From 5-8 April 2018 the largest blockchain hackathon in the world (Blockchaingers) was organized in Groningen, The Netherlands. About 700 entrepreneurs, professionals and students from 22 countries and 5 continents developed a proof of concept for their idea that used blockchain as a core element in their solution for a global scale problem. The event was organized by Rutger van Zuidam and hosted various important guests such as the Royal Prince Constantijn of The Netherlands, the Dutch State Secretary of Home Affairs Raymond Knops and Vinay Gupta (Ethereum).
 
On the first day several masterclasses were organized by IBM, The Linux Foundation, Loyens & Loeff, the Blockchain Knowledge Foundation and various other important stakeholders in the blockchain ecosystem.
 
The Linux Foundation presented the different frameworks and tools of Hyperledger, including Hyperledger Indy, a distributed ledger for decentralized identity, and Hyperledger Sawtooth, a modular platform for building, deploying, and running distributed ledgers
 
Legal aspects of the blockchain were discussed by Loyens & Loeff with participants who gained further insight in the potential legal issues, such as liability, privacy, data security, governance and cooperation with third parties and the legal enforceability of smart contracts.
 
Another interesting masterclass was presented by the Blockchain Knowledge Foundation that launched their natural blockchain language, called OLE (Objects, Logic, and English). The OLE compiler can transform a contract set up by non-programmers (using objects, logic and plain English) into a smart contract programmed in Solidity that can be used on the Ethereum blockchain.
 
Participating teams could work out ideas that were related to digital nation infrastructure, energy transition, global digital identity, health, machine economy, public safety & security or the future of pensions. Some of the winning teams were the following:

• Unchain proposed a complete redesign of the current logistics surrounding medicine distribution, from medicine creation towards curing the patient, with blockchain and Internet of Things as the underlying disrupting technologies.

 

• Tapguard invented a solution to monitor phone calls whilst keeping privacy intact. By using blockchain the police could monitor phone calls of people in an area where a criminal activity had just taken place without getting access to all data monitored. All data is encrypted, but only selected data is revealed in case there is a suspect.

 

• Bencom created a client-friendly solution for people who move houses or need an energy connection in their new house. Using an app and the blockchain Bencom informs all parties involved about changes in the process of registering a new or updating data related to an existing connection in order to increase efficiency and transparency.

 
The Blockchaingers Hackathon has proven to be an inspiring platform to bring together pioneers in the blockchain ecosystem to create novel ideas that could solve important problems to create a better world.

Carbon credits suffer from a lack of transparency, and numerous global markets for carbon and greenhouse gas offsets are not integrated, leading to leakage in tracking and accounting for carbon. Using blockchain technology to tokenise carbon credits and other environmental incentive schemes enables for greater end-to-end visibility and tracking, as well as increased coordination and trading across jurisdictions to reduce the displacement of emissions from one jurisdiction to another by simply relocating where emissions take place. Tokenisation of carbon credits also enables environmental incentives to become tradeable financial assets, and allows people anywhere in the world to earn tradeable assets in exchange for participation in the reduction of greenhouse gas and carbon emissions. (University of Oxford, 2018)

Characteristics relevant for blockchain

Various elements of the system may suggest the use of blockchain: automation of recurring transactions representing a unit of value that should be immutable as well as agreed upon and available to relevant parties. In this context it is helpful to distinguish between tracking the carbon emissions and tracking the carbon credit trades.

• ​Carbon credits are created and subsequently traded by passing the following standardized steps that all projects need to go through: forecast carbon savings, submit project, get approval from host country, validate project, register process, monitor project’s emissions, verify monitoring, certify monitoring, issue credits and trade credits.
• Once carbon credits are issued they can be traded in perpetuity or until the carbon credit system is not accepted anymore by the participating countries or replaced by another carbon emission reduction incentive system.
• The main stakeholders are the project owners (both carbon credit issuers and those that seek to offset their carbon emissions), validators of the project (delegated entities of the United Nations Framework Convention on Climate Change or UNFCCC), Kyoto Protocol participants (mainly governments with a goal of national carbon emission reduction) and carbon credit trading brokers.
• Only the UNFCCC or approved entities validate the project, including calculation of forecasted emissions (comparing base line data with forecasts) and verification of actual data monitored. The spot price of carbon credits is determined in an open market that is being facilitated by six exchanges only.
• The value of a carbon credit can be measured as the number of tonnes carbon dioxide emission avoided, which can be monetized and traded accordingly based on the prevailing spot price as determined by the carbon credit trading exchanges.
• Once a carbon credit is issued the related (trading) transactions should be recorded and not changed (e.g. to audit if carbon emitters hit their emission goals and to tax carbon credit trading gains). For each transaction at least the new owner, time traded and trading price should be recorded and linked to the previous transaction.

