The Tipping Point for Climate FinTech: Conversation with Algorand Foundation on Blockchain & Climate
In the latest Finstep Tipping Point Thought Leadership Series, Finstep Asia Founder, Musheer Ahmed is in conversation with Sean Lee, the CEO of Algorand Foundation, about the role of FinTech in climate improvement and carbon offsetting. They discuss about the role of blockchain in environmental sustainability as well as the evolution of Green DeFi (Decentralised Finance). Sean takes a deeper dive into what makes Algorand one of the greenest blockchain protocols, while highlighting some exciting projects on Algorand.
View the recording of the interview below:
Read the Summary of the conversation below:
Algorand Is One of the Greenest Protocols in the Industry
Musheer and Sean started the conversation with a discussion on the green credentials of Algorand. Sean stated that Algorand is designed to have negligible carbon footprint.
“Algorand, as a protocol, was designed to be carbon-neutral,” Sean said. “This means our node network requires very low footprints to process all the blockchain transactions.” He also talked about the design principle of Algorand. “The design principle of Algorand, as developed by our founders, is such that the footprint will remain the same regardless of how much we scale our network. For instance, Bitcoin transactions require about 700 to 800 megawatt per node. For us, it’s nearly zero (0.00… up to six decimal places).” Sean concluded the answer by highlighting that “Algorand is a layer-1 protocol, so all the apps developed and deployed on Algorand automatically inherit carbon-neutrality.”
Proof of Work vs. Proof of Stake
Sean explained the difference between proof-of-work and proof-of-stake. “Bitcoin and Ethereum, two of the largest networks in the Blockchain space, are proof of work. The Bitcoin and Ethereum tokens used for transactional purposes are mined by solving complex cryptographic puzzles. That’s proof of work, and this is how blockchain works,” said Sean. “The problem, however, is that mining requires a substantial amount of energy.”
Sean then went on to explain proof-of-stake. He said, “so, many protocols came up with the proof-of-stake consensus mechanism, which works by selecting validators to process transactions. The validators are selected by their quantity (or stake) of holdings. This reduces the computation cost associated with the proof-of-work mechanism.”
Sean stated that Algorand is a peer proof-of-stake. “Algorand is a peer proof-of-stake network by design. Instead of having a few selected validators, Algorand completely randomizes them. Over a thousand random validators approve the blocks and process the transactions at any given time. This dramatically increases the security aspect of Algorand, which is essential in today’s age as blockchain becomes more mainstream and institutionalized,” Sean concluded.
Companies Using Algorand
Several companies use Algorand, and Sean highlighted two usecases: Planet Watch and Gaiachain.
Planet Watch is an air quality and climate monitoring company that collects and shares climate information, like pollution and humidity, through community-run sensors installed worldwide. The information is shared in a decentralized network, allowing people to access it from anywhere in the world. Planet Watch incentivizes its community members in the form of Planet tokens for sharing the climate data.
Gaiachain is a forest restoration company that incentivizes farmers for forest landscape restoration and biodiversity conservation. They work with IUCN to verify proof of engagement using satellite imagery and capture all the data on the chain.
Super-Fast Transactions and Efficient Blockchain Technology
Bitcoin and Ethereum networks often get congested when the activity is high. Many people wait for their transactions to be verified, resulting in higher transaction fees and energy consumption. Sean said Algorand’s underlying technology is fully capable of handling the congestion issues.
“Algorand has a transaction speed of 4 seconds. You can send any transactions, assets, or data to any part of the world in four seconds or less. In addition to that, our chain processes about two million transactions daily, which is one of the highest in terms of layer-1 protocols. And there’s never been any congestion, thanks to our efficient design and underlying technology.”
When asked about the transaction fee, Season said that Algorand has one of the lowest transaction fees in the industry. He replied, “we have set a fixed transaction fee of 0.001 ALGO. ALGO currently trades at around $2, so the transaction fee users need to pay is almost negligible. They don’t have to think about the high transaction fee and can proceed with their transactions instantaneously, eliminating the risk of congestion.”
Algorand’s Partnership with Envision Racing
Algorand recently partnered with Envision Racing, an e-motorsports company. When asked about this initiative, Sean replied that increasing brand awareness is their major objective. “Envision Racing one of the largest motorsports names in the Formula E-circuits. It’s also one of the greenest racing companies out there. We love e-motorsports, and as the greenest blockchain, we will want to be associated with the greenest racing company, competing on the greenest racing grid.”
Sean also indicated that the partnership could go beyond racing, as Envision is also into wind turbines and electric batteries.
Role of Decentralized Finance (DeFi) in Green Finance
When asked about the role blockchain and DeFi could play in green finance, Sean said that the majority of green investments rely on the traditional investment, payout, and distribution structure, and tokenizing it could make the distribution faster and more efficient.
“The traditional fund structure is complex and involves several steps, which makes the process slow and increases energy consumption. Tokenizing the payout is an effective way to eliminate this hassle. Investors can get a payout in the form of crypto or other blockchain assets in seconds without compromising on security. On the other hand, companies offering these bonds will be able to significantly reduce their carbon footprint.”
The Future of the Metaverse and the Need for Efficient Blockchain
The metaverse is paving the way for the next generation of the internet. When asked about the role of blockchain in the metaverse, Sean said that NFTs and blockchain assets will be the “economy” in the metaverse.
“People are using the current iteration of the metaverse to exchange assets, like buying and selling virtual land, collectibles, game artifacts, etc. Non-fungible tokens (NFTs) play a crucial role in exchanging these assets. NFTs tokenize virtual assets in the metaverse, and the buying and selling of these NFTs could become the economy of the metaverse.“
Sean also expressed his concern over the increased consumption of energy to support transactions in the metaverse. “As the metaverse grows and more people become a part of it, the number of transactions happening using NFTs, cryptos, and blockchain, in general, could surpass the blockchain transactions happening in the physical world. Hence, the underlying technology of the NFTs and tokens should be highly efficient and green to reduce the environmental impact of the metaverse.”
Sean concluded by stating that Algorand is one of the greenest chains in the world right now, and they are working on some exciting initiatives in that regard.