• Smart contracts running on blockchains can unlock new ways to fight climate change and to cope with its impact.
  • This approach relies on networks of 'oracles' - entities that enable blockchains to absorb and interact with real-world data.
  • Here are three examples that underline the potential of this nascent technology.

Over the past few months, the electricity usage of bitcoin and other similar blockchain networks have pulled them into a larger conversation around sustainability. But lost in this has been the massive potential for smart contracts – fully traceable, transparent and irreversible self-executing contracts, running on blockchains – to contribute to the fight against climate change.

Smart contracts allow us to design globally accessible and fully automated incentive systems that can directly reward individuals, companies and governments for taking part in sustainable practices – such as regenerative agriculture, carbon offsets, crop insurance and more. At its core, the fight against climate change is going to require a massive shift in global consumption habits, and smart contracts are an incredible tool for incentivizing participation in global green initiatives.

Stumbling blocks

Until recently, the development of green smart contracts has been hampered by the inability of blockchains to interact meaningfully with data about the state of the real world, including the environment. However, in recent years, 'oracles' – entities that can shepherd data about our world onto blockchains – are finally becoming production-ready. Today, for example, these oracles are broadcasting agricultural data sets directly onto blockchains, meaning smart-contract developers are finally able to build applications around crop yields, soil quality, weather reports, carbon offsets, and much more. As more and more environmental data sets – such as weather patterns or internet of things (IoT) sensor readings – are fed onto blockchains, developers are beginning to produce a wide range of environmentally-conscious smart contract applications. Here are three examples.

1. Regenerative agriculture

One of the most important ways in which smart contracts can bring everyday people into the fight against climate change is by enabling regenerative agriculture programmes. These include efforts to incentivize communities around the world to reduce their carbon footprints through more sustainable land-use practices, usually a combination of planting trees and conservation.

How this technology incentivizes regenerative agricultural practices
How this technology incentivizes regenerative agricultural practices
Image: Chainlink Labs

Smart contracts that can interact with real-world data make it possible to automatically issue rewards to people who steward these important tracts of land. For example, the Green World Campaign, in collaboration with Cornell University’s Initiative for Cryptocurrencies and Contracts (IC3), is building smart contracts that use satellite data to automatically dispense rewards to people who successfully regenerate bodies of land by increasing tree cover, improving soil, and more. Payouts happen when oracles pull data from satellite images to trigger smart contracts built on a blockchain, guaranteeing that people on the ground earn rewards fairly and transparently.

2. Conscious consumption

Smart contracts can also empower environmentally conscious individuals and organizations. For example, if an individual successfully triggered a reforestation smart contract, they could be paid in a form of tokenized carbon credit, which could in turn be sold to charitable organizations, crowdfunding campaigns, or even companies seeking to prove they have made a green impact. Because these tokenized carbon credits can only be created if satellites or IoT devices report meaningful reforestation to a smart contract, these organizations can verify that their funds have actually made a real impact.

Smart contracts can also give environmentally conscious consumers more options in terms of their energy consumption. Decentralized energy grids like the Brooklyn Microgrid Project are using smart contracts to give consumers the ability to produce and trade solar electricity with their neighbours through an exchange that uses a blockchain as a coordination mechanism. The ability to buy and sell solar energy credits between neighbours can reduce energy transportation costs as well as greenhouse gas emissions.

While many consumers are already changing their consumption habits on their own, a wider societal shift in behaviour will likely require aligning financial incentives with more sustainable consumer decisions. Through the use of smart contracts connected to real-world data, consumers can automatically receive payments or penalties based on the impact of their consumption habits, creating behavioural changes that simply would not have occurred through education alone. A project called NetObjex is installing IoT devices in select hotels to keep track of a guest’s water and energy consumption over the course of their visit. Through oracles, smart contracts can interact with the resulting data about a hotel visit, and automatically calculate and reward guests based on their consumption metrics.

3. Hedging risk with crop insurance

Climate change is already shifting weather patterns worldwide. Farmers across the globe, the vast majority of whom are entirely uninsured, are especially vulnerable to these changes in weather patterns, be it rainfall, drought, wind, and more. Despite the fact that 75% of agricultural risks remain uninsured, traditional insurance companies have to-date failed to provide adequate coverage to small-time farmers in developing countries. As a result, most live very unstable lives. Bad weather conditions can destroy farmers’ financial well-being, resulting in the uprooting of families and the destruction and abandonment of farmland. Should the impacts of climate change continue to accelerate, there’s no doubt that the resulting instability will disproportionately affect farmers.

Fortunately, smart contracts that can take into account these changing weather conditions via oracles can offer a solution, or at the very least a way for a person with little means to hedge against significant risk. For example, insurance projects like Arbol and Etherisc offer smart contract-powered crop insurance to farmers across the world. Using smart contracts, farmers can take out a policy on their small crop of land, set predefined conditions for contract execution (such as a certain amount of rainfall), and then rely on oracles to monitor weather patterns. If the oracle network reports a certain metric has been met, the farmer automatically gets a payout. Through smart contracts that can speak to data about the weather through oracles, a farmer can now protect their financial future with nothing more than a smartphone.

The bigger picture

Just as the internet today is much bigger than email, the rise of smart contracts shows that blockchain technology is much more than decentralized money alone. The combination of blockchains and oracles is ushering in a new era of smart contracts that can create entirely new types of incentives for sustainable human consumption. As the conversation around climate change escalates, we must make it clear that this industry’s environmental impact will be defined by much more than any one project’s consensus mechanism.