Blockchain as a tool to advance sustainability
Blockchain has been hailed as a technology as revolutionary as the internet. Does it have any application in the sustainability space? The answer is “yes” though the potential applications are only just beginning to be explored.
Blockchain is most widely associated with cryptocurrencies like Bitcoin or Ethereum, but this aspect of blockchain is only a small part of the technology. Blockchain is an (essentially) incorruptible and highly decentralized ledger. Whereas formerly a record of transactions would be stored on a single proprietary information system or computer, a blockchain system is stored across many. Each record, or block on a blockchain contains a cryptographic hash of the previous block, a timestamp, and transaction data. The record is permanent and is resistant to modification of the data, in part because the modifications would have to happen across multiple distributed ledgers all at once. Once recorded, the data in any given block cannot be altered retroactively without alteration of all subsequent blocks.
In essence, the blockchain provides a permanent, permissionless, public and transparent record of transactions or other activities.
Some blockchains allow applications to be built on top, utilizing the technology for an endless array of use-cases. This includes blockchain based contracts which automatically execute when the conditions set out in the contract are met, or incentivizing, through the distribution of valuable cryptocurrency, participation in markets that can create lists or predictions of future events.
Blockchain devotees see the technology as socially revolutionary because it allows for the disintermediation and decentralization of formerly highly centralized processes.
Whereas a transaction or contract would formerly need to be administered by banks, lawyers, governments or others, blockchain has the potential to create a disintermediated economy where users can leverage technology to transact autonomously.
The application of blockchain to advance sustainability is also the subject of much interest in the blockchain community. For example, the Blockchain for Social Impact Coalition (BSIC) is an initiative of ConsenSys, a venture production studio based in Brooklyn. BSIC incubates, develops, and implements blockchain products and solutions that can address social and environmental challenges across the United Nation’s Sustainable Development Goals, focusing on topics like Financial Inclusion, Supply Chain, Identity & Vulnerable Populations, Energy & Environment.
Even before its work with the BSIC, ConsenSys actively incubated projects like Viant which has undertaken a partnership with the World Wildlife Fund to prototype its asset-tracking and supply chain modelling platform to track and trace fish caught in the South Pacific. The initial effort resulted in a fully-traceable product, geo-located, tracked, and digitally signed for at every juncture on its journey from the oceans of Fiji to dinner plates at a New York conference on blockchain.
The potential for supply chain track and trace on a public, transparent and highly secure public ledger has application far beyond the fishing industry. In the mining sector such technology could facilitate local procurement initiatives or facilitate the tracing and tracking of conflict minerals, as is already being done by a start-up called EverLedger for raw cut diamonds. The possibilities are immense and only beginning to be explored.
One could envision how blockchain based executable contracts, like those being developed by the start-up OpenLaw, could be developed alongside community engagement initiatives and impact benefits agreements. Blockchain characteristics would be valuable to promote transparency and provide accountability where trust and integrity are essential in the implementation of such agreements.
Yet another application of blockchain is in the development and tracking of “reputation,” including corporate reputation regarding sustainability. There already exists a multi-million dollar industry around environmental, social and governance (ESG) ratings used by asset managers and investors in assessing the sustainability of their invested companies. Blockchain could improve and make such ratings processes more transparent and decentralized. For example, “token curated registries” have been built on blockchain, which can curate lists of just about anything. An example in operation is the adChain Registry, which is a community-curated registry of ad-supported websites, executed through the use of an Ethereum based cryptocurrency called adToken (ADT). AdChain participants are rationally incentivized to include or reject websites from the registry based on the merits of ad performance and inventory quality, using purchased ADT to vote for proposed sites considered for inclusion on the registry. Applied in the sustainability context, this technology could develop lists of the world’s most sustainable companies, companies that can be trusted in the context of stakeholder or community engagement, that provide acceptable sustainability disclosure or list quality green or social bonds. Unlike preceding approaches to developing such lists, blockchain processes will not be centralized, proprietary and opaque, but rather open, transparent and populated with the wisdom of a wide market of experts.
Blockchain based prediction market technology (like the prediction market tool Gnosis) could be applied in the Environmental, Social and Governance (ESG) ratings space to develop real-time, company specific ESG ratings used by investors, through market mechanisms. Such a mechanism would increase the ability of investors who use such data to participate in the generation of the rating, allow for collaboration across the marketplace and increase transparency of the process. Companies could use the real-time data to build key risk indicators or identify, instantaneously, how events or news are impacting their reputation for sustainability. Technologies are even being developed around blockchain to facilitate dispute resolution. One day it could be possible for company grievance mechanisms to be managed, for free, through decentralized blockchain based staking and arbitration protocols. This technology could be built on top of blockchain based audit protocols (modelled after current methodologies for human rights, labour standards or environmental and social sustainability audit frameworks) allowing for claims of compliance to be publicly and transparently recorded and subject to challenge from interested stakeholders.
These potential uses of blockchain are the tip of the iceberg and depend only on how creative developers and sustainability professionals can be in finding potential use-cases.
MICHAEL TORRANCE is chief sustainability officer for BMO Financial Group.