The last year has been a whirlwind for the world of blockchain and everything that resides in it. Cryptocurrencies like Bitcoin and Ethereum have doubled multiple times, trailed by altcoins and tokens spawned out of robust demand in the decentralized ecosystem.
But all of that attention is not without criticism and concern. In nearly every subtweet about Bitcoin, Ethereum, DeFi, NFTs or the crypto space comes scores of individuals airing legitimate grievances about the ecological impact that blockchain is having on the world. Proof-of-work cryptos such as Bitcoin and Ethereum are notoriously inefficient and demanding of energy consumption.
Crypto enthusiasts are assured that Ethereum, the second biggest cryptocurrency by market cap, will eventually pivot away from proof-of-work to a more efficient system called proof-of-stake. However, Bitcoin, which has a reputation of being unchangeable, is unlikely to make the same pivot. Because of that, one consortium of leading blockchain and crypto companies is looking to offset Bitcoin’s New Zealand-sized polluting problem with something completely new: a tradable carbon token.
Universal Protocol Alliance has created Universal Carbon, the world’s first tradable carbon token. The token (UPCO2) is backed by voluntary rainforest carbon credits from a verifiable third-party. According to Universal Protocol, one token is equal to a one-year tonne of carbon emissions averted. You can buy UPCO2 and then burn it to offset your carbon footprint (or the footprint of any activity, for that matter).
To better understand this unique and ambitious new token, we took some time to sit down and talk with Matthew Le Merle. He runs one of the largest venture funds for blockchain, with a portfolio of over 300 companies. But more importantly, Le Merle is an investor and core supporter in Universal Protocol Alliance.
Here’s a condensed version of Bullish’s interview with Matthew Le Merle:
What is the Universal Protocol Alliance?
Universal Protocol Alliance is a consortium of leading blockchain companies which include Bittrex, Uphold, Ledger, SFOX and others. We’ve built a “token factory” for tokenizing currencies, stablecoins, commodities and other assets as a way to make it exceptionally easy to digitize and substantiate any currency or commodity.
So what is Universal Carbon?
We all know that climate change is at the top of most people’s concerns. It’s something that the world is now stepping up to address. We have to deal with the reality that we’re pumping out pollutants, and that has an effect. So even though it has taken a long time, we all now appreciate that every government, country and major institution believes we need to do something about the degradation of the environment and the negative impact that humans have had on the climate and atmosphere.
It’s going to take time to figure out how to transfer from reliance on carbon energy to sustainable energy. We understand that it would be best if we didn’t use as much energy and if the energy we used was clean and sustainable. But until we transition from a carbon economy to a sustainable one, we will need to offset carbon. That’s what we are doing with Universal Carbon.
So how do you tokenize carbon? How does this actually minimize pollution?
A few decades ago, governments decided to make a scale in which polluters would be made to pay something for their pollution. And on the other end, projects or initiatives that are absorbing carbon or having a net positive impact on the environment would be rewarded with credits. Since polluters would only have so many “credits” for their pollution, they would have to buy the credits from other companies, nonprofits and projects. So essentially, there would be a transfer of value from polluters to the people creating positive impact.
There are two markets for carbon credits. The first is carbon allocations, which generally are called cap-and-trade markets or government-ran markets. Big polluters like BP and Shell or an airline like American Airlines will generally buy the government’s credits.
Then there’s the secondary market: the voluntary market. In this market, projects which have been awarded carbon credits can go to sell them to the same types of buyers. These carbon credits come in various flavors depending on the project. So a solar project would have a solar carbon credit; a wind energy project would have a windmill carbon credit. There are others too, such as efficiency carbon credits and rainforest carbon credits. And like with the government-ran markets, people can buy them.
Then there are standard agencies that oversee the issuance, application, certification and ongoing monitoring of carbon credits. The leader is the Verra Registry, and they oversee many rainforest carbon credits. By buying rainforest credits rather than other ones, we are supporting projects that are reforesting devastated forestry and supporting local communities by protecting and creating more beneficial economic outcomes from the rainforest without burning or cutting them down. So we’ve digitized credits into Universal Carbon.
Why would you want rainforest credits over solar or windmill credits?
The different projects - a windmill, a solar farm, a rainforest project - will be issued different kinds of carbon credits. Even though each credit will always represent a metric ton of carbon, buying one credit supports a certain externality.
Some people would say that all of these credits are the same. In fact, many would say that. However, in our view, there are other utilities and considerations. The rainforest credits are supporting diversity of species and of plants, animals and indigenous peoples. And in that sense, supporting a rainforest carbon credit offers more utility to us than other carbon credits.
In any marketplace, you’re going to have people on both sides. Buyers can buy anything they want. If it were simply a commodity like gold, there wouldn’t be this complication. It would be very straight-forward: Do you want to buy gold or not? What makes this a little bit different is that carbon isn’t a commodity. Carbon is not quite as “clean” a commodity (excuse the pun).
We’re having a big debate about the ecological impact of blockchains like Ethereum and Bitcoin. Cryptocurrencies are big polluters and some people say we should stop using them. What would you say to those people?
All human activities create pollution and our financial system is carbon intensive, which means it creates pollution. Before we judge or even think about Bitcoin, we should maybe start by asking: “how much does a penny cost?” How much does a dollar bill or ATM or bank branch cost?