Design of Solution

Protocol layer

To increase transparency and accountability actual emissions of companies should be seen on the blockchain publicly as well as the related trading of carbon credits – there is no direct need to use a private blockchain.

The blockchain needs to be able to handle many thousands or even millions of transactions per second as the carbon credit market is large and carbon credits are traded extensively. This would allow the monitoring of actual emissions and tracking trades of carbon credits to be displayed on the blockchain in real time.

The development of the blockchain should not be completely decentralized as rules for credit issuance and trading are dictated by or derived from the Kyoto’s protocol. The public community may propose changes (such as a bug solution) or additions (such as new user applications) to the source code, but approval of these should be governed by the UNFCCC as the regulator of the Kyoto protocol execution.

Connection with other blockchains and related protocols might enhance the utility of the carbon credit token, but the possibility of this depends on how the global blockchain ecosystem evolves. In the initial phase credits can be exchanged for carbon emissions or fiat. In future phases credits might be exchanged for other tokens or assets once it is possible to securitize tokens (to be compliant with securities regulation) and connect to other blockchain based exchanges that can swap various types of tokens and assets or integrate carbon credit tokens in their own blockchain ecosystem.

Network layer

Nodes can be run by the public, but only UNFCCC approved nodes and trading exchanges should have writing rights on the blockchain. The nodes run by the UNFCCC certifying entities append the data about carbon credits to the blockchain as this is a responsibility of UNFCCC and data submitted by carbon emitters to UNFCCC are non-public. The nodes run by the trading exchanges write trading transactions to the blockchain as they manage the infrastructure for trading credits. Other nodes can verify transactions, but not append new ones.

To allow the tokenization of carbon credits the writers on the blockchain (carbon credit certifiers and credit trading exchanges) should make the necessary changes to their current systems to integrate with the blockchain. The credit certifiers need to ensure that their systems once approved automatically write newly issued or terminated credits to the blockchain in real time. For the trading exchanges instead of recording transactions in their own system, they will have to write new transactions directly and in real time on the blockchain.

Application layer

Applications need to be designed with the end-user in mind: the governments that need to reach their greenhouse gas emission reduction targets and carbon emitters that want to sell or purchase carbon emission rights.

These stakeholders have viewing rights only and should have the option to retrieve data from the blockchain automatically (e.g. using an API) or to log in a customized portal. A dashboard functionality could help the stakeholders in managing their emission targets.

For the carbon emitters it is important that they can see the number of carbon credits awarded and have the possibility to trade credits. They update their data to the credit certifier and not to the blockchain directly, so they only need viewing rights for their certified credits on the blockchain.

Governmental bodies should be able to aggregate and filter data based on jurisdiction using the blockchain and without retrieving that information from UNFCCC necessarily anymore. Governments need to be able to track their progress to reaching greenhouse gas emission reduction targets and to compare with progress of other governments. In addition to that, they need to be able to control carbon emitters and steer their progress towards reaching emission reduction targets.

In addition to the aforementioned end-users, it should be possible for developers and entrepreneurs to build other applications on top of the blockchain, such as applications that retrieve information from the blockchain for carbon credit research and development of ‘carbon-friendly’ energy projects.

References:
University of Oxford - Said Business School (2018). Oxford Blockchain Strategy Programme. [online] Available at: https://www.sbs.ox.ac.uk/programmes/execed/oxford-blockchain-strategy-programme [Accessed 14 Mar. 2018]

What are the implications if government decides to outsource the identity management of their citizens to the blockchain? What is our responsibility versus the role of the government?

Owning your own identity data using blockchain is more efficient, targeted and secure, but also requires you to be more responsible and to be protected by government against influences outside your control.

