Master Program
„Accounting, Auditing and Taxation“
Course:
Sustainability in Organizational Life
2. Semester – SS 2022
Research paper:
What is Digital Sustainability?
Use case of Ethereum
Submitted to:
assoz. Prof. Dr. Birthe Soppe
Submitted by:
Raphael Schuchter, BA
51854556
Submission date: 16. June 2022
Raphael Schuchter
Table of Contents
Table of Contents ............................................................................................................... I
List of Figures .................................................................................................................. II
List of Tables .................................................................................................................. III
Abbreviation List ............................................................................................................ IV
1
Introduction ............................................................................................................... 1
2
Requirements for an integrated sustainability framework ......................................... 2
3
4
5
2.1
Governance strategies for a sustainable digital world........................................ 2
2.2
Basic conditions for sustainable digital artifacts ................................................ 3
2.3
An integrated sustainability framework for cryptocurrencies ............................ 4
Research Methodology .............................................................................................. 5
3.1
Use case Ethereum ............................................................................................. 5
3.2
Secondary Data Collection ................................................................................. 6
Findings ..................................................................................................................... 7
4.1
Environmental Impact ........................................................................................ 7
4.2
Societal Impact ................................................................................................... 8
Discussion................................................................................................................ 10
References ....................................................................................................................... 11
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List of Figures
Figure 1: Digital Sustainability Framework ..................................................................... 3
Figure 2: Basic Conditions For Sustainable Digital Artifacts .......................................... 4
Figure 3: Adapted Sustainability Framework For Cryptocurrencies ................................ 5
II
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List of Tables
Table 1: Findings Of The Secondary Data Collection ...................................................... 9
III
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Abbreviation List
BTC
Bitcoin
CBDC
Central Bank Digital Currency
dApp
decentralized App
EIP
Ethereum Improvement Proposal
ETH
Ethereum
NFT
Non-Fungible-Token
OECD
Organization for Economic Cooperation and Development
PoS
Proof of Stake
PoW
Proof of Work
TWh
terawatt-hours
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1 Introduction
Cryptocurrencies and the new blockchain technology are relatively new technologies and
are currently a hot topic all over the world. Media, governments, corporations and banks
are all discussing on how to use it. First appearing in 2009, the now most known cryptocurrency being Bitcoin (BTC) developed by Satoshi Nakamoto, was an ground breaking
intervention in the digital currency space (Dallyn, 2017). With the rising significance of
cryptocurrencies in the last years, also concerns were getting louder and more research
followed (Li & Wang, 2017). Cryptocurrencies like BTC and Ethereum (ETH) may bring
a lot of benefits to society in many different ways, but they also entail risks and challenges
for users and regulators (Yang, 2016). For the regulators, like the European Commission,
especially. The politicians trying to work out a twin transitions, meaning a green future
one with little energy use and a resilient digital economy. The European Union wants to
invest around €520 billion annually for this greener, more digitalized and a more equal
future. So, they also need to know, what digital sustainability even means (Europen
Commission, 2022).
Aside from the current economic crisis, there is a permanent environmental crisis. with
climate change being the biggest one. Social crises, like wealth distribution, are not just
once every decade, they current and permanent and much more complicate to solve
(Voge, 2018). With the growth of the digital world, there might be a future digital technological opportunity which might help enhance social and environmental well-being.
Improving the life for future generations by improving global standards for living, the
nature and social inequality (Kuhlman & Farrington, 2010). While digitalization boosts
economical productivity and benefits local and global business, it also might do exactly
the opposite. Increase threats to economic sustainability and the rise of economic disparity and the environmental well-being (Linkov et al., 2018).
This leads us to the question if cryptocurrencies sustainable in an environmental and social viewpoint. From the previous literature the following research question is formed:
How can digital sustainability be determined?
The primary purpose of this paper is to determine a digital sustainable framework for
cryptocurrencies overall with the focus on environmental and social sustainability. Secondly, this framework will be laid over the Ethereum Network to show its possible
strengths and weaknesses in sustainability.
