Biodiversity in the Digital Age Part 2

Welcome to part two in a series of five articles exploring the place of biodiversity in an increasingly digital society. The aim of this series is to investigate the process of facilitating meaningful transfers of value between nature and the digital world.

In the first article I wrote about biodiversity credit markets and outlined the key drivers behind the demand side of the market. In this article I expand upon this by exploring the role that digital assets and the growing digital economy can play in facilitating high integrity demand in biodiversity credit markets. The article provides the background on key concepts behind digital assets and explores emerging consumer trends indicating increasing demand for nature positive outcomes.

Digital infrastructure is increasingly becoming the backbone of our economy, analogous in importance to the physical infrastructure of previous eras. Just as roads, railways, and ports were critical for facilitating the movement of goods and people during industrial and post-industrial eras, digital infrastructure now underpins our global connectivity and communication.

The burgeoning of digital infrastructure has facilitated the growth of the digital economy, which encompasses all economic activities conducted through digital means. Digital assets within the digital economy are the broad range of digital content, information and resources representing value, utility or significance. The creation, consumption and distribution of digital assets is dependent on digital infrastructure, particularly internet connectivity, data centres, content delivery networks, cloud services and personal devices like smartphones and computers.

In recent times digital assets have gained significant attention due to the rise of blockchain technology (blockchain). Blockchain is a decentralised and distributed digital ledger technology that records transactions across multiple computers in a way that ensures security, transparency and permanence. As the name ‘blockchain’ suggests the digital ledger of blockchain consists of a chain of blocks, where each block contains a list of transactions, which once added cannot be altered retroactively (i.e. they are immutable).

One of the revelations of blockchain is that it has facilitated the establishment of property rights for digital assets by providing secure and transparent methods of digital asset ownership verification and transfer.

This in turn has allowed for individuals to assert control over their digital assets without the need for intermediaries (brokers, agents, registries and the like).

Enablement of digital property rights has the potential to revolutionise industries like art and intellectual property, by providing new levels of transparency and trust in transactions. It also offers a means of bringing previously intangible assets such as brand and culture to market, potentially unlocking a vast stock of previously untradable assets for trade. Importantly blockchain, also enables the tokenisation of real-world assets by representing ownership as digital tokens on a decentralised ledger.

This process allows traditionally illiquid assets, such as art, property and biodiversity(!), to be divided into smaller, tradable units, providing a more accessible and liquid form of investment.

Since the late 20th century we have witnessed a rapid evolution of technological advancements that are now converging and transforming society. Internet connectivity has created a seamless and high-speed digital infrastructure, enabling instant global communication and access to an abundance of information. The ubiquity of smartphones and smart devices has empowered individuals with unprecedented computing power, catalysing a shift towards digital dependency. The COVID-19 pandemic has further accelerated this phenomenon, with remote work, online education, and e-commerce becoming either common or dominant. The data-driven nature of the digital economy is also generating vast amounts of information, which, when leveraged with artificial intelligence, is offering unprecedented insights and efficiencies. These combined forces are reshaping the structure of society. We have entered the digital age.

In addition to influencing how we work and conduct business, the rise of the digital age has also revolutionised how we socialise. Social media and messaging platforms have become important tools for social interaction, enabling global connections where individuals can identify with like-minded groups based on shared interests, rather than geographical proximity. These platforms have offered an unprecedented opportunity for self-expression, allowing individuals to curate their online personas, as well as explore and experiment with their digital identities.

The rise of the digital age has also profoundly influenced our leisure activities, especially in the realm of gaming and e-sports.

With the proliferation of high-speed internet and the development of sophisticated gaming technology, gaming has evolved to a highly popular and social experience. The introduction of cross platform capabilities and multi-player formats has transformed gaming into a vastly communal activity, with virtual and physical tournaments drawing gamers and spectators together from around the world.

With an expanding global market in excess of $200 billion, gaming is now a substantial economy. As an example, the game Fornite has generated an estimated $20 billion in revenue from its launch in 2017 through to the end of 2021, the majority of which was from sales of digital avatars, ‘backpacks’, and ‘dances’ also known as emotes. The global success of Fortnite has made its producer, Epic Games, one of the largest sellers of fashion in the world, outgrossing more recognisable labels such as Dolce & Gabanna and Balenciaga.

The digital age has also revolutionised consumption patterns, offering consumers more choices, convenience, and personalised experiences than ever before.

