Blockchain Technology an "Energy Guzzler" with respect to Sustainability in Supply Chain Management --> Is It?

Blockchain technology does consume a significant amount of energy, which has raised concerns about its sustainability in supply chain management. However, one needs to remember one of the most important things before evaluation, that not all blockchain applications are created following the same template and it is absolutely possible to create more energy-efficient applications than others.

The main way of consuming energy by blockchain technology is through the process of mining. Mining is used to validate transactions and add new blocks to the blockchain, which is absolutely essential for maintaining the integrity and security of the overall network. In order to accomplish this, miners compete to solve complex mathematical problems, which require a huge amount of computational power and as a result, energy.

Blockchain networks which uses Proof-of-Work consensus algorithms, such as Bitcoin and Ethereum, are often critiqued for their high energy consumption, as these algorithms need miners to continuously solve complex mathematical problems, which in turn, becomes onerous as the network expands and more miners join. As a result, the computational power and energy essential to mine new blocks, upsurges over time.

However, there are other consensus algorithms, such as Proof-of-Stake and Delegated Proof-of-Sake, which are designed to be more energy-efficient. These algorithms do not demand the same level of computational power as proof-of-work, as they rely on atypical mechanisms to validate transactions and add new blocks to the blockchain.

Proof of stake (PoS) is a consensus algorithm used in blockchain networks to validate transactions and add new blocks to the blockchain. Unlike the proof-of-work (PoW) algorithm, which depends on miners solving complex mathematical problems to validate transactions, PoS pick out validators on the basis of how much amount of cryptocurrency they hold as stake. This essentially means that the more cryptocurrency a validator holds, the more likely they are to be selected to validate transactions. If a validator acts maliciously or behaves in a way that harms the network, their stake can be penalized or confiscated.

Supply chain management can benefit from PoS consensus algorithms in several ways. One of the main benefits of PoS is that it is more energy-efficient than PoW, which reduces the environmental impact of blockchain technology, in addition to the increased efficiency, by streamlining Supply Chain and reducing intermediaries. This is especially important in supply chain management, where sustainability is a key concern. There are many other advantages of blockchain but for the sake of the subject of this article we will only focus on sustainability.

Delegated Proof of Stake (DPoS) is similar to PoS, but instead of selecting validators based on their stake, validators are “elected” by network participants through a voting system.

In a DPoS-based blockchain network, network participants can vote for delegates who are responsible for validating transactions and adding new blocks to the blockchain. Delegates are incentivized to act in the best interest of the network by being subject to potential penalties for any malicious behavior. These penalties can include being removed as a delegate, losing their block rewards, or having their stake confiscated.

Supply chain management can benefit from DPoS consensus algorithms in many ways. However, the main benefit of DPoS is that it provides a more democratic way to manage the blockchain network. Since delegates are elected by network participants through a voting system, it allows for more transparency and accountability in the network. This can help to improve the overall governance and decision-making processes in the supply chain.

Overall, both PoS and DPoS are promising consensus algorithm for supply chain management. PoS is promising due to its energy efficiency, security, and speed. By implementing PoS-based blockchain networks, supply chain stakeholders can improve the sustainability, security, and efficiency of their operations.

In addition to the consensus algorithm, the energy consumption of blockchain technology also depends on the design of the system and the hardware used to run it. For example, blockchain networks that use energy-efficient hardware, such as low-power CPUs and GPUs, are likely to consume less energy than those that use high-end hardware.

Furthermore, blockchain technology can be designed in a way that minimizes energy consumption. For example, instead of requiring all network participants to validate every transaction, blockchain networks can use sharding or sidechains to distribute the workload among different nodes. This can significantly reduce the computational power and energy required to validate transactions and add new blocks to the blockchain.

In summary, while blockchain technology does consume energy, it is possible to design more energy-efficient systems that are sustainable for supply chain management. By exploring different consensus algorithms, hardware options, and system designs, organizations and developers can minimize the environmental impact of blockchain technology while still reaping the benefits it offers.