bitNatura is a new cryptocurrency that supports natural capital markets by attaching value to REDD+ credits.
REDD + (reduced emissions from avoided deforestation and degradation + social enterprise development) is a recognized UN program that quantifies the value of intact forests through carbon credits, which can be sold or traded.
bitNatura tokens will be based on ethereum’s blockchain. The initial project will back REDD + credits from Indonesia’s Rimba Raya Biodiversity Reserve, which contains what remains of one of the world’s most endangered ecosystems (it is also one of the few remaining intact wild orangutan habitats).
CryptoLab caught up with Marcelo García Casil, one of the co-founders of bitNatura, to ask a few questions.
The company’s initial coin offering (ICO) will take place sometime in April or May.
CryptoLab: How do you envision a cryptocurrency-backed natural capital market working?
Marcelo García Casil: Cryptocurrencies are an evolutionary step over traditional currencies and, as such, bring a number of efficiencies to the table in terms of security, transaction costs and trust (transparency). Cryptocurrencies are also still very new compared to other financial instruments and so are largely unregulated. This is positive in many respects, but also means that the door is open for illegitimate people to take advantage of other, generally in the form of scams or pyramid schemes (pump and dump). This is possible because cryptocurrencies can be created “out of thin air”, rather than being backed by real assets, and therefore they can be produced in unlimited quantities.
bitNatura tokens are backed by a real asset registered and tracked by a Markit which is a well-known, trusted and regulated entity. The Markit Environmental Registry is an open registry that is available to everyone to freely search, browse and review the information via their web interface. bitNatura will have its own account within Markit where the asset holdings can be tracked and verified by anyone.
We believe that by combining the benefits of cryptocurrencies with the trustworthiness of a reputable and regulated asset registry bitNatura brings the best of both worlds. Our ultimate goal is to democratize access to natural capital by creating a transparent and fair marketplace that lets investors and traders participate in an asset class that is largely untapped. bitNatura has the potential to unlock trillions of dollars of asset value that is currently trapped under red tape, monopolies, and opaque trading venues.
CL: Why are REDD+ credits so undervalued, and is this really a problem that cryptocurrencies can address?
MGC: REDD+ credits are essentially credits backed by every natural resource available in a square meter of forest. This means that a REDD+ credit has several value components including but not limited to carbon credits, water credits, biodiversity credits and social impact credits. Of these value components, only carbon is currently being priced, which accounts for only around 20-25% of the total value of the asset. In other words, when companies currently purchase REDD+ credits they only pay for the carbon component, meaning the credits are heavily undervalued. A study conducted by Stanford University prices the true cost of CO2 emissions at $220 per ton if all environmental factors are properly accounted for, while another study by Oxford University concluded that the total value of REDD+ credits, including carbon, water, biodiversity and social impact, is over $600 per credit. With regular carbon credits currently trading in the $10-15 range, this represents a great investment opportunity with significant upside potential.
Another factor that has pushed the price of carbon credits down has been an artificial excess of supply. This has been triggered by certain countries flooding the market with “cheap credits”, primarily in India and China. These “cheap credits” are produced by removing CO2 from the atmosphere without delivering any additional benefit to the planet other than carbon emissions “reductions.” Examples of this are fuel switch projects or large hydropower projects. During the early hype years of carbon credits, right after the Kyoto Protocol was signed, many opportunistic business people rushed into monetizing carbon offsets through such projects which brought little benefit to the environment. Clearly, the original incentives created by the Kyoto Protocol were not properly aligned with the objective of keeping the planet in a healthy state. This is where REDD+ comes in.
REDD+ is an initiative supported by the United Nations (manifested in the Paris Agreement ratified in 2016) which aims to fix these issues. REDD+ credits, as opposed to regular carbon credits, deliver carbon offset properties while preventing deforestation, reducing forest degradation, protecting endangered wildlife and supporting forest dependent communities. REDD+ credits are largely traded in “voluntary markets,” i.e. they’re purchased by companies that choose to be carbon neutral so customers and investors see them as socially responsible and they understand that REDD+ credits deliver true benefits to the planet as opposed to regular carbon credits which are simply used to “check the boxes” and be compliant.
Governments are starting to move in the right direction and draft their own carbon policies above and beyond what was agreed in the Kyoto treaty. Once this is fledged out and compliant markets are forced to move into high-quality credits like REDD+, demand will grow and REDD+ prices will significantly increase.
A cryptocurrency backed by REDD+ credits will act as an enabler to increase demand by reducing the friction of existing markets and by creating a fair and transparent marketplace for natural capital to be traded. We believe that by democratizing access to natural capital we will experience a significant increase in demand and therefore and adjustment in price, with REDD+ credits going from their existing artificially low value into their true value as estimated by researchers.
CL: How will we be able to trade bitNatura? Will we be able to buy it after the ICO?
MGC: bitNatura will be available to be traded at a number of exchanges. Investors who miss out on our ICO will have the opportunity to buy bitNaturas either through exchanges or by purchasing new tokens that will enter the market as we secure more natural capital projects. The funds raised at the ICO phase will be used to build a platform to allow us to bring in more natural capital projects which will result in the issuance of more tokens (all bitNaturas are backed by assets). This means traders will enjoy a steady and controlled supply of tokens, leading to a healthy increase in market cap.
CL: Is bitNatura a private blockchain? How will users have trust in the system?
MGC: We initially envisaged using a public-permissioned blockchain as means of tightly controlling security. However, after discussions with some experts in the community and realizing that a fully decentralized network is seen as more trusted than a permissioned one, we’ve decided to shift into using the Ethereum platform to create and manage the lifecycle of bitNatura tokens. We will replace the workflows originally conceived as private processes with smart contracts. This will primarily be for KYC (know your customer regulations) and redemption purposes.
CL: Are there other examples of natural resource markets (or environmental conservation more broadly) that can be “monetized” by cryptocurrencies?
MGC: REDD+ credits are very comprehensive in that they include all natural resources in a square meter of land. bitNatura is not about carbon credits, but rather really transforming the core economy by unlocking the true value of natural capital so that each natural resource component (air, water, biodiversity, etc.) can be fully realized. That is our ultimate mission.
CL: What is your longer-term vision for bitNatura?
MGC: The world has experienced a huge credit bubble since governments abandoned the gold standard in the seventies. This has been exacerbated by fractional reserve lending and the uncontrolled creation of derivative instruments (e.g. mortgage CDOs which lead to the crisis of 2008). This phenomenon has made the rich richer and the poor poorer and we now see many parts of the world in turmoil with many shouting loudly for change. This, in part, is the result of a fundamental misalignment between asset prices and true wealth. Many financial assets (engineered by banks) are perceived as valuable (e.g. company stock, bonds, etc.) but ultimately each and every tangible asset that we have comes from the natural resources of our planet. A planet which has a discrete number of resources that are being exploited and abused as if they were unlimited—and the cost of replacement is not being accounted for. True wealth lies in natural capital, not in financial engineering.
We believe that bitNatura as a platform, once it’s fully built, has the potential to bring the economy back into a healthier state by creating assets that are more closely aligned with true wealth. In doing so, bitNatura will help to preserve the true wealth of our planet (our oceans, rivers, trees, plants, animals, etc.) by linking environmentally sustainable projects directly to investors in an open and fair marketplace. That is our long-term vision and we’re determined to make it happen.