A Green Euro on the Blockchain
As protecting the environment moves up the list of global priorities, the finance industry has to take its share of the responsibility. That involves reducing the industry’s carbon footprint and helping to fund the estimated trillion-dollar investment required to build a sustainable future — a key item on the agenda for COP 26, the United Nations climate change conference, which takes place in Glasgow in November.
To play its part, the Celo network designed its platform so that every time it mints a Celo Euro (cEUR), the impact on the environment is kept to a minimum. Here’s a summary of its green credentials.
Validating bitcoin transactions — or mining — involves solving a mathematical puzzle, a mechanism known as Proof-of-Work. The computer programmes that solve these puzzles consume a huge amount of energy on an annual basis — more than Sweden, according to the University of Cambridge. As the number of bitcoins reaches the maximum supply of 21 million, the puzzles get more complex, and the energy requirement increases even further.
The Celo network verifies transactions using a Proof-of-Stake mechanism. Instead of solving a puzzle, participants must prove that they have a stake in the network in the form of CELO, a utility token which gives holders certain rights on the network. One of these is the right to vote for a validator of transactions or ultimately to become a validator. This mechanism is much more resource-efficient than bitcoin’s Proof-of-Work, so it has a smaller carbon footprint.
To reduce its remaining carbon footprint, the Celo network partnered with Project Wren in April 2020. Project Wren helps individuals and companies calculate how much greenhouse gas they’re emitting and then offset it by contributing to one of their projects, which typically involve replanting trees or supporting regenerative agriculture.
Every time the Celo network processes a transaction, Project Wren receives a fee which supports its community tree planting project in East Africa. Since joining seven months ago, this partnership has offset 2,285 tonnes of carbon dioxide — the equivalent of 2,373 flights from Los Angeles to Paris. As the Celo network is still at the startup phase, it’s currently carbon negative, which means it offsets more carbon than it emits. The aim is to remain carbon neutral as the network and its energy usage grows.
A nature-backed reserve
The Celo network uses what’s known as a reserve to ensure the price of cEUR tracks the underlying currency. The Celo reserve mostly consists of CELO, as mentioned above, but it also holds small amounts of cryptocurrencies like bitcoin and ether. The supply of these assets expands and contracts to maintain the stability of the price of cEUR (hence the term stablecoin).
As cEUR gains traction, the reserve will grow and drive demand for its holdings, including those protecting the environment. The reserve can hold any tokenized asset, so the Celo network recently issued a request for proposal to add an asset representing carbon credits. The longer-term plan is to incorporate various nature-backed assets, which the network’s stakeholders will choose (another benefit of owning CELO).
In 2018, the World Bank and the Commonwealth Bank of Australia launched Project Bond-i to issue the first bonds on a blockchain. To date, Bond-i has raised over US$100 million. Others have followed, including the European Investment Bank which issued a bond worth €100 million in April.
As explained in this blog post, financial institutions benefit from faster settlement times and lower costs when issuing securities on a distributed ledger. However, the Celo network’s green credentials make it the perfect technology for originating green bonds. After all, what could be more appropriate than raising money to combat climate change on a platform that’s currently carbon negative?
Project Wren was a founding member of the Celo Alliance for Prosperity, a foundation committed to promoting financial inclusion by leveraging blockchain technology. That shows how seriously the Celo network takes its responsibility to reduce its carbon footprint. As the network evolves, our commitment to protecting the environment will evolve with it.