Permissioned Blockchain Will Lead To Unexpected Environmental Benefits

A number of new types of technology offer profound environmental benefits. Blockchain is one of the new developments that is helping reduce our carbon footprint in unanticipated ways.

Two years ago, the Overseas Development Institute published a white paper on the applications for blockchain in the context of environmental sustainability. The biggest benefits include using blockchain to verify claims of environmental changes and incentivize businesses that follow through.

Unfortunately, some of the efforts to streamline blockchain development have lagged, which have led to environmental progress stalling as a result. The good news is that the government has implemented new efforts to streamline blockchain development, which is furthering the agenda of sustainability.

New Efforts to Standardize Blockchain Create Opportunities for the Sustainability Movement

As the market debates whether the latest surge in cryptocurrency prices is the rally everyone has been waiting for, one thing is for certain; Central Bank Digital Currencies or CBDC will have the most profound effect on the future of blockchain technology. This could lead to a new era in sustainability initiatives, as governments start to use blockchain to advance environmental initiatives.

In fact, Visa’s Head of Crypto recently said that CBDC will be one of the most important payment trends of the next decade and, when you consider that most nation states are considering blockchain technology for their CBDC, the implications will be huge. They didn’t cover as much about the environmental benefits, but these can be inferred from the ODI study.

However, it is extremely unlikely that existing public blockchain will be chosen as the foundations for CBDC. They are not designed to be controlled by governments as they advocate anonymity above all else. A different approach is required and that is why permissioned blockchain will emerge center stage as the solution governments use to power their CBDC initiatives.

Government use of blockchain is increasing

Of course, governments have already made use of blockchain in a number of ways. While some have been very cautious, others have been very proactive in embracing this technology for use across a range of government services.

One of the best-known examples is Estonia, a country renowned for its embrace of digital-first government. The country that offers 99% of state services online has become a pioneer of blockchain-based government too. Having first deployed the technology in production systems in 2012, several government registries, including those covering healthcare, property and courts, are now backed by blockchain.

In addition to Estonia, other countries have used blockchain in a variety of ways. Georgia, the country of my birth, was the first to launch a blockchain-based land registry and there are now more than 1.5 million land titles registered in this way. Sweden is another country that uses blockchain technology for a land registry, while the UK government has tested blockchain technology in land registry, food standards and ports systems.

There’s no doubt though that government involvement in blockchain will reach a whole new level as a result of CBDC. Across the world, leading central banks are weighing up the technology for their initiatives, including the US Federal Reserve, Bank of England, Bank of France, Bank of Japan, European Central Bank and many more. Furthermore, when you consider that the People’s Bank of China has one of the most advanced CBDC initiatives and has embraced blockchain for this purpose, it’s obvious what a major trend this will be.

Public blockchain won’t work for governments

Even though public, permissionless blockchains are the most well known examples of the technology, the reality is they’ll never be suited to the needs of governments and CBDC.

Of course, public blockchains have introduced many useful features, such as the disintermediation of middlemen when smart contracts are used to exchange value in a peer-to-peer manner. This capability makes the digitisation of a whole range of industries very appealing as it could bring about huge cost savings and efficiencies. There’s no doubt that governments looking to enable free enterprise and remove red tape would look favourably on this automation of the economy.

But for all of these advantages, permissionless blockchains have some key flaws that mean governments can’t rely on them for their CBDC or regulated digital economies.

The biggest issue is anonymity. At the heart of the most well-known public blockchains, such as Bitcoin and Ethereum, is a belief that anonymity should be protected. It is my belief that this is one of the main reasons blockchain technology has not caught on in the way it should have so far. Fundamentally, this belief in anonymity above all else goes against our human nature, which requires us to know and understand the entities we interact with in order to trust them.

Furthermore, why would a sovereign nation want an anonymous individual to use the CBDC issued by the state? We elect governments to protect us and help us prosper. By allowing an anonymous individual to use a CBDC, the state would not be able to regulate the activities it was used for or be able to identify any scammers, fraudsters or bad actors.

A new permissioned blockchain is the answer

There are, of course, permissioned alternatives to these public blockchain that have been around for some time. Hyperledger and R3 are two of the most established solutions and there are permissioned blockchain solutions for specific industry scenarios, such as the JPMorgan Quorum blockchain and the solutions built by IBM, such as TradeLens.

However, these solutions clearly have flaws too. Firstly, they are mainly industry specific solutions rather than cross sector platforms suited to the vast requirements of a CBDC. Secondly, they are built by legacy providers with existing technology and usually consist of a patchwork of old solutions knitted together and packaged up as blockchain-specific. Finally, these solutions have failed to capture the attention of the world in a way that might have led to them being adopted en masse.

For all these reasons, existing permissioned blockchain aren’t the answer for governments wanting to issue their own CBDC. What is needed is a new direction for permissioned blockchain, one that is designed to allow governments to issue CBDC and use it to regulate digital economies where society can operate in a fast, efficient but decentralised manner.

This is exactly what L3COS, the world’s first regulated blockchain-based operating system, has been developed to do. It operates via an unique triple layer consensus mechanism that reflects the societal norms we understand, with government, businesses and individuals all playing their role within a highly secure, global system.

Governments exist at the top layer, where each sovereign state operates one of 195 super nodes and uses a Proof of Government mechanism to reach consensus. This allows them to reach consensus about important transactional records, such as balance of payments, in line with fully automated and transparent trade agreement.

Using CBDC in regulated, digital economies

These government super nodes can then start to onboard businesses into the second layer, building up a digitised and fully regulated economy. Certain organisations can then act as pillars of the economy, with the government super nodes passing their authority to them via a Delegated Proof of Stake mechanism, which allows these organisations to onboard more businesses and individuals.

As more and more entities are onboarded into each government’s regulated, digital economy, they can start to interact in an efficient and totally decentralised way. Their relationships are governed by smart contracts, using CBDC to ensure all transactions are fast, compliant and secure.

It is this vision of the future that lies behind government attempts to issue CBDC. Blockchain technology can enable this change but only if it adapts to the needs of governments. If it does and a new path for permissioned blockchain is followed, the benefits of the technology will not only be seen by governments but also businesses and society as a whole.

Blockchain Offers New Initiatives for Sustainability

Sustainability is becoming a greater priority in the developed world, as well as most emerging markets. Blockchain is making it easier for governments and NGOs to implement new environmental standards. These new advances could be the key to reducing our carbon footprint and other sustainability concerns.