Many cryptocurrencies struggle to demonstrate viable use cases. It is still early days but a few of them are starting to prove themselves. New tokens continue to be churned out every day for all kind of purposes. One will soon emerge from the Stellar blockchain and will be backed by none other than IBM.
IBM, the computing giant is partnering with Veridium, an environmental start up for a very good cause – to tokenize carbon credits. Under the plan, heavily polluting companies will buy the tokens – as a way of offsetting their damaging effect on the environment. Proceeds from these sales will then be used for reforestation. The land in question is a 250 square mile area in the island of Borneo.
The traditional carbon credit system is often criticised for the lack of transparency. In contrast, the token will be publicly traded in publicly on the Stellar network.
“For years, we’ve been trying to mitigate environmental impacts at every point in the value chain, however previous solutions still presented significant complexities and costs,” Veridium CEO Todd Lemons said.
Fungible Asset
The solution aims to transform carbon credits into fungible tradable assets with less friction, something that has proved elusive for many companies. IBM is providing its blockchain technology and technology expertise towards the project.
Companies purchase carbon credit from third parties. However, the process of calculating emissions is complex, time consuming and costly. “Purchasing these financial instruments is often equally complex,” according to IBM.
Integrity of the Underlying System
Tokenization will help build the integrity and trust in the flow of information between partners, IBM says. It will also make the process of measuring environmental impact, transferring rights and redeeming the underlying carbon offsets more efficient.
“Our digital environmental assets are designed to help companies and institutional investors purchase and use carbon credits to mitigate their environmental impacts today, and even hedge their potential carbon liabilities risks in the future,” he added.
“By using a public, permissioned blockchain network, we can help Veridium create a new sustainable marketplace that is good for business and good for the world,” Bridget van Kralingen, IBM’s industry platforms and blockchain division VC said.
The idea is to make the system auditable. The liquid market will create a world of possibilities according to Jared Klee, IBM’s blockchain offerings head. A series of smart contracts are built into the stellar blockchain enabling for easy accounting.
“This is a great example of how industries are being reinvented by blockchain, in this case establishing a far more efficient and transparent approach to carbon accounting and offsetting that will empower individuals and companies to play a role in improving our environment,” the VC noted.