Keep Cool Report #0004: Blockchain
2,442 words, ~ 7 .5 min read
This piece is the first of a three part series, in partnership with Katapult. Parts two and three of the series will include a company deep dive, profiling a business in this space, as well as a live session designed for our community’s participation. Stay tuned!
Report North Star
This report will explore the use of blockchain technology in climate change mitigation. While we will touch on emissions from crypto ‘mining’, considering that topic has been explored at length of late, we will focus on how blockchain tools, as well as crypto, can fuel innovative climate solutions.
What is Blockchain?
Blockchains are systems of recording information that are very difficult (perhaps impossible) to change, hack, or cheat. They are digital ledgers of transactions that are duplicated and distributed across a network of computer systems. Each block in the chain contains a number of transactions. Every time a new transaction occurs, a record of it is added to every ledger in the network.
The most popular application of blockchain technology to date has been cryptocurrencies. Bitcoin was the first. However, cryptocurrencies are only one of many blockchain use cases. Other blockchain applications include recordkeeping, tracking supply chains, decentralizing community organizations, or verifying the identity of citizens.
Why it Matters (to climate technology)
Some blockchain technologies are part of the climate problem, especially cryptocurrencies that use greenhouse gas “GHG”-heavy consensus protocols. This doesn’t mean that blockchain technology can’t be a resource for climate solutions. Below are benefits that crypto and blockchain can offer in the fight against climate change:
- Crypto has proven ability to mobilize large amounts of capital quickly. The global crypto market cap is ~ $1.32T, the majority of which can be used to invest, transact, and fundraise with little friction and without financial intermediaries.
- Blockchains solve problems of trust (prevalent in the climate space) by eliminating the need for intermediaries in recordkeeping and via ‘smart contracts’, which provide a secure, transparent medium for digital contract execution and collaboration.
- Blockchains can enable groups to better organize, collaborate and govern, again via smart contracts. Parties can reduce operational costs, improve internal controls, increase transparency and build more democratic organizations.
Every challenge, an opportunity
Here are the climate challenge areas in which blockchain can have outsized impact. (to go deeper on these climate tech challenge areas, checkout our content overview)
Bitcoin, Ethereum, and other blockchains are here to stay. Currently, they produce a lot of emissions (Bitcoin contributes to ~0.5% of global GHG emissions by some estimates). The opportunity here is to reduce this energy consumption by switching the consensus protocols used for validating data (more on this later) and transitioning the grid used to ‘mine’ to more renewable energy sources.
2. GHG Capture and Storage
Blockchain technology is a powerful tool for solving the trust and double-counting issues that are present in carbon removal efforts and offset marketplaces.
3. Climate and Earth Data Generation
Blockchains can support significantly improved reporting and analytics for earth and climate data.
(Shoutout to Josh Green from Going Green who compiled a great primer list of crypto x climate projects which we expanded upon below)
Markets for carbon offsets
- 1Planet enhances access to carbon offset projects.🔑
- Cascadia Carbon sells non-fungible tokens (“NFTs”) tied to physical trees planted 🌳.
- Corcovado similarly sells NFTs associated with trees planted. Each NFT also generates a fungible token (CORCOCOIN) each year after the tree is planted 🌲.
- DAO IPCI allows users to allocate and manage environmental assets on a blockchain.
- Moss.Earth created a token (MCO2) tied to carbon credits to protect the Amazon rainforest 🦜.
- Nori is a blockchain-based marketplace for buying and selling credits for the removal of atmospheric carbon.
- RECDeFi aims to create a decentralized marketplace for trading environmental commodities (carbon offsets, renewable energy credits, etc.).
- Regen Network is creating a marketplace for carbon offsets tied to regenerative land management 🔁.
- UPCO2 is a token tied to REDD+ carbon credits which have been verified according to standards set by Verra.
- Zero Carbon Project is a marketplace where buyers interested in carbon-neutral energy can bid on bundles of energy and carbon offsets. There’s also a token (ZCC) which energy providers use to settle contracts and which buyers earn as rewards 💰.
Markets for climate data
- dClimate is a blockchain for sharing and selling climate data sets, forecasts, and models.
- OS-Climate is a marketplace for climate data ☔️.
Leveraging blockchain and crypto to solve climate problems
- Arbol uses smart contacts to protect individuals and businesses against weather risk 🌩️.
- BitGreen provides infrastructure, connectivity, and a purpose-driven foundation for ESG and impact communities to integrate blockchains into their projects.
- Blockchain for Climate Foundation creates infrastructure to support the implementation of the Paris Agreement by using NFTs to track and transfer emissions reductions.
