This month may not seem like the ideal moment for an institution like Goldman Sachs to champion the benefits of “blockchain” or “tokenisation”. After all, these buzzwords first rose to prominence in the cryptocurrency sector, which has lost two-thirds of its value over the past year. And talk The Collapse of Sam Bankman Fried’s FTX Empire It would likely let many traditional financiers walk away from digital assets – if not deride them as a scam.
However, when environmental activists, politicians, and scientists gathered at COP27 this month, Rosie Hampson, CEO at Goldman Sachs, was gleefully talking about the two. In recent months, the Wall Street Bank has cooperated with the Hong Kong Monetary Authority, the Bank for International Settlements and other financial institutions, to launch Genesis Capital Markets Initiative (A name you unfortunately share with the struggling crypto broker). Genesis aims to use blockchain and digital tokens to help investors who buy climate-related bonds track their associated carbon balances in real time.
“[With] Genesis We are considering how we can use blockchain, smart contract technology, and IoT devices to support green bond contracts.” COP side event. She noted that this could change the process from “building the books all the way to initial issuance, asset servicing and . . . the secondary market component.”
Or as Bénédicte Nolens, of BIS, echoed in a The latest podcastIt is actually difficult to sell a green bond [today]. But if you can attach future carbon offset [with tokenisation] Then it becomes more attractive to the final investor.
This did not cause a stir in the COP. Maybe no wonder. Many environmental activists hate the whole concept of blockchain technologies, ever since the early iterations of this energy consuming one. And the kind of young(ish) anti-establishment evangelists who have catapulted into cryptocurrency in recent years generally hate the idea of central bank involvement.
But investors should pay attention. Although Genesis is still just a pilot, it is symbolic of a much larger point: although the cryptocurrency crash left investors reeling, it did not stop experimentation with the blockchain and token.
What’s more, those are now reaching some unexpected places, with increasing government support. The World Bank Currently developing the tool For carbon credit records that use a blockchain system called Chia. And in the mainstream central banking system, wholesale (i.e. bank-to-bank) digital currency tests are conducted for the central bank.
HKMA, for example, is currently working with the People’s Bank of China and other central banks on so-called mBridge project To enable them to swap assets instantly. In Europe, the Bank of France and the Swiss National Bank were unveiled Jura ProjectCBDC forex pilot.
And while these initiatives are still just pilots, they represent “an entirely new architecture,” Osmin Mandeng, an advisor to Accenture, said recently at a meeting of the Euro50 group in Washington. Or as Adrian Tobias of the IMF echoed: “The main things we get from cryptography are tokenization ideas, cryptography and distributed ledgers. They are very important technologies and there are a lot of experiments going on.”
Unsurprisingly, the gamers driving these experiences are keen to distance themselves from scandals like the FTX implosion, by ensuring that they operate with intense oversight of the organization. They also maintain that they are trying to deploy these technologies to solve real-world problems – rather than just using them for their own benefit.
The Genesis initiative, for example, is trying to solve the problem that today’s carbon credits market is so fragmented and opaque that it is difficult for investors to track potential greenwashing. And so while Chinese exporters sold $300 billion in green bonds, Transparency about this is very low.
However, by using a coordinated distributed computerized ledger (like a blockchain), BIS and Goldman Sachs say it will be possible to eliminate double counting and check carbon balances at source. Likewise, digital tokenization should make it possible to simplify the distribution of bonds and attract retail investors to the market for the first time, by dividing bonds into small parts. Or so the argument goes.
Can it be done without digital asset technologies? Probably. Banks could theoretically sell parts of the green bonds using existing operations. They may also be able to create a single global computerized ledger of carbon credits if they cooperate with each other and with the public sector.
But the harsh truth is that such sensible initiatives are not in place right now, while the mere emergence of cryptocurrency is prompting a rethinking of current practices among longtime players as well as digital evangelists. And this could end up producing benefits, even if the blockchain itself is not widely adopted.
This will not make ordinary investors less skeptical of cryptocurrencies. But it illustrates a larger theme: When disruptive technologies have appeared in the past, whether railroads or the Internet, it’s not always the first-order consequences that matter. It is still too early to judge whether or not digital assets will change the world – or make it greener.
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