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2 Requirements for an integrated sustainability framework
Seen from previous literature review, there are currently only few frameworks that deal
with digital sustainability. For this reason, inspired by Arps (2018), a sustainability framework itself is developed. This framework combines the extended triple bottom line of
Linkov et al. (2018) and the 10 basic conditions for sustainable artefacts by Stuermer et
al. (2016), which are explained in detail in chapter 2.1 and 2.2.
2.1 Governance strategies for a sustainable digital world
Ministers all over the world have the same opinion an understanding, there is a need for
an adequately balanced governance approach to balance the potential risks and advantages the digitalization brings. In 2017, the Organization for Economic Cooperation
and Development (OECD) showed that there are different views and opinions (SecretaryGeneral's Report to Ministers 2017, 2017) on where and how to best start with governance strategies to ensure that the development of digitized economies. Nevertheless,
“three overarching governance options for sustainable digitalization were discussed at a
June 2017 OECD Ministerial Meeting in Paris, France. Specifically, these options include: (i) a laissez-faire, industry-driven approach; (ii) a precautionary and preemptive
strategy on the part of government; and (iii) a stewardship and “active surveillance” approach by government agencies to reduce risks derived from digitalization while promoting private sector innovation” (Linkov et al., 2018, p. 444).
This paper is based on the work of Linkov et al. (2018), which developed the Adaptive
Governance framework shown in figure 1 out of the three previously mentioned governance approaches (Linkov et al., 2018). For this paper especially, the Digital Sustainability
is from overall importance. Big Data, Artificial Intelligence and the Distributed Ledger
would be from importance, if we would have a broader view and would include digital
efficiency in the framework. The need for an distributed ledger is also mentioned in the
paper of (Stuermer et al., 2016).
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Figure 1: Digital Sustainability Framework
Source. This figure shows the developed framework for Governance Strategies for a Sustainable Digital
World. From Governance Strategies for a Sustainable Digital World, by Linkov et al., 2018, Sustainability,
p. 446.
2.2 Basic conditions for sustainable digital artifacts
Firstly, its needed to know what a digital artifact is. This papers uses therefore the results
of the extensive literature review of Kallinikos et al. (2013). A digital artifact is, or can
be a video, pictures, audios, texts, and other data files. But it can also be a computed code
or a program code. It is very important to mention, that digital artifacts can be edited, they
are interactive, they are possible to access and be modified and they are distributed
(Kallinikos et al., 2013). To determine whether a digital artifacts is sustainable, this paper
uses the work of Stuermer et al. (2016). They propose a 10 basic conditions for a digital
artefact and theirs ecosystems to be sustainable, which was further a applied on Bitcoin,
Linux kernel development, the Wikipedia project and the Linking Open Drug Data
(Stuermer et al., 2016). To easier understand these basic conditions, the conceptual framework is shown in Figure 2.
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Figure 2: Basic Conditions for Sustainable Digital Artifacts
Source. From Digital sustainability: basic conditions for sustainable digital artifacts and their ecosystems,
by M. Stuermer, G. Abu-Tayeh & T. Myrach, 2016, Substainabllity Science, p. 253.
Finally, the question arises if cryptocurrencies are digital artifacts. Stuermer et al. (2016)
findings define Bitcoin and the Bitcoin Network as a digital artifact in a sustainable digital
ecosystem. A more elaborate and more contentious discussion would be possible, but this
would go beyond the scope of the paper
2.3 An integrated sustainability framework for cryptocurrencies
Based on previously done literature review and the following papers which were not mentioned in detail, Arps (2018), Dierksmeier and Seele (2016) Dierksmeier and Seele and
Voge (2018), the following holistic framework shown in Figure 3 has been developed.
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Figure 3: Adapted Sustainability Framework for Cryptocurrencies
Notes. This framework shows the result of the literature review. For this paper especially, sustainability is
determined by the environmental and societal impact only.
