One of the most interesting events going on alongside COP23 looks like the 4-day hackathon on the use of blockchain technology for climate action and finance being staged by Hack4Climate. We’ve plumped up the office bean-bags, ordered in the pizza and wrapped a large cold towel around our heads to bring you a quick overview of blockchain and what it might mean for climate finance.
What is “Blockchain”?
“Blockchain” is often used as a shorthand for what’s, in fact, a range of “Distributed Ledger Technologies” or DLTs. The Climate Ledger Initiative (see below) defines a blockchain as follows:
A blockchain is essentially a public, cryptographically-protected, distributed ledger spread across a network of thousands of computers. This ‘database’ contains records of every transaction that ever takes place on it and it is constantly reconciling itself. In this way, it is virtually impossible to corrupt transactions that take place because, if anyone tried to change the record of a transaction, the entire system would be out of balance and immediately identify the inconsistency.
Read More: Useful definitions of key terminology can be found in a 2016 UK Government report on DLT (see p 17)
What can DLT be used for?
The best-known use of a blockchain is the Bitcoin digital currency, and the World Economic Forum’s 2016 report on the use of DLT in the financial services industry found that 90%+ of central banks worldwide are engaged in discussions on DLT and predicted that 80% of commercial banks would have initiated DLT projects by 2017. Among the WEF’s key conclusion were that: “DLT has great potential to drive simplicity and efficiency through the establishment of new financial services infrastructure and processes” and that “New financial services infrastructure built on DLT will redraw processes and call into question orthodoxies that are foundational to today’s business models.”
But the technology has many other potential applications than in financial services. In essence, any chain of exchange which currently relies on an intermediary can be disrupted, because DLT, by creating transparent and incorruptible databases, removes the need for intermediation. For example, the current electricity distribution system in most developed countries is “top-down”, with suppliers transmitting power from centralised generation facilities across distribution lines to homes and businesses. DLT creates the possibility of a “bottom up” electricity generation and distribution model, based on direct peer-to-peer exchanges. In such a system, one Neighbour 1 with solar panels on her house could transmit excess power to Neighbour 2 who doesn’t have them, in return for bitcoin or some other form of digital recompense. Or, if Neighbour 2 had an electric car, Neighbour 1 could use its battery to store her excess power, wth Neighbour 2 taking some of the stored power as payment.
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What are the uses of DLT in development ?
As well as addressing “first world” issues such as those just mentioned, DLT’s transparency, incorruptibility and low cost is starting to create many possible applications in the sustainable development sphere. There’s a useful run-down of these in a recent article on Devex Newswire, which lists 7 uses of blockchain for development. These are financial services (especially for the unbanked); remittances, where mobile cash transfers can now be done at zero cost; peer-to-peer energy trading between those with off-grid solar panels; supply chains, where there are a host of possible uses from managing payments to verification of provenance; land registry, where, by documenting ownership of land rights, for example, the technology can create assets for the poor which can then be used as collateral for borrowing; identity, where DLT can be used to create IDs, for example for refugees, and enable cash transfers; and finally, in tracking donor funds, reducing opportunities for corruption and increasing transparency as to their use.
Is the money following?
Leaving aside the giant investments that commercial banks will likely be making to transform the financial services infrastructure, straws are starting to blow in the wind. For example, Brooklyn USA software company Consensys has launched a $50 million in-house venture capital fund to back startups turning the DLT focus onto challenges like refugee assistance, distributed energy, and supply-chain tracing.
Any other DLT-focussed funds out there? Let us know in the comments, or email via Ian@iancallaghanassociates.uk
What about climate action?
At the centre of specifically climate-related developments of DLT is the Climate Ledger Initiative. The CLI is a knowledge network intended to fill knowledge gaps, showcase innovations and build capacity. Its present partners include the UNFCCC, the World Bank and MIT, with funding provided by various donors.
CLI is behind the Hack4Climate event in Bonn, which has been preceded by workshops in 17 cities around the world. 100 coding experts with DLT experience, who may group into teams either prior to the hackathon or at it, have been invited to Bonn having attended the preparatory workshops. Participants have been set 6 challenges as to how and where they could deploy DLT. These illustrate some of the potential uses of DLT for climate action and finance:
- Identification and tracking of emissions
- Carbon pricing
- Distributed energy
- Sustainable Land Use
- Sustainable Transport
- “Anything Goes”
Read More: There are videos of case studies on these challenge themes on the Hack4Climate site. Scroll down to the “Our Challenges” section.
Meantime, as this blog was going to press, the Canadian government announced support for a blockchain project in the Pacific Alliance nations (Chile, Colombia, Mexico and Peru), to be facilitated by the International Emissions Trading Association (IETA) and ClimateCHECK. IETA will be the implementing entity for a project to grow the technical capability of Pacific Alliance nations to, in the words of IETA President Dirk Forrister, “[to carry out] robust monitoring, reporting and verification (MRV) of emissions. Programs to establish carbon pricing across the region rely on solid MRV of emissions. Technology innovations, like blockchain, in the MRV field may offer important tools – that are scalable and transparent – to inform future program design, including common accounting and transfers across systems and borders.”
For me, the most interesting and exciting aspect of DLT is the potential in the adaptation space. It’s easy to see, for example, how remote monitoring combined with smart contracts (DLT-based contracts that immediately pay when a trigger is met) and a blockchain financial transmission system could make ecosystems-based adaptation projects much more efficient to set up and run. However, if the technology is truly as powerful and transformative as the internet and mobiles, then it will need to be guarded against capture by giant corporate interests.
I look forward to some serious geekery in Bonn and to working out how to report it back in some coherent fashion…