Saturday, November 27, 2021

Blockchain, smart contracts, and gains for sustainability

Smart contracts are computer programs running on a blockchain that execute when certain conditions are met. Generally, they are used in agreements between two or more parties, allowing for transparent conditional transactions that rely on predetermined criteria.

Being programs, they need no oversight once written and activated, and as they are housed on a distributed ledger, they are more secure and resistant to interference than centralised mechanisms.

In the long term, the technology could reshape society as we know it. DeFi — or the decentralised finance sector — is quickly establishing itself as a burgeoning frontier, but it is only one of many possibilities.

More immediately, smart contracts could be instrumental in combatting global warming.

“Smart contracts allow us to design globally accessible and fully automated incentive systems that can directly reward individuals, companies and governments for taking part in sustainable practices,” explains Adelyn Zhou, CMO of Chainlink Labs.

Automated systems could be created that compensate successful sustainability projects, reduced consumption, or carbon capture with credits that themselves could be traded or sold as appropriate.

The only obstacle to this future is the disconnect between the digital world of programs running on blockchains and the physical world in which temperatures and sea levels are rising.

Bridging this gap are agents called oracles.

Oracles feed smart contracts with dependable real-world data. Blockchains are difficult to interact with by design; they are sequential and immutable. Data from off-ledger must be funnelled to smart contracts by designated inbound oracles. The reverse friction also exists, with outbound oracles making decisions on a blockchain known to the outside world.

Oracles are essentially third parties that determine the information flow to and from smart contracts. They control the only data that smart contracts have for executing their encoded decision making. This also means that they are a potential source of vulnerability for these platforms, particularly in adversarial contexts.

This is known as the “oracle problem.” Companies like Chainlink Labs and Brand Protocol build decentralised oracle networks which aim to alleviate these concerns.

Decentralised organisations

Once climate data from satellites and IoT devices is reliably integrated with blockchains, dynamic and transparent systems become possible at scale. A decentralised climate organisation, for instance, in which states, companies, and individuals participate, could change the game for environmental efforts, suggests Bernhard Reinsberg, a lecturer at the University of Glasgow.

In this vision, “a common token — let us call it greencoin — allows climate commitments by states to be linked with the flourishing ecosystem of transnational climate initiatives and individual climate action,” Reinsberg explains.

The beginnings of this idea are present in an existing project, the Carbon Utility Token, developed by CUT Carbon Distributed Technologies.

“By creating a transparent blockchain powered technology for producers and consumers of Carbon Offsets, CUT incentivises growth in these activities which we believe can help to create meaningful and long lasting positive environmental impact,” the company explains in a whitepaper.

Each time a CUT token is sold, the money generated is put towards carbon capture projects and carbon offsetting initiatives. This is one recent example of companies creating green assets in the crypto space, allowing adherents to positively impact sustainability. While this is more specific and limited in scope than the hypothetical coin mentioned by Reinsberg, it is a step towards that idea.

Influencing public behaviour

The levels of engagement today on climate issues is far higher than that seen in the past. The likes of Extinction Rebellion and the totemic impact of Greta Thunberg are only two examples among many. But while certain members of the public are changing their consumption habits, an even greater level of positive engagement would occur if financial incentives were aligned with climate targets.

Chainlink Labs’ Adelyn Zhou suggests that smart contracts could support incentive systems for individuals as well. By linking smart contracts to IoT devices, consumers could “automatically receive payments or penalties based on the impact of their consumption habits, creating behavioural changes that simply would not have occurred through education alone.”

Zhou brings attention to a project called NetObjex which is putting IoT devices in certain hotels. Guests’ water and energy consumption is tracked during their stay. The data is plugged into smart contracts which determine rewards or penalties based on individual consumption.

Removing friction from sustainable energy efforts

The complex energy grid that is emerging through the introduction of increasing levels of green energy sources also stands to benefit from blockchain. For instance, it is possible to use smart contracts to enable consumers to freely trade solar energy with their neighbours in peer-to-peer transactions.

If well-managed, this could reduce energy transfer costs, improving efficiency and carbon costs. There are still some limitations with the technology, but the concept is already being explored in small-scale projects. The “Jouliette” token used in the Netherlands is one example pilot project.

As has been pointed out, blockchain is its own reality, while energy is all-too real. Any system must be airtight before it is let loose on real-world infrastructure. And yet, there are considerable gains to be made if the technology can be appropriately harnessed for improvements energy exchange and sustainability initiatives.

Mark Swifthttps://europatter.com/
Mark Swift is a Scottish freelance journalist and writer based in Paris. His work covers business, technology, European politics, and EU policy. Before writing for 4i-mag, he was a journalist for Young Company Finance Scotland, covering investment in Scottish technology start-ups. Mark's portfolio can be found here: muckrack.com/mark-swift-1/portfolio

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