3 Research Methodology
3.1 Use case Ethereum
The main criteria for choosing Ethereum is its age, market capitalization, reputation, high
level of awareness and the ability to find a lot of high-quality information, which could
be hard for younger and smaller cryptocurrency projects. Additionally, in the unregulated
cryptocurrencies market, the possibility for doubtful origins and so using misinformation,
is therefore highly possible. Additionally, Ethereum has been proven to be one the most
important crypto currencies with thousands of decentralized apps and applications on it
and over $69,6 Billion locked in its decentralized finance applications. You couldn’t
imagine a cryptocurrency world without Ethereum right now (Ethereum Organisation,
2022).
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3.2 Secondary Data Collection
To answer the research question “Analyzing Ethereum as a sustainable network”, the beforehand developed framework in figure 1 will be laid over the Ethereum Foundation. To
answer each point individually, a secondary data collection will be performed, and the
findings will be presented in chapter 4. It needs to be mentioned, that Ethereum Network
will change from Proof of Work (PoW) consensus system to Proof of Stake (PoS) consensus system, which will drastically change the environmental impact, but may also impact the societal impact, when the update has been implemented (Ethereum Organisation,
2022). A more detailed explained why will follow in chapter 4.
The results will be displayed in Table 4. As a result, green, orange and red can be
achieved. Green means that it is recognized as sustainable. Orange means that it is partially fulfilled but could be better and red means non-fulfillment of the sustainability conditions out of the developed framework.
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4 Findings
4.1 Environmental Impact
For now, Ethereum can not be exactly named to be efficiency or environmentally friendly.
According to Best (2022), one Ethereum transaction needs around 238 kilowatt-hours
energy, compared to about 148 kilowatt-hours needed for 100.000 visa transactions.
Around the same, with 221 kilowatt-hours per single transaction, published Digiconomist
(2022). This equals to roughly 7,48 days of electrical energy consumption of am average
U.S. household. Not only the energy consumption is quite high, but also the carbon footprint. The carbon footprint of Ethereum is comparable to the carbon footprint of Bulgaria
(Digiconomist, 2022). To compare it further, the whole company Google with all its
services like Google Maps, Gmail, Google Pay, etc. needs about 13 TWh per year,
Ethereum needs about 75 TWh (Reeder, 2021) to 87,26 TWh (Digiconomist, 2022). Its
very difficult to determine how much energy ETH really needs. A lot of sources have a
lot of different numbers, additionally these numbers are changing constantly. Anyways,
due to the soon to be deployed ETH merge, were the PoW consensus will be changed to
a PoS consensus, the energy consumption from ETH will drop 99,9%. Additionally, to
that, no more expensive mining rigs and equipment will be needed, dropping the resource
requirement basically to zero. Only a phone or computer is needed to use ETH
(Nambiampurath, 2022). As a result of the literature review, it can be said that at the
moment ETH is environmental wise not quite sustainable. But, due to long planed and
soon to be deployed ETH merge, it is becoming as sustainable as possible. Being able to
transfer value, Non-Fungible-Tokens (NFT) and many other things, for basically zero
energy use and carbon footprint (Vahia, 2021).
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4.2 Societal Impact
Privacy. ETH is a cryptocurrency where every transaction, be it ETH or an NFT, smart
contracts, is saved on the blockchain, which is like a database. With tools like
Etherscan,io is for everybody possible to see what a certain address has received, send
and is holding right now. For this, you only need the address of the ETH wallet (like a
account number at the bank) and internet (Rosenberg, 2022). The problem with privacy
is even from the creator of ETH, Vitalik Buterin himself, often addressed and discussed.
There are quite some ideas floating around, and with more time, this will eventually also
be fixed (Vitalik Buterin, 2019). Due to the lack of concrete or fixed ideas which will be
soon implemented like the PoS merge, ETH is rated as mediocre in terms of privacy.
Mediocre due to the possibility to achieve full privacy, but only with additional costs.
