How Web3, NFTs, and DAOs could help boost climate action

Last week I shared thoughts on how the coming massive expansion of distributed solar and battery storage will create opportunities for decentralized business models that allow owners to transact with each other. Decentralization is promising, I concluded, but will still require centralized control for reliability. There is also a lot more to decentralization, with a host of concepts to consider and potentially embrace.

Non-fungible tokens are a start, and I imagine that most readers have, at this point, heard something of NFTs. Perhaps you have seen them in the form of a Bored Ape, or read about their precedent-setting position in the contemporary art world. NFTs can manifest in many forms, but their defining characteristics are technological. The token is a cryptographic asset on a blockchain, and it is unique – it has unique identifying data.

NFTs may sound very art worldly at the moment, but we are seeing climate examples emerge on the same platforms that creative endeavors use. One of them, highlighted by venture capital investor Shayle Kann of Energy Impact Partners, is the 100,000,000 Mangroves project. It is a collection of creative work that will fund the planting (and protection) of a vast number of mangroves with proceeds from the sale of artwork. As Neal Spackman, founder of Regenerative Resources Co. and the sponsors of the mangrove project says, “the digital surface has barely been scratched” when it comes to employing decentralized web technologies to fund environmental projects.

Another concept to consider is the distributed autonomous organization, or DAO. DAOs are member-owned groups that operate on a contract that defines the group’s rules of operation. Decisions made by the group are done by vote, with outcomes implemented automatically per the terms of the contract.  

We already have at least one climate DAO: Klima DAO, active in carbon markets. I can certainly see more climate-related DAOs emerging. They could essentially be the operating system for an electrical cooperative composed entirely of individually-owned distributed generation, or the manager of a regenerative agriculture project with many owners, or the rulebook and contract for recycling of lithium-ion batteries that have reached the end of their useful life.

But – and this is a big but – there is an inherent tension between distributed buying power and decentralized operations, and the ‘command and control’ that I mentioned last week. I do believe that many will seek out novel ways to fund climate-related ideas, but I am also fairly certain that everyone will want them to also work — to be reliable, verifiable, and interoperable with the rest of the world. Decentralization, if not done right, will create real discontents.

There is a superb essay that outlines those discontents far better than I can. Moxie Marlinspike, the founder of encrypted communications app Signal, last week published an essay as thoughtful as its title is innocuous: My first impressions of web3. He clearly outlines the risks in such systems. People don’t want to run their own infrastructure, and layering it into people’s everyday internet presence is neither logical nor desirable. High degrees of decentralization may give everyone a say, but Web3 entities may also be “be more conducive to stasis than movement,” and “that’s a problem.”

Most importantly, Marlinspike notes, distributed systems are not really that distributed. Blockchains run remotely on a server, and interaction with that server is controlled by a small number of players. As an experiment, he created a NFT that changes based on who is looking at it. It was promptly taken down, making it fundamentally useless even if it is “indelibly on the blockchain somewhere”.* Decentralization has strong de facto central points of control, even if they are not immediately clear.

Marlinspike says, “Once a distributed ecosystem centralizes around a platform for convenience, it becomes the worst of both worlds: centralized control, but still distributed enough to become mired in time.” That’s not a place any new initiative should wish to be.

Still, as I said last week, any useful system in energy and climate will require centralization, as all functioning systems right now do. Power grids run on set frequencies, and we do not force that responsibility onto individual consumers. Vehicle owners will need assurances that they can pull electrons from the grid when needed, or pay them back onto the grid at an agreed price when they want. Voluntary carbon markets will need standards in order for climate benefits to be measurable, verifiable, and tradable.

Discontents notwithstanding, I am actually optimistic about Web3 climate applications and concepts. I am optimistic for the precise reason that the centralization that Marlinspike highlights as inherent in these systems is working properly, so we might as well embrace it. Distributed concepts with climate relevance may end up being a front end, so to speak – an innovative way to attract interest, organize, and set rules. Their climate attributes – standards, reliability, interoperation – may end up as a back end that interacts with other reliable systems.

So, let us watch closely to see what Web3, NFT, and decentralized app climate concepts emerge in coming months. And, let us also not be too surprised if the ones that prove most workable and have the greatest climate impact have a strong center, too. 

[*I recommend clicking through to see how it looks on different platforms. I also recommend Bloomberg Opinion columnist Parmy Olson’s recent piece on Marlinspike’s essay, Web3 Just Had Its Emperor’s-New-Clothes Moment]

Nathaniel Bullard is BloombergNEF’s Chief Content Officer.