The Social Impact of Cryptocurrencies: Exploring The Advantages of Blockchain and Crypto

So far, we have focussed on the environmental effects of cryptocurrencies - as most people do - and although this is important, blockchain technology has influenced far more than the ‘E’ component of ESG. In this post, we will concentrate on the social sustainability impact of blockchain technology.

According to an extract from the book How Blockchain and AI Enable Personal Data Privacy and Support Cybersecurity, despite efforts by stakeholders, particularly governments, to keep data safe and encrypted, the Risk-Based Security’s 2020 Data Breach Report confirms that “The total number of records compromised in 2020 exceeded 37 billion, a 141% increase compared to 2019”.

The decentralised character of blockchain technology

The blockchain's decentralised ownership empowers people to govern their own identities and data rather than entrusting this duty to institutions. Each individual is accountable for their data, which enables a variety of rights and freedoms that were not available before. Second, decentralisation is based on the idea that each node has a copy of the ledger, which will only be updated if all blocks, including newly added blocks, are verified. Finally, decentralisation and open access to ledgers, transactions, and participation in the blockchain creates a certain degree of transparency which can help discourage attacks and malicious activities.

Protecting data and user identity: the zero-knowledge proof and the user’s public and private key

To protect people and their data, more than one way is used. The zero-knowledge proof is a cryptographic method that allows a "verifier" to authenticate any user without the latter exchanging or exposing any information. This method preserves the privacy of the user while simultaneously protecting the blockchain from potentially dangerous criminals. The fact that a user has both a private and a public key is a second advantage of adopting blockchain technologies. Because the user's private key is individually well protected, there is no mathematical approach for estimating the private key from the public one.

Access to finance

Blockchain technologies have granted access to many people around the world to banking privileges through the blockchain. With the advancement of digital wallets and cryptocurrencies, the World Bank estimates that 1.7 billion individuals worldwide now have access to the same benefits that banking clients have had for a long time. All they need is a device (a phone or computer, for example) and an internet connection.

Adjustable human capital & labour management

Through multiple consensus mechanisms, access to the blockchain is granted to everyone who is capable of overcoming the Proof of Work or the Proof of Stake, depending on the blockchain. In terms of rewards and mining, no specific barrier could prevent a person, regardless of her background, skills, culture, or education, from earning coins through mining. The complexity of the Proof of Work varies, according to the rate at which each block is created to ensure that a miner is picked every set number of minutes. The same concept applies to another consensus. The labour efforts, as well as the human capital required, are then automatically adjusted (to the rate of one unique miner per block, per certain number of minutes).

Equality and justice

Blockchain has become the main activity and primary source of revenue for many individuals around the world. Among the numerous advantages that blockchain provides, the technology is built on the principles of equality and justice. Aside from the fact that there can be no discrimination, the miners are chosen at random, with no prior requirements regarding their backgrounds.

Despite the rising debate on whether the randomness on which the blockchain is built can be problematic since it can attract hackers and malicious individuals, consensus is still heavily built on randomness.

On Proof of Work, according to the article Bitcoin, Chance and Randomness on Medium, “…a good puzzle gives every miner the chance of winning the next puzzle solution in proportion to the amount of hash power they contribute.”Another article, called The Role of Randomness in Proof of Work Mining, explains this theory further: “You have a better chance of ‘“mining a block’” in bitcoin because you’re spending more energy to make more random guesses than the next guy.”

Randomness is not as assured in Proof of Stake as it is in Proof of Work, due to the fact that the miner with the most coins “at stake” wins the opportunity to add a block. The concept itself does not allow such advanced randomness. However, there are prototypes based on randomness in Proof of Stake where no miner can own more than 30.8% of the total currency.

NGOs and blockchain tech

NGOs are among the institutions that stand to profit most from the advancement of blockchain technologies. First of all, blockchain technologies and cryptocurrencies have made it cheaper to send donations - or sums of money in general - from all over the world, thanks to lower transaction fees than the traditional banking system. Consequently, many NGOs have started accepting cryptocurrencies as a donation method. It will also enable them to reach wider audiences and guarantee the authenticity of the donations, and the receivers to the donors, thanks to the “secure essence of the blockchain.

You can read more about how the expansion of the blockchain has encouraged donations from all over the world, as well as the advantages of trusting cryptocurrencies as a new donation method in our previous KnowESG article.

Many individuals are discussing blockchain, and even more, are attempting to prohibit the usage of blockchain and cryptocurrencies due to their environmental effects. Despite all of its power consumption - which many miners have avoided owing to renewable energies - it is undeniable that blockchain technologies have a good influence, not only economically but also in terms of social sustainability. This encompasses data and security, access to financing, equality, non-governmental organizations, and many more topics to consider. The concern is whether it will be sufficient to outweigh the negative impacts.