To preserve a stable climate, it is clear by now that the world will have to sequester large amounts of carbon dioxide. Various technologies that can be used to sequester carbon dioxide exist, but few are used at any significant scale. The reason for this is simple: Although the atmosphere is a global commons, which can be polluted without direct cost to the polluter, to clean up the atmosphere costs money and delivers us no direct financial benefit, the benefit is spread out over the population as a whole.
It’s theoretically possible to implement a global reward, where every nation contributes to a fund set up to create a financial incentive for carbon sequestration. The problem is that every government has an incentive to defect from participation in the agreement. Global wealth inequalities and disparities in responsibility would lead to endless debates in regards to how much a nation should contribute to the global carbon sequestration fund. Should the responsibility to contribute to the fund fall mostly on European nations, because of their historical high emissions, or should the responsibility mostly fall on China, now the world’s biggest emitter? These sorts of questions lead to a stalemate.
An alternative solution is proposed here. Rather than creating a carbon sequestration fund, that directly funds carbon sequestration initiatives, a speculative vehicle is created, shares in which are awarded to those who have sequestered carbon dioxide. The project would share similarities to other ventures, which have successfully demonstrated that a digital incentive for socially beneficial projects can be created, without dependence on any government.
A case study of a decentralized incentives
Gridcoin is a cryptocurrency that rewards people for volunteer research computing. The coin has no intrinsic value, but is traded on exchanges and issuance of new coins is limited to those who have earned points through volunteer computing or through interest on their current balance. Currently the Gridcoin project is valued at 12 million euro, with every individual coin valued at 3.2 eurocent. On a daily basis, 50 coins are produced per block. The project produces one new block every 90 seconds. This means 48000 new Gridcoins are awarded to participants in volunteer science per day. This is the equivalent of 1.440,00 euro per day. Annualized, this means Gridcoin currently succeeds in delivering a decentralized subsidy for volunteer science, equivalent to 525.600 euro.
Besides creating a subsidy for volunteer science, Gridcoin also accomplishes other valuable objectives. Those who want to contribute to volunteer science, now have a simple method of promoting the research of other participants. This is valuable for those of us who do have wealth we’re willing to spend on volunteer science, but don’t have low local electricity prices and/or green energy locally. Similarly, the multiplier of Gridcoin is interesting. For cryptocurrency as a whole, JPMorgan estimates that a six billion dollar of investment led to a 300 billion dollar market capitalization for cryptocurrency as a whole. This means that every dollar invested has a multiplier effect of fifty dollar.
Extrapolating this to Gridcoin, we arrive at the conclusion that investing in the Gridcoin cryptocurrency creates a decentralized digital incentive for volunteer science much bigger than the initial investment itself. In contrast to a direct donation however, the investment in Gridcoin remains a property of the investor. As the system develops further, gridcoins will be able to serve as a useful property. As an example, a mature cryptocurrency ecosystem would allow an investor in Gridcoin to use his gridcoins as collateral for debts.
A decentralized incentive for carbon sequestration
Gridcoin serves as a useful case study, for a much greater decentralized economic incentive program. Consider a hypothetical cryptocurrency, that is issued to those who can prove that they have sequestered carbon dioxide. The system could operate on an underlying proof of stake mechanism, thereby allowing those who own the currency to earn interest. To prevent an aristocracy of early adapters from developing however, which is the most commonly heard argument against proof of stake cryptocurrencies, like Gridcoin the hypothetical cryptocurrency in our scenario would be awarded to those who have carried out a the real world objective of carbon sequestration.
From here onwards, I refer to this hypothetical cryptocurrency as Sekvestri, which is Esperanto for the verb “to sequester”. Sekvestri would be initially distributed to a group of people who are trusted with having the interest of the project as a whole in mind. To achieve this objective in a fair manner, a proof of burn phase could be used. Those who burn a particular amount of an alternative cryptocurrency, receive an equivalent amount of Sekvestri in return.
