Decentralization may bring a whole new definition of trust to a world where currently only a few gatekeepers control the flow of money, services, and data. While not a panacea, blockchain can ultimately enable the exchange of data in an entirely new way. Blockchain can reduce transaction costs, minimize tedious paperwork, and streamline the carbon trading process. This trust-building function can improve many aspects of carbon markets, where credits are designed to be traded. Exposure and risk to fraud is limited through a digital signature that any blockchain user has, which puts their “fingerprint” on every interaction with the chain. As such, they add another attractive tool to the blockchain toolbox, enabling fast, reliable, and transparent information exchange among participants in the network.īlockchains can also interact with other systems and be programmed to facilitate interactions with far less reliance on intermediaries. Smart contracts can store a wide range of metadata about a product - such as the carbon credits or other climate-positive activity - securely fused into tradable units. Smart contracts are a sophisticated piece of code deployed on the blockchain - think of it as a vending machine, but online. Every blockchain rests on a consensus mechanism that ensures that: 1) the network is distributed and not controlled by any single party 2) the validator nodes are incentivized to behave honestly and 3) blocks, once verified, can no longer be tampered with or changed.īlockchain has a smart contracts feature that offers the potential for blockchain users to automate business processes to a high degree. What differentiates a blockchain from a simple spreadsheet, or a conventional database is how the data is structured, stored, and linked to participants in a particular ecosystem. Rather than a sweeping summary of the technology’s merits, the analysis is focused on its most promising applications in the supply and use chain of carbon credits.īlockchain-for-Carbon 101 – The Building Blocksīlockchain is essentially a database that can store information electronically: digitized blocks of data, linked by secure nodes, forming a chronological chain of information. This article debunks some myths and highlights early lessons learned on blockchain-powered initiatives for carbon markets. Whether these aspirations can course correct a market plagued by low supply of credible high-quality carbon credits and lack of fully transparent monitoring, reporting, and measurement (MRV) around existing supply is an open question. Blockchain developers are making moves far beyond the cryptocurrency territory, with the recent flurry of activity in the blockchain-for-carbon space suggesting a new focus on disrupting the VCM status quo. The question is: What’s blockchain got to do with it?Īpparently, a lot. A similar lack of transparency has implications for the credibility of climate benefit claims.Īs the world looks to accelerate climate action – and to dramatically scale open markets for carbon products – trust and transparency will become even more vital to the VCM to fulfill its mission of helping avoid or remove atmospheric emissions to prevent a climate catastrophe. Without these measures, multiple certifying options have crowded the market and buyers of carbon credits are often unable to differentiate signal from noise. Since its inception, the VCM - a decentralized market where private actors buy and sell carbon credits - has existed without a unifying standard for quality or mutually agreed upon accounting principles. The voluntary carbon market (VCM) has a trust problem: The quality and efficacy of the existing carbon credit supply is drawing widespread skepticism.
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