As the blockchain has already verified one’s identity there is no need for organizations to have their own identity check procedures – they simply ask the citizen for permission to access the blockchain based proof of identity. The citizen can be selective in which information to provide to whom for his own benefit. For example, he can customize his online shopping experience by sharing selective personal information (e.g. age, income, education) anonymously. Any further updates to one’s identity can be verified following specific rules governed by the blockchain (e.g. smart contracts for moving houses to update the citizen’s address).

​Even though the data stored on the blockchain is more secure than in traditional identity management systems, a hack is not impossible (Buterin, 2017) and the citizen’s private keys to access the data can be lost or stolen. Even when the data is legally obtained, citizens are exposed to the risk that their privacy is not guaranteed by organizations who use the data. Apart from this, some amendments of the identity data still need to be verified outside the blockchain (e.g. when the citizen is born).

Therefore, the role of government in identity management remains important in order 1) to have a nation-wide backup plan in case of a major blockchain attack, 2) to ensure technologies are used to access the blockchain that minimize risk of loss or theft (e.g. using fingerprint), 3) to have privacy legislation in place for the use of blockchain data and 4) to check amendments to data that cannot be handled by smart contracts.

References:

• Buterin, V. (2017). The Meaning of Decentralization. [online] Medium. Available at: https://medium.com/@VitalikButerin/the-meaning-of-decentralization-a0c92b76a274 [Accessed 09 Mar. 2018]

You (a "node") have a file of transactions on your computer (a "ledger"). Two government accountants (let's call them "miners") have the same file on theirs (so it’s "distributed"). As you make a transaction, your computer sends an e-mail to each accountant to inform them.

​Each accountant rushes to be the first to check whether you can afford it (and be paid their salary "Bitcoins"). The first to check and validate hits “REPLY ALL”, attaching their logic for verifying the transaction ("Proof of Work"). If the other accountant agrees, everyone updates their file…

This concept is enabled by "Blockchain" technology.

Surely it's more complicated?

Yes - but as a concept, not much more. Complexities come in the implementation and the journey to realize value from such implementations. The above example will, of course, be overly simplistic for some – but may be a starting point for others.

In a traditional environment, trusted third parties act as intermediaries for financial transactions. If you have ever sent money overseas, it will pass through an intermediary (usually a bank). It will usually not be instantaneous (taking up to 3 days) and the intermediary will take a commission for doing this either in the form of exchange rate conversion or other charges.

The original Blockchain is open-source technology which offers an alternative to the traditional intermediary for transfers of the crypto-currency Bitcoin. The intermediary is replaced by the collective verification of the ecosystemoffering a huge degree of traceability, security and speed.

In the example above (a "public Blockchain"), there are multiple versions of you as “nodes” on a network acting as executors of transactions and miners simultaneously. Transactions are collected into blocks before being added to the Blockchain. Miners receive a Bitcoin reward based upon the computational time it takes to work out a) whether the transaction is valid and b) what is the correct mathematical key to link to the block of transactions into the correct place in the open ledger. As more transactions are executed, more Bitcoins flow into the virtual money supply. The "reward" miners get will reduces every 4 years until Bitcoin production will eventually cease (although estimates say this won't be until 2140!). Of course, although the original Blockchain was intended to manage Bitcoin, other virtual currencies, such as Ether, can be used.

​Why do I need to know about Blockchain?

There are three reasons why you need to know about Blockchain:

1. Blockchain technology doesn't have to exist publicly. It can also exist privately - where nodes are simply points in a private network and the Blockchain acts similarly to a distributed ledger. Financial institutions specifically are under tremendous pressure to demonstrate regulatory compliance and many are now moving ahead with Blockchain implementations. Secure solutions like Blockchain can be a crucial building block to reduce compliance costs.
2. Block-chain technology is broader than finance. It can be applied to any multi-step transaction where traceability and visibility is required. Supply chain is a notable use case where Blockchain can be leveraged to manage and sign contracts and audit product provenance. It could also be leveraged for votation platforms, titles and deed management - amongst myriad other uses. As the digital and physical worlds converge, the practical applications of Blockchain will only grow.
3. The exponential and disruptive growth of Blockchain will come from the convergence of public and private Blockchains to an ecosystem where firms, customers and suppliers can collaborate in a secure, auditable and virtual way.

Source: Deloitte