Community. Community wise, ETH has a positive and sustainable impact. The in Switzerland founded non-profit organization succeeded in creating a hype around its cryptocurrency, its vision, mission and especially arounds its core developer, Vitalik Buterin.
In the crypto currency community, he enjoys a similarly prestigious, well-respected, and
idealistic reputation as the unknown founder of BTC, Satoshi Nakamoto. Additionally,
new dApps and applications can be developed basing on the ETH platform, which drives
a stronger community connection than other crypto currencies like BTC, where you do
not have this possibility (Arps, 2018). Therefore, ETH can be seen by its community
impact highly sustainable.
Accessibility and Usability. ETH offers an easy-to-use possibility. You can buy it on numerously different exchanges, which can be centralized or decentralized exchanges. You
can let your ETH on the exchanges, you can send them to hardware wallets which offer
the highest security, or you use different apps and programs where you can deposit your
ETH and control them fully yourself (Moniruzzaman et al., 2020). Not only using ETH
as money is easy to use and access, but also to develop on it is possible for everyone with
the knowledge about blockchains. The needed knowledge is free on the web and even
displayed by the Ethereum Foundation on their own website (Ethereum Organisation,
2022). As a result, ETH can be also seen in accessibility and usability highly sustainable.
Stakeholder Fairness and Equality. To begin with, ETH has three types of stakeholders.
The users who are holding and use ETH. The miners, who can be individuals or businesses which validate transactions of the users and secure the network, for which they
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receive/earn ETH. And lastly, the ETH Core Developers. Each of these stakeholders, no
matter how much ETH the user holds or the miners’ mines, can submit a Ethereum Improvement Proposal, short EIP on Github. If they idea gets enough support, the Core Developers listens to what the community wants, no matter from whom the idea came (Coen,
2021). As a result, ETH can be also seen in Stakeholder Fairness and Equality highly
sustainable.
Table 1: Findings of the Secondary Data Collection
Dimension
Category
Result
Environmental Impact
Resource Requirements
current
post merge
Energy Consumption
current
post merge
Societal Impact
Privacy
Community
Accessibility and Usability
Stakeholder Fairness and
Equality
Legend:
Sustainable
Mediocre sustainable
Not sustainable
Notes. This table shows the results of the secondary data collection. Due to the soon to be happen merge
of Ethereum, the current and post merge results are displayed
Source. Done by the author.
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5 Discussion
Currently, Ethereum is the most important platform for decentralized development of
dApps, although it being itself constantly improved and further developed. As a result of
the previous literature reviews, the development of the sustainability framework and the
research methodology, ETH is considered fully sustainable in this paper. Even though the
environmental impact is not yet sustainable as of today, it is seen as sustainable in the
results. The reason is the frequently mentioned ETH merge, which will ultimately go live
in merely a few weeks and will slash energy consumption by more than 99.9%. However,
the result is very limited. The framework is based on conditions for digital artifacts, which
themself are only conceptual, even if other sources recommend very similar conditions,
and have not yet been empirically tested. Nevertheless, this article offers a detailed insight
into ETH and its current sustainability. Moreover, cryptocurrencies are still a very recent
development and new currencies are issued daily. Many investors and institutions see
strong links to the dotcom bubble here and expect something similar, including star investor Mark Cuban (finanzen.ch, 2022).
This paper also fuels the debate for a central bank digital currency (CBDC). A CBDC
would as an example be a digital Euro, a real-life currency based on cryptocurrency technology. The European Commission is working and investing in the twin transition, therefore, sustainability wise, CBDCs would probably be one of the best investments made.
As seen from Ethereum and the merge to PoS, dropping the electricity use and carbon
footprint to basically zero, this could also make the Euro 100 times greener. With a crypto
currency euro which is backed by the European Central Bank, producing money, cleaning
money, transporting money, which all needs a lot of fuel for vehicles, factories etc., would
become obsolete. Saving more than 10 billion liters of water and more than 100 TWh
electricity (Ledger, 2020).
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