- InterWork Alliance works to establish alignment on carbon offset standards.
- Mattereum registers details about physical items’ carbon footprint on a blockchain. 👣
- Open Earth Foundation is an open financial framework that reduces friction when people want to invest in climate positive projects.
- Terra0 is an artwork and research group centered around decentralized technologies that aim to provide automated ecosystem resilience frameworks.
- GrainChain.io builds blockchain solutions for agricultural supply chain efficiency 🌾.
Reducing energy consumption and emissions (more on this in the “where it’s headed” section)
- Chia is a cryptocurrency that leverages Proof-of-Space (unused hard drive space) as opposed to more energy intensive consensus protocols like Bitcoin’s Proof-of-Work (“PoW”).
- Crusoe captures otherwise wasted energy (i.e. natural gas flaring from oil drilling) to meet the demand for computational power in crypto mining 💻. (shoutout Andy Artz for the tip here 🙏)
- Cardano and Solana are Ethereum competitors that leverage Proof-of-Stake (“PoS”), another less GHG-intensive consensus protocol than PoW 🥊.
- Polkadot is a multi-blockchain architecture (users can spin up new blockchains based off of it) that leverages PoS as well.
- Algorand is another blockchain that offers smart contracts and uses PoS.
- BitClout, a blockchain based social network, announced it’s moving to PoS from PoW for environmental reasons recently.
- There are many other cryptocurrencies, blockchains and projects that require less energy to confirm transactions. We have listed some of the most notable ones.
Transitioning crypto to renewable energy
- Crypto Climate Accord: Organization with the stated goal of moving crypto mining to renewables by 2025 and getting the crypto industry to carbon neutral by 2040.
- Decarbbitcoin Labs is piloting a project to prove that it’s possible for small-scale communities to mine Bitcoin profitably using renewable energy.
- Terra Pool will mine Bitcoin using renewables, primarily hydro 🌊.
Offsetting existing carbon emission of crypto
- Aerial works with crypto artists to offset the carbon footprint of their NFTs 🎨.
- Bitcoin Zero is a token whose value is backed by Bitcoin; each token combines 1 BitCoin with 10 tonnes of carbon offsets using UPCO2 tokens (also see “markets for carbon offsets” above).
- CO2ken tokenizes carbon offsets from traditional carbon offset sellers.
- Cryptovoxels is a virtual world that fully offsets all of its emissions 🌐.
- Netpositive.money encourages members of the Bitcoin community to buy offsets and donate to organizations that are fighting climate change.
Where It’s Headed
PoW → PoS. While different blockchains share similar peer-to-peer approaches, they differ in what consensus protocols they use for validating data. Importantly, different consensus protocols vary drastically in energy intensivity. The ‘Proof of Stake’ (PoS) protocol for example requires less than 1% of the energy consumption that ‘Proof of Work’ (PoW) does. Major blockchains, like Ethereum, are transitioning from PoW to PoS, which would make them more climate friendly. Other consensus protocols, like Chia’s Proof of Space, offer similar benefits.
Mining with renewable energy. In this new report, CoinDesk discusses Bitcoin’s accelerating transition to clean energy. About 40% of Bitcoin mining is currently powered by renewable energy, versus 20% for overall energy consumption worldwide. Can the Bitcoin mining community actually catalyze the global transition to renewable energy ☀️?
Debate over the carbon emissions of crypto will continue to hamper blockchain adoption. Mora estimates that the computer processing power needed for the Bitcoin network alone could result in a global temperature rise of 2°C by 2050. Others say such estimates are inflated, possibly by as much as 75%, as miners increasingly embrace cheaper renewable energy, like hydropower and geothermal (more on this below). The main takeaway? This debate isn’t going away, and it’s already harmed public perception of blockchain tech considerably.
Governments will choose a side. China has cracked down on crypto mining, moving to shut down over 90% of its Bitcoin mining capacity amidst growing climate concerns. El Salvador, on the other hand, became the first country to adopt bitcoin as legal tender (even proposing that it be mined using volcanic energy) 🌋.
Blockchain will enable new ways to fund climate research… See for instance what VitaDAO has done to build a decentralized collective for funding early stage longevity research. This could be replicated for climate research.
…and fundraise for other creative projects, too. John Palmer used Mirror to fund an essay in exchange for ownership of the work. This allowed him to devote his time to writing the piece, which still exists as a public good for anyone to read. Jesse Walden dubbed this experiment “Patronage +”, essentially patronage + *possibility* of profit.
New financing models will gain steam. DeFi (decentralized finance) is an umbrella term for a whole host of concepts and financing models including flash loans, yield farming and liquidity pools. Climate solutions are in need of alternative financing models. Will blockchain solutions be just what’s needed?
