CO2-Token for achieving a climate-neutral Cardano Blockchain

The Cardano Blockchain already consumes very little energy compared to Bitcoin and other cryptocurrencies thanks to its Proof of Stake (PoS) concept. Cardano’s PoS concept is up to 4 million times more energy efficient than the Bitcoin protocol.

Nevertheless, the Cardano blockchain also consumes energy. Currently, in addition to the infrastructure of the company IOHK and the Cardano Foundation, there are more than 2,000 stake pools that provide relays and block producers for the decentralised Cardano Blockchain. Some of the pool operators already use renewable energies. The majority, however, use a conventional electricity mix or have no influence on the type of energy generation for operating their pools due to the virtualised infrastructure in data centres. In March, we calculated initial estimates and came to the conclusion that for the operation of a completely climate-neutral Cardano blockchain, around 2,320 t of CO2 per year currently need to be compensated. This figure is surprisingly low. It is therefore a realistically achievable goal to make the Cardano blockchain the first blockchain technology in the world to be completely climate neutral.

But how can this be done?

The Cardano Blockchain already has all the necessary prerequisites, which once again shows how well thought-out this project is and what future-oriented possibilities it contains.

1. The most sensible measure is the use of renewable energy sources to operate the pools, because emissions that do not occur do not have to be compensated.

2.  Because relays and nodes require relatively little computing capacity, they can be operated on energy-saving infrastructure (some pool operators even run their infrastructure on Raspberry Pi or other single board computers with low power consumption).

3. Pool operators who produce blocks (which should be regularly guaranteed with an active stake of > 1.3 M Ada) receive rewards, from which a part can be donated for CO2 compensation measures. For this purpose, the Climate Neutral Blockchain Group (CNBG) has been founded. The members of this group also rely on the use of 100 % renewable energy to operate their pools.

4. Pool operators that do not belong to the CNBG group and do not explicitly see themselves as climate protection pools, but support e.g. ecological projects, also contribute their share by e.g. planting trees, protecting moors or supporting other measures that directly or indirectly compensate CO2 emissions.

5. Delegators support the above-mentioned projects either passively (by staking their Ada in a pool, which they thereby enable to generate rewards for donations), or actively (by donating trees of their own, e.g. in our Cardano-Grove ). 

Monitoring success through CO2-token

In order to assess whether and to what extent the above-mentioned measures contribute to making the Cardano Blockchain climate neutral, we have created the CO2 token as a native token on the Cardano Blockchain.

Emissions trading with CO2 certificates is known from the Kyoto Protocol on climate protection. This works in such a way that every company (e.g. a power plant) that produces CO2 has to buy a corresponding right (certificate) to do that. Less CO2 production therefore means lower costs for the company, so there is an incentive to use low CO2 emitting technologies. At the same time, there is a instrument to control the amount of total emissions, since the number of certificates issued can be reduced more and more by governments.

Now, this type of  instrument is not suitable for making a climate-neutral blockchain, because blockchain technology is organised in a decentralised manner and – apart from the technical protocol for the blockchain – there are no overarching regulatory systems and obligations. Stakepools are operated on a voluntary basis, for completely different motives and on different infrastructure.

Therefore, a different kind of incentive system is needed to ensure that mitigation of CO2 emissions takes place on a voluntary basis (see above, measures 1-5). The “CO2TOKEN” developed by CO2POOL is such an incentive system, as it enables delegators and pool operators to use a Native Token on the Cardano Blockchain on an application-specific basis. Through the CO2TOKEN, participating pools can e.g. award incentives to their delegators (comparable to value vouchers). Our vision is that CO2TOKEN can be used e.g. to purchase NFTs, which are provided e.g. by pools of the CNBG. As a “thank you” that delegators support a climate protection pool. This also gives third parties the opportunity to support the project of a climate-neutral Cardano blockchain (indirectly) if they accept CO2TOKEN as token of value. For example, NFT artists can support this project by donating NFT’s or they enable the purchase of some of their works with CO2TOKEN.

The number of CO2TOKEN is limited. We have calculated that in order to permanently offset the 2,320 tonnes of CO2 per year as mentioned above, we need to create a total number of 1,850,000 CO2TOKEN. In doing so, we assume that 1 token stands for an offsetting performance of 1.25 kg CO2 each year. 10 tokens thus correspond to the CO2 compensation that a tree provides on average per year during its lifetime. In analogy to this calculation, the following further token values result:

10 CO2TOKEN stand for…

  • Planting and care of a tree (sustainable reforestation with a life span of the trees > 80 years), e.g. TreeforLife *
  • Climate protection compensation payment of 6 € (e.g. via Atmosfair)
  • Creation / protection of 10 m² of forest
  • 0.175 m² creation of new moorland landscapes
  • Further equivalent measures (to be added)

*When planting trees, care must be taken to ensure that they are permanently preserved, as trees only achieve their full compensation capacity after a few years. Planting small seedlings of crops that are harvested after a short time also has a compensatory effect, but this is less than, for example, a beech forest with a lifespan of at least 80 years.

As a kind of “treasury” (federal reserve), CO2POOL manages the total number of CO2TOKEN that are generated once. The token are issued to those who have implemented traceable climate protection measures. These can be pool operators (e.g. if a pool plants 500 trees from its rewards, it receives 5000 CO2TOKEN in return) as well as delegators who, for example, plant trees separately. The CO2TOKEN are deliberately not issued as a pool-related token, but as a token that can be applied to all climate protection measures in the Cardano blockchain. Therefore, a neutral (pool-independent) logo is used for the token and the URL included refers to a list of participating CNBG pools and the level of climate neutrality achieved so far (this happens as soon as extended metadata for tokens can be registered in the mainnet).

To what extent the pool operators pass on the CO2TOKEN as incentives to their delegators is up to them. At CO2POOL, for example, a delegator gets 10 token for every 10,000 Ada Stake and year, as a tree can be planted in our Cardano Grove from the rewards our pool receives from this delegation. In perspective, these token can be used to purchase NFTs or other incentives from us or other participating pools.

It is crucial that as many tokens as possible come into circulation, because if 50% are in circulation, this means that the complete energy needs of the Cardano Blockchain are already covered in a 50% climate-neutral way. Once all 1,850,000 token are in circulation, a CO2 offset equivalent to, say, 185,000 trees has been produced, making the Blockchain permanently climate neutral.

A further creation of CO2TOKEN is therefore not necessary as long as no further energy consumption is added. This can be the case, for example, if further stakepools are founded or the energy demand increases due to rising transactions and additional applications on the Cardano blockchain. In this case, new token are created, which in turn are put into circulation until all CO2 emissions are permanently offset. Conversely, token that are not issued can also be “burned” as more pools switch to renewable energy sources and the effort to achieve carbon neutrality is reduced. For example, a pool that demonstrably switches from conventional energy to renewable energy can also receive tokens (this would be around 1,325 tokens).

On our website and on CNBG, we will regularly report on the number of tokens issued and the progress made in creating a climate-neutral blockchain (percentage goal achievement). The more pools focus on renewable energies and the more delegators delegate their stake to pools that explicitly commit to climate protection and organise themselves e.g. in CNBG, the more likely we are to achieve this goal together. 

Stefan Rehfus, CO2POOL, 15th April 2021

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