by Andrew Whitworth, Policy Director EMEA, Ripple
The European Union has led the charge for the regulation of crypto assets in a bid to create an environment that supports industry innovation. In May, the Markets in Crypto Assets (MiCA) Regulation was given the final seal of approval – positioning the EU as a global pacesetter for crypto regulation with a blueprint that other jurisdictions can follow.
The EU’s future-focused crypto approach also extends to global thinking around the implications of blockchain for sustainability and energy efficiency. For instance, the European Commission’s blockchain strategy seeks to promote environmental sustainability under a ‘gold standard’.
During the MiCA debate, policy-makers and parliamentarians scrutinised the energy profile of blockchain technology, notably through an attempt in the European Parliament to ban Proof of Work (PoW) validation. While starting from an important standpoint – that the energy usage of blockchain needs to be sustainable – the focus on the form of the technology itself, rather than the value provided from this technology, nearly led to significant unintended consequences.
To take this discussion forward, industry and EU institutions need to come together to investigate and understand how blockchain technology itself can align with sustainability goals and fight against climate change.
So, where to start?
Evaluate and align blockchain’s sustainability to its value
The climate crisis made the EU reconsider the sustainability profile of different technologies and sectors. In this context, a technology’s sustainability profile needs to be considered against the value it provides. That is, does a technology bring more value to our society than the potentially negative environmental impact it might have?
This value is more than just assessing monetary worth. We need to think about how a technology contributes to a range of use-cases.
For blockchain technology, these use-cases are realised across a wide range of sectors, with some obvious uses including enabling faster and more efficient cross-border payments, and building transparency and accountability in sustainability markets.
These real-world use cases are the blockchain industry’s most powerful armoury – and they are continuing to grow. Industry-led initiatives such as ‘The Value Prop’ help showcase the ever growing number of real world use-cases to highlight what is already being done with this technology.
The development of international standards are crucial for the growth of more sustainable blockchain uses. A first important attempt at achieving this will soon be launched in Europe as part of the process to finalise the MiCA regulatory framework. MiCA tasked the European Securities and Markets Authority (ESMA) with the development of “sustainability indicators for crypto-assets”, which issuers of crypto-assets will need to reference when complying with the requirement.
A consultation period this month will allow industry players to feedback, with the ultimate objective of ensuring convergence between the approaches taken by different jurisdictions.
Clear and consistent frameworks for assessing the environmental impact of different blockchain protocols, will allow for effective measurement to make informed decisions regarding long-term adoption and implementation.
Blockchain for carbon and nature-based market
Capital markets are an essential driving force for the transition to net-zero. Blockchains can enhance this with a more comprehensive view of the entire funding process, facilitating faster access to capital and providing investors with a real-time understanding of capital flow.
In the context of carbon and wider nature-based markets – such as emerging biodiversity and water markets – blockchain technology can give organisations transparency, traceability, and real-time understanding of transaction flows, leading to better informed decision-making and increased trust in climate projects.
A progressive legislative approach
In advocating for transparency and accountability, the EU can contribute to a more sustainable future and exemplify its commitment to combating climate change. But the need for innovation with digitisation and sustainability must be balanced to ensure progress is not compromising the EU’s overall economic growth objectives.
By showcasing real-world use cases and addressing societal challenges on top of sustainability goals, the EU can take the lead on leveraging blockchain, building trust and utility while further recognising the value potential of blockchain as a critical tool for official goals: societal, economic, and sustainability.
Building trust through education and transparency
We are all familiar with the poor reputation surrounding blockchain technology: sometimes justified, often not. So rebuilding trust in the sector is of paramount importance.
Collaborative efforts, education, clear rules and standards, and responsible implementation are key to unlocking the potential of digital finance solutions.
One aspect of this is showing how the technology can support wider goals. Like any technology, blockchain is a tool. In this case, one which is particularly well suited to enhancing transparency in carbon markets. And so supporting the EU in its ambition to lead in achieving global sustainability goals.