We’ll trust corporations less and code more. Climate pledges and “net zero” promises aren’t enough. We have the technology to make transparency the norm when it comes to corporations’ climate commitments. Don’t give your word. Show your code. 🤝
Other Moonshot 🌙 applications: Blockchains may enable more ambitious solutions too, such as more democratized and accessible hedging of weather risks. The livelihoods of an estimated 2-3 billion people affected by weather. With blockchain, hedging can be less expensive; whereas at current, weather derivatives are traded on global exchanges and really only available to multinational energy companies or giant farming operations. See Arbol in the players section for more.
Opportunities for Action
Climate DAOs. Decentralized Autonomous Organizations (DAOs) are groups with no central management. For some, these internet-native organizations represent the next step in the evolution of social and economic coordination; blockchain technology and smart contracts streamline voting, decision making, and the allocation of digital assets toward a common goal. Take a look at DAO applications such as pooling capital for investments or facilitating community curation and organization — there are many climate challenges these could be applied to.
Community tokens. Community organizers can mint tokens as a tool that empowers creators and communities to share in more of the value that they create. Bankless gives paid members a token each month. FWB has members convert USD into $FWB and buy into their community. Tokens can be used for event access, voting, and bonus features. Can we take these models a step further and create token rewards that motivate members for taking positive climate action? Ben Hunt certainly thinks so; read his proposal for Proof-of-Plant blockchain consensus protocol. 👀🌱
Align Incentives. The Two Degrees NFT by Terra0 addresses the relationship between global warming and the survival of ecosystems depicted in its art. The project monitors the annual average temperature globally; if it rises above a certain threshold, the NFT token is ‘burned’ 🔥, (i.e. removed from circulation). This post includes the technical details of the ‘2 degrees’ smart contracts, which could lay the foundation for others to build new automated actions and incentives triggered by global temperatures 🥵.
Hold corporations accountable for climate pledges. Blockchains can be utilized (via smart contracts) to better calculate, track and report on the reduction of the carbon footprint across an entire supply chain. Who will build the open startup equivalent for individual corporations to report their true carbon emissions and progress towards net zero?
Encourage collaboration toward emissions tracking. The distributed nature of blockchain technology enables cross-enterprise collaboration to enable emissions traceability across complex supply chains. The World Economic Forum has released a proof of concept that focuses on using blockchain to track emissions in mining and metal companies ⛏️. Where else might this same framework be applied? 🤔
Promote greater efficacy. The World Bank estimates that the carbon credit market will grow to $185 billion by 2030. While it’s a crowded space already (see players section), using blockchain to ensure the efficacy of these carbon markets will be crucial to meeting emission targets 🎯.
Give people bragging rights (for good). Crypto offers people new forms of bragging rights. Vitalik Buterin, co-founder of Ethereum, writes about how NFTs have a shot at solving systemic funding deficiencies in many types of public goods and creative spaces. Here is one of his potential ideas which could be applied to climate:
- “Some institution (or even DAO) could ‘bless’ NFTs in exchange for a guarantee that some portion of the revenues goes toward a charitable cause, ensuring that multiple groups benefit at the same time. This blessing could even come with an official categorization: is the NFT dedicated to global poverty relief, scientific research, creative arts, local journalism, open source software development, empowering marginalized communities, or something else?”
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Climate Crypto Resistance. Right now, a number of cryptocurrencies are still part of the problem. This has profound impacts on perception of cryptocurrencies and blockchain projects. Because of these existing problems and perception, many are reluctant to build climate solutions on the blockchain. More education is needed within the climate space to see that blockchain technology can be a powerful solution 📢.
Adoption. Crypto can be complex. From understanding the basic concepts of blockchains, DAOs and DeFi, to actually setting up a personal crypto wallet, the space is a ways away yet from true mainstream adoption. Unfortunately, this is especially true of the most vulnerable and climate affected populations, where access to the internet is often limited.
Association with “net zero”. “Net Zero” targets are not a panacea for climate change mitigation. At current, many blockchain climate solutions are concentrated on carbon offset markets. There’s a risk that if the carbon offset market changes significantly or becomes less en-vogue, people may conflate this with failure of blockchain climate solutions as a whole. We would ideally like to see blockchain climate solutions tackle a wider range of climate challenges.
Must have or nice to have? One may argue that the opportunities listed above could all be built without blockchain. Which blockchain solutions benefit the most from a distributed ledger versus say, a simple database? The growing climate tech businesses in this space will have to prove their blockchain-based climate solutions truly have an advantage. Of course, if they do, this advantage should also prove itself over time 📈.