From this point onwards, every new unit of Sekvestri would be awarded to those who have demonstrated to the community a project through which they have successfully sequestered a specified amount of carbon dioxide. To determine whether a new unit of Sekvestri needs to be created, the procedure would look as following:
1. The applicant creates a poll on the Sekvestri cryptocurrency client. To avoid spamming the network, creating the poll has a specified minimum cost that’s burned upon creation. This thus requires the applicant to gain access to a small amount of the currency before applying for a grant. The poll requires the applicant to fill in the amount of new units he applies for, a valid Sekvestri address to send the coins to, and a link to a report providing evidence of his sequestration project.
2. Stake holders in the currency receive a number of votes equivalent to the amount of the currency they happen to own. The stake holders are required to vote on whether the grant application abides by the requirements. If the number of yes votes exceeds the number of no votes, the new coins are created and instantly credited to the applicant. I believe the coin will derive its value from the fact that it follows the rules enshrined in its founding documents. The stake holders would be required to vote in a manner that most closely follows the rules laid out in the founding documents, to preserve the economic value of their stake. In other words, granting a million coins to someone for invalid reasons, would harm the credibility of the currency, thereby preventing stake holders from voting incorrectly.
Incentives to decrease the risk of a malignant majority harming the system can be implemented. The following methods can be considered:
-Voting could require a minimum coin age. If coins have been unmoved for at least a month for example, a participant could be allowed to participate in the voting process. This reduces the risk of an attack, as the community has time to prepare if someone gathers a large amount of coins overnight.
-Stake holders can be required to vote for delegates. Delegates would then vote on grant applications, thereby ensuring that the system doesn’t depend on a small minority of people to actively participate in the system. A mixture of two systems could be used too. The issuance of new coins could require both a majority of stake holders to vote yes and a majority of delegates.
-Hard limits can be implemented on the number of new coins issued within a particular timeframe. The hard limit would be a percentage of the supply currently in existence.
-The proof of burn period would seek out a coin to burn of a community known by the developer to be overall benevolent. As an example, a poll could be held on the Gridcoin network, asking if members have objections to a proof of burn program implemented on Gridcoin. If significant support is seen, the coin could be launched using the Gridcoin system as a proof of burn phase.
How big would Sekvestri need to get?
To stay below 2°C of warming according to IPCC estimates, we’ll need to reduce our carbon emissions to zero and start removing between 2 and 10 gigatons of CO2 from the atmosphere each year by 2050. Let us assume 10 gigaton of CO2 per year needs to be sequestered. This allows us to do some back of the envelope calculations.
The cost to sequester a gigaton of carbon dioxide is currently around 100 dollar per ton, but is expected to drop to 20 dollar per ton eventually, as newer techniques are developed. Taking this estimate means that 10.000.000.000 ton of carbon dioxide needs to be sequestered per year, which would cost 200.000.000.000 dollar. In this scenario, our hypothetical currency would need to release a new amount of cryptocurrency, equivalent to 200 billion dollar. As a comparison, Bitcoin currently creates 5 billion dollar worth of new Bitcoins every year.
However, let us now imagine a more conservative scenario, in which 2 gigaton of carbon needs to be sequestered and our cryptocurrency wishes to pay for 10% of the cost incurred through carbon sequestration. In this scenario, 4 billion dollar worth of new Sekvestri coins would need to be produced per year, an amount roughly similar to the Bitcoin supply curve. Can such a thing be accomplished? I believe this is hard to achieve, but not impossible. Taking JP Morgan’s estimate, the amount of money that would need to be invested in Sekvestri to achieve the kind of market capitalization that would allow us to produce 4 billion dollar worth of new Sekvestri coins per year is roughly three billion dollar.
There are of course a large number of assumptions here. The amount of money invested in the current cryptobubble is difficult to estimate. The longevity of the bubble is disputable too. Can cryptocurrency hold onto its current market capitalization, with a mere six billion dollar investment? We don’t know the answer to that question yet. We also don’t know yet how much carbon dioxide will need to be sequestered and at what cost.
There are reasons however, to be optimistic. A similar project, Solarcoin, currently has a value of 28 dollar cent per coin, with a total supply of 98.034.402.120 coins. This leaves us with a total supply and a theoretical market capitalization of 27 billion dollar. Worth noting is that Solarcoin’s current hypothetical market capitalization is down roughly 80% from its peak. The Solarcoin project has thus already temporarily achieved the kind of market capitalization we would need for the Sekvestri project.
In the future, I hope to look more into what would be needed to make the Sekvestri project work.