A Quick Lesson
Carbon Credit Markets are self-regulated global markets for trading credit contracts. The purpose is to incentivize businesses and governments to reduce their emissions of greenhouse gasses.
The concept behind carbon credits is that those who emit more than their allotted amount of greenhouse gasses will pay for the privilege of doing so. Those who exceed their emissions cap must purchase credits from those who have emitted less than their cap.
This creates a market in which those who reduce their emissions can financially benefit from their efforts.
In theory these markets encourage companies and governments to invest in clean energy.
But The Plot Thickens...
As with all centralized marketplaces, corruption can arise when there isn’t transparency in the market. Cheating becomes easy, and back-alley deals become the norm. We see it over and over again… greed getting in the way of an otherwise great business model.
“There is absolutely no transparency about the price [in the current carbon markets] and therefore less and less private people participate. So right now, every system, every company, every marketplace is just doing their own thing and there is no real cooperation between any of them.”
Where Blockchain Comes In
The world is becoming increasingly conscious of the environmental impacts of carbon-based activities, leading to the development of these carbon credit markets. Unfortunately, because these markets are vulnerable to corruption and fraud, cheaters can be incredibly difficult to detect and punish.
“For example, one of the biggest problems in the carbon markets is double-spending. One centralized company’s [marketplace] can just change the amount of credits spent. Nobody knows because it’s in a central database.
There’s not a scientific basis for a higher amount of carbon capture, but they just change it and nobody will see it.
That’s something we want to solve by using blockchain and especially by utilizing the new standards from LUKSO.”
Blockchain technology, and especially the LUKSO Blockchain, has the potential to revolutionize the carbon credit market and reduce the opportunity for corruption and fraud. By providing transparency, security and an orderly structure, a blockchain can ensure that all participants are playing by the rules and that the market is functioning as intended.
But Why LUKSO?
Technically, GreenTrade will exist on multiple chains… eventually. Carsten has friends at other projects that plan to launch on LUKSO, as well. When asked about whether certain companies (that we all know about) should launch projects on multiple chains, we got an interesting answer:
“People I know are planning to operate on many blockchains, like Polygon and Celo… but as you all know, the governance possibilities with the LUKSO Key Manager are one thing we’re really excited about. It allows projects and companies to have visible shareholders and they can all have different rights and access, among other things.
Another great standard is extendable NFT metadata. For example, when we are minting the NFT data [as a tradable carbon credit] for a project, there is the initial validation data, but there will be more data added over time, in the best case, like every month or every quarter.
It is very important that we can add all of this data to, let’s say, a dynamic extendable NFT that exists on a blockchain and not stored on a central database. LUKSO will offer us this flexibility.”
An example of how this would work is to imagine a tree farmer gets a certain number of carbon credits for not cutting down trees on his property. When his carbon credit NFT is issued to him it is recorded on the blockchain and can’t be tampered with. If he then cuts down half his trees, not only does the carbon credit NFT need to be updated, but he can’t hide or corrupt the original data, either.
In this way, a blockchain makes it easier to track, trace, and verify carbon credits (and the underlying assets associated with them), ensuring that credits are not double-counted or falsely reported. The use of a distributed ledger also enables buyers and sellers to transact with greater trust, as the data is immutable and cannot be manipulated.
GreenTrade is building a wallet and platform that will allow companies to show their carbon footprint, in real time. They are also making their platform developer-friendly, as the carbon markets exist primarily on web2.
Carsten explains to us that “the biggest challenge is to use the benefits we see with LUKSO, but to somehow integrate with the rest of the growing, and upcoming, web3 climate ecosystem.”
As he points out to us, there are many new players (in the climate and carbon ecosystem) coming to blockchain. But, the vast majority of them are not aware of LUKSO, yet.
“You have scientific experts that are rating projects and will record their ratings and data on the blockchain. Most of them currently work on Polygon. We have to make connections and make sure our platform can be of service to them. Therefore, over time I think we need to support four or five different blockchains, and especially if we want to integrate defi, such as pools, etc.”
When asked about the benefits of Ethereum-compatibility it was clear that this is an important part of their decision-making, as well…
“Let’s say it this way, most of the possible partners and projects we’re talking to are centered around being EVM-compatible. It’s definitely a good basis for us to port our contracts from one ecosystem to another.
But, the reason for our decision to operate on LUKSO are the standards. I mean, all of the use-case examples are for fashion and gaming and so on, but we see all of those benefits also applying to b2b use-cases, like carbon markets, of course.”
Not Just Any Old Fashion Blockchain
Those in the LUKSO community are well-aware that what Fabian and the team are building extends far beyond the “creative economy” niche. While fashion and luxury will be at home as early use-cases on the LUKSO Network, it’s also confirmation that the new LSP standards will be a game-changer for many different types of projects.
Fashion and green technology are just two of the use-cases experimenting with the LUKSO Standards.
Carsten explained to us that there are so many possibilities to build on the blockchain, even just within their own field… they had a difficult time narrowing it down. They decided to focus on a few core services that are desperately needed in the carbon markets…
– Manage essential project information and ongoing verification data
– Verify carbon project information onchain
– Secure upfront financing by accessing institutional investors’ funds to bring scale to carbon projects
– Allow corporate buyers to make future carbon credit commitments to mitigate price and delivery risk
– Provide transparency through the whole journey of a carbon credit, from issuance to offsetting
On the 12th of December, 2022, GreenTrade will be launching its beta Carbon Credits Marketplace on the LUKSO L16 Testnet.
GreenTrade then plans to launch the full-scale marketplace by March 2023 on LUKSO Mainnet. We at the Luksoverse are very excited about Carsten’s project and will be watching closely.
A Final Thought
In the depths of a bear market, when the mainstream is saying “crypto is dead” and “blockchain is environmentally unfriendly,” here is a project that is potentially bringing life to the planet through the use of an extremely energy-efficient Proof-of-Stake blockchain. If you’re reading this, always remember that you are an early participant in a revolution that is shaping a better future. Stay strong, be patient.
Special thanks to Alessio (Nakamura) for arranging and hosting this interview.
Authored by Selby
-The Luksoverse does not take a political stance on carbon markets. The Verse Presents Series is meant only to highlight projects on the LUKSO network.
-Neither Luksoverse, nor the author, were paid to write this article. We do our best to learn about the projects we highlight, but as always, do your own research.