Uniquely it has also introduced a dynamic interplay between the purchase of material and digital products, with the notion of digital property rights blurring the lines between what is considered tangible and intangible.

While most traditional material goods continue to exist as either necessities or desirables, digital products have surged in popularity, facilitated by the ease of distribution and accessibility of digital platforms and marketplaces. For many individuals the consumption of digital assets follows their desire to curate and express their online identity via purchases that reflect their style, aesthetic and beliefs.

The trend towards digital consumption is expected to accelerate as the first digitally native generations, Z and Alpha, continue to mature. Having grown up in an era characterised by pervasive digital technology, these generations exhibit an innate comfort and proficiency in navigating online spaces.

Now entering adulthood and with more disposable income and autonomy over their purchasing decisions, it is anticipated that Gens Z and Alpha will continue to drive a surge in digital consumption, including digital assets and other virtual commodities.

The enablement of property rights for digital assets is also expected to further accelerate demand for digital products. In the early days of the digital age (Web 1.0 and 2.0), ownership and control over digital assets, such as content, were not clearly established. This ambiguity led to the rise of centralised platforms that acted as intermediaries, providing a controlled environment where users could create, share, and consume content. Under this model the platforms assumed the role of gatekeepers, asserting authority over user-generated content and effectively becoming the custodians of digital property including user data. A number of these platforms have been able to create highly lucrative business models around user data, through activities such as targeted advertising, user behaviour analysis, and selling anonymised data to third-party advertisers and marketers.

With digital property rights, however, there is an opportunity to empower consumers as active participants and owners within decentralised ecosystems with greater control over their personal data and assets.

Through the ownership of digital assets, consumers are now able to directly participate in the value creation process and in some instances contribute to the governance of decentralised platforms. This transition represents a fundamental shift from passive users to active stakeholders, granting consumers more agency, autonomy and ownership of their digital presence and opening the door for business models based on mutual co-ownership and stronger incentives for engagement and collaboration to achieve a common purpose.

Sustainability focused consumption
Running in parallel to this transition towards more digital lifestyles is an increased focus on sustainable consumption which is also fundamentally reshaping consumer patterns.

In general consumers are becoming increasingly mindful of the environmental and social impacts of their choices, leading to a surge in demand for eco-friendly and ethically produced goods.

This growing consumer awareness is reflected in the growth of sustainability-marketed products, which are exhibiting growth rates nearly double those of conventionally marketed products. More broadly this movement has catalysed a shift towards the use of sustainable materials, energy-efficient technologies, minimal ecological impacts and products designed for longevity and recyclability. It has also ushered in the rise (or perhaps the reemergence) of the circular economy model, emphasising reuse, repair, and recycling, as a sustainable alternative to the traditional linear “take-make-dispose” approach.

In the previous article I outlined the concepts behind biodiversity credit markets and detailed the dynamics behind the demand for credits. The key components were:

• Foundational demand (those requiring physical biodiversity outcomes)
• The creation of financial products to facilitate secondary trading
• The promotion of participation for those organisations seeking reputational enhancement.

In the article I identified potential for undesirable outcomes associated with facilitating secondary trading and also highlighted concerns for greenwashing and de-facto offsetting associated with markets driven by reputational motivations.

Yet for biodiversity credit markets to work there is clearly a requirement for increased liquidity to facilitate scale, which assuming a well-designed and highly functional market should correlate strongly with the positive biodiversity impact that can be achieved.

This is where I believe there is an opportunity to harness the intersection of shifts in technology and human behaviour to ensure that nature occupies a space of importance in the future place of being.

The means to achieve this is through the creation of nature backed digital assets that embed genuine and verified biodiversity outcomes into the metadata of digital fashion, collectibles, in-game assets, digital memberships and art.

Much like sustainable products in the material economy, where consumers preference reduced environmental impacts, eco-friendly materials and responsible production processes, nature backed digital assets offer an opportunity to tap into an increasing consumer desire for positive change. This would enable a direct-to-consumer market for biodiversity credits that brings liquidity on the demand side of a biodiversity credit market, eliminating the requirement for secondary trading to facilitate scale and potentially generating fewer extra-market impacts on biodiversity in comparison to material goods.

End of Part 2
Congratulations for making it to the end of Part 2 in this series! The next article will be focused on the process for creating high quality digital biodiversity credits and outlining how these can be used to build nature backed digital assets.

Mint this article as an NFT!