None of the financial system is carbon neutral. So I don’t know, and I don’t think anybody really knows, the carbon footprint of those things. But think about a penny. It’s probably coming from metal that is being mined in huge quarries on the other side of the world. The copper comes from Africa or Asia. It’s melted down into bars which are transported to the U.S. It will be shipped through ports and transported on lorries to facilities where we melt them down at enormous cost and energy because obviously melting and tempering metal is an expensive undertaking. Then we’ve got some pennies. We wrap them and ship them to bank branches and then they find their way into our pocket. It goes on and on and I don’t know what the energy footprint ultimately is, but I know it’s not neutral.
So now we get to Bitcoin. Bitcoin is a substitute or compliment for other forms of money and other forms of investment, which themselves have negative carbon footprints. It's really easy to judge the energy footprint of Bitcoin because of blockchain so we know that it uses a lot of energy. But so do all the banks, mainframe computers, server systems and data farms. So don’t think that any of the financial system doesn’t hog energy. All parts of it hog energy. I believe that when the reckoning is in, we’ll find that Bitcoin isn’t such a bad use of energy when compared to our broader financial system.
Having said all of that, Bitcoin does use energy. And it would be better if it was sustainable, clean energy. If it can’t be clean energy, and we can’t come up with approaches to our money and assets that are less energy-demanding, then the next best thing we can do is offset the footprint created by that energy. At that point, we’re then treating Bitcoin no different than BP, Google, Exxon, Apple or Amazon. They all pollute. So let’s offset that pollution by sending some benefit to a good cause that helps make the world a cleaner place.
And in our case, we have offset Bitcoin with our digital carbon credits to make Bitcoin Zero, which is a tradable net zero emission version of Bitcoin.
People say they care about sustainability, but like you observed: Some people don’t think this is a problem. Many people also have observed that the biggest polluters are companies, so I imagine that it’s a hard sell to get people to pay money to offset their own emissions or to buy a more “green” version of Bitcoin. What would you say to the skeptics?
The generation of people who are entering their most important years are digital natives and crypto enthusiasts. I think this generation of digital natives and crypto enthusiasts care a lot about the world, the climate and the environment. They are people in their 20s and 30s, beginning to have families and understanding that the world of today needs to be better for their children and grandchildren.
Many of these people don’t particularly trust the establishment. They’ve grown up through a number of crises that have made them distrust the established financial system. They care about the climate and environment and they love digital money, digital assets, cryptocurrencies and the distributed movement. So when you add those three things up, there’s some contradiction. The question is: What are you doing about it? What are you doing about the fact that you want your Bitcoin and clean planet too?
That’s what we’re offering: a way to hold these thoughts equally. That’s why we made Universal Carbon and tokenized a carbon-free version of Bitcoin on Ethereum to make that Bitcoin net zero emissions for the rest of its life.
For people who have never heard of carbon credits, this entire thing might be a tad perplexing. How are they to know that any of this is real and it isn’t just greenwashing?
Great question. They are right to be skeptical. And they should be, because the world is full of people that tell you things that are just not true. There are people who try to pull fast ones. One of the beautiful things about blockchain is the way that it puts claims into a transparent, immutable and verifiable setting. We have appended the carbon credits and information around them in a substantive registry that anybody can take a look at. So that’s the first part.
The second part is that we’re only buying fully certified Verra carbon credits. So you can go to the Verra Registry to see what carbon credits we have bought. However, there’s always a last mile problem, so we are really relying on Verra. We cannot be the verifier and monitorer of all the projects. That’s why we rely on Verra to go out and talk to project managers in Africa, the Amazon and other parts of the world to see that the projects are real and that they’re having an impact. We’ve done an enormous amount of work to make this program as transparent and verifiable a program as is possible.
We’ve talked a lot about the way that individuals and artists can offset their emissions. Do you think that companies like the blockchain ones you invest in will start proactively offsetting their emissions?
Great question. We’re at the beginning of this, so I don’t want to overstate this. I think we’re getting into the game and we’re thinking about it actively, we’re working very hard. But it’s not baked yet. So in that sense, we would welcome the collaboration and assistance of any readers who want to dig into this. Obviously, we hope that some of your readers are people who control products, digital tokens and NFTs at scale. We want to talk to digital wallets, established financial institutions and IP holders like Sony or Disney. The kind of people who control the biggest volume of the activity are the people we want to speak to.
But having said that, consumers can have a very powerful voice. Economic incentives are very powerful. So if you’re sitting at home and you care about the environment: we want you to tell people and brands that things have to change. Because we hope to have the answer that people are looking for. Most big things happen because there’s an alignment of interests and people. Either people believe something is needed and/or they can personally see how they can benefit.
Do you have any lasting thoughts?
I want people to understand that it would be best if we didn’t use as much energy. It would also be great if the energy we used was clean and sustainable. We’re not trying to greenwash anything. But if people are using unclean carbon energy, they need to offset it and that’s what we’re offering with Universal Carbon.
Strongly opinionated people are attacking people who are using carbon energy for anything. Some would even say that us being online, using the internet, is inessential, uses energy and we should stop right now. and even speaking online, we are using energy and people say we should stop right now.
Our thinking is we need to use less energy, use green energy where we can, and only then do we offset it. Universal Carbon isn’t fixing climate change, but it’s a step in our transition to a sustainable future.