling plastic or contributing to environmental initiatives. This approach can be particularly impactful in developing countries, where waste management and recycling infrastructure may be lacking.
Beyond environmental matters, Web 3.0 also impacts social issues :
Web 3.0 is allowing the financial landscape to evolute, promoting inclusivity, and bypassing the monopoly of established financial institutions. In countries like Lebanon, where traditional banking systems have failed, decentralized finance (DeFi) can provide alternative solutions. Similarly, in Zimbabwe, where hyperinflation devalues the local currency, technology can facilitate financial inclusion by providing accessible and secure means of exchange, away from corrupted central banks.
Web 3.0 also contributes with its traceability to improve the transparency in NGOs’ cash flows. It is estimated that about only 30% of donations to NGOs reach their target. The traceability offered by a peer-to-peer cash system like Blockchain allows preventing corruption or misuse of funds, Enhancing the efficacity of NGOs’ actions and benefits for the population in need.
However, while Web 3.0 holds immense potential, it also faces fundamental challenges. The hype surrounding blockchain technology can divert attention and resources away from other crucial areas of technological innovation. It is essential to strike a balance between addressing environmental, social, and governance (ESG) concerns and promoting technological advancement.
Another challenge that Web 3.0 faces is its lack of adoption Today, it is only used by a very thin proportion of the population. Technological advancement (layer 2s, AMMs) education and communication are allowing it to progress toward mass adoption, but scams (still too present) and super-high price volatility are slowing it down.
In conclusion, WEB 3.0 presents opportunities and challenges for ESG goals. While the energy consumption of blockchain networks remains a concern, efforts to use renewable energy and transition to more efficient mechanisms show progress. WEB 3.0 can promote inclusivity through DeFi, offering alternative financial systems and traceability to enhance NGO effectiveness. However, challenges include balancing hype with other innovations, limited adoption, scams, and price volatility. Managing innovation and sustainability is not an easy task, but by addressing today’s and tomorrow’s challenges, Web 3.0 can contribute to a sustainable and equitable future.