The International Business Machines Corporation is issuing its first token using a public blockchain
Developed in partnership with carbon credits startup Veridium Labs Ltd., the “verde” tokens will be issued on the Stellar blockchain, and are designed to give enterprises that pollute the environment a way to offset that damage by supporting a patch of Indonesian rainforest.
While carbon credits in their own right are not new, the process of tracking the full extent of one’s pollution, then providing assurance that the money was actually used to replenish the environment is both time-consuming and opaque.
By moving this process to an easily auditable blockchain, and tokenizing the credits in a similar way that a bitcoin tokenizes monetary value, IBM’s newly appointed blockchain offering manager, Jared Klee, believes a vibrant market could eventually be opened up to a much larger audience.
“We’re creating a fungible digital asset, a token which part of the goal is to create a market where people can buy, sell, trade and then redeem it for the underlying credits,” said Klee, who was put in charge of IBM’s token initiatives earlier this year. “By having a liquid market you open up a world of possibilities.”
The verde carbon credit tokens, are built on top of the public Stellar blockchain and via a series of smart contracts follow the entire process of accounting for a company’s carbon emission and offsetting that pollution.
“Our engagement with Veridium will mark the first public IBM involvement in a token issuance on a public network,” said Klee. But in a twist that is finding increasing favor among blockchain developers, there is also a permissioned component via IBM’s own blockchain technology.
Klee says this “public, permissoined” model is what allows IBM and Veridium to create a market for the buying and selling of the tokenized carbon credits that will also be restricted to participants in accordance with regulatory requirements. To facilitate that permissioning while still capitalizing on Stellar’s public blockchain, IBM manages nine nodes on the Stellar blockchain.
“Not only does that help create stability for the Stellar network,” said Klee. “But that allows us to work with Veridium as the issuer and create a point of review in the transaction flow before it gets committed to the ledger.” But going forward that could be further opened up, with Klee adding that he too would like to someday be able to personally offset his own carbon footprint using the exchange.
More than just a proof-of-concept, the Veridium tokens will be backed by Triple Gold REDD+ credits from Veridium’s sister company InfiniteEarth, founded in 2008 to help companies offset their environmental impact in a number of ways. While Veridium hasn’t revealed the names of its own potential customers, InfiniteEarth counts Big Four accounting firm PwC, and software giants, SAP and Microsoft among its customers, all of which has their own ongoing blockchain projects, making them possibly suitable adopters.
The decision to partner with IBM and use the Stellar blockchain marks a shift in plans the company had earlier made to partner with Ethereum incubator ConsenSys and use the Ethereum blockchain. While an earlier announcement included details for that project’s token, called TGR, the project is no longer active, according to Veidium founder, Todd Lemons, and updates on the verde token creation will be forthcoming.
While Lemons didn’t detail the reason for the change, a number of companies have explored the shift from Stellar’s native lumen cryptocurrency, which has a smaller market cap at $6.8 billion compared with Ethereum’s $72.7 billion but also has lower transaction costs with faster transaction times.
What the two blockchains have in common, though, is one of the reasons why the switch early on in development was so easy. Namely, while Stellar and Ethereum each have its own cryptocurrency, any number of features can be built into entirely new tokens minted on the blockchain.
To give an idea of the possible size of a tokenized carbon credits market, a recent survey of just 139 companies by the Ecosystem Marketplace found that 63.4 million tons of carbon dioxide resulted in a total market value of $191.3 million in carbon credits.
“We expect there will be market makers and companies that buy and sell this and it will be a freely floating, exchange-traded asset on the Stellar distributed exchange,” said Klee. “So that the price will be market determined.”
Though Veridium was only founded in October 2017, the firm has been able to grow rapidly thanks to a number of business relationships that seem to have positioned it in front of a number of other blockchain competitors in the space.
Both Veridium and InfiniteEarth are projects within the portfolio of the Envision Corporation, a Hong Kong-based incubator for sustainable technologies. So far, the ecosystem of Veridium contributors includes Brian Kelly Capital Management, which is consulting on how to build a liquid market, and research firm EcoSmart Labs, which helped develop the protocols that are being coded into the token.
What all this technology comes down to in the end though are InfiniteEarth’s own REDD+ carbon credits that help financial support the conservation of the Rimba Raya Biodiversity Reserve on the island of Borneo in Indonesia. The reserve is a 250-square-mile rainforest and tropical peat forest that supports a range of human and animal communities. Over the course of a 30-year commitment, the credits are expected to be redeemed to protect the rainforest and help the surrounding community create ways to support themselves that don’t deplete the natural resources.
Collectively, these credits are expected to offset an average of 4.4 million tons of pollution per year by ensuring the forest’s survival. But InfiniteEarth has actually been granted a 60-year concession license to help protect the land, and assuming this new kind of asset catches on, Lemons hopes to sell additional verde tokens at a future date to cover the remaining 30 years of the concession.
“We’ve taken not only this environmental asset, the credit, which is difficult to quantify and classify on the balance sheet,” Lemons said. “But then we’ve also fully automated the process of measuring, selecting and then offsetting just by virtue of integrating the token into the transaction.”