Biodiversity in the Digital Age Part 4C

In articles 4A and 4B I provided an overview of the system and outlined key principles behind the function and design of the supply side. In this article I offer a similar outline for the demand side of the system looking at the principles and mechanics for delivering and consuming digital biodiversity credits in the digital economy.

Let’s go!

A key principle of the demand side of the system is that it operates entirely within natively digital rails, from the enabling infrastructure through to the basis of the market. The reason for this is captured well by Punk 6529 in the quote below.

However, whilst the system itself is natively digital it is important to reconcile this with an understanding that nature itself is inherently non-digital and cares little for the digital world. The source of this contradiction stems from the activity and agency of humans in both the digital and natural realms.

The digital realm is a creation of humans to enhance communication, access information, and solve complex problems. From early computing machines to the creation of the internet, humans have been the principal agents shaping this realm (although AI says watch this space), using technology to transcend physical limitations and amplify capabilities. Humans are also the principal agents impacting nature, shaping ecosystems through activities like agriculture, urbanisation, industrialisation, and deforestation. Human actions have significantly altered the environment, leading to biodiversity loss, climate change, and habitat destruction. Humans, as both the creators of the digital world and the primary agents impacting nature, are therefore the bridge between these two realms.

Successfully bringing these two realms requires belief in the potential for a symbiotic relationship between digital tools and natural ecosystems. Functionally it requires design of a system that considers the broader social, ecological and ethical implications of tech-enabled biodiversity protection. None of these things are easy and the potential for being dismissed as ‘solutioneering’ is high. Nevertheless, I do believe that there is significant value in this approach with the ideological conflict forcing a greater requirement for rigour in the design. To this end Article 5 will focus on the downside of adopting a wholly digital solution in this space, offering an opportunity to explore the potential negative impacts through the lens of effectiveness, acceptance and user uptake.

But for now, the assumption is that it is digital all the way.

The supply side of the system ends with the creation of a measured and evidence-based unit of positive biodiversity outcome, a digital biodiversity credit, that is ready for delivery into the digital economy.

Blockchain serves as the delivery rails for digital assets, providing the foundational infrastructure that enables the secure, transparent, and decentralised transfer of value across the digital economy. By utilising distributed ledger technology, blockchain ensures that digital assets can be owned, transferred, traded, and managed without the need for intermediaries.

Tokens are the foundational building blocks in blockchain ecosystems enabling decentralised ownership, governance and participation. These primitives represent various forms of value or utility and come in different types, such as cryptocurrencies, utility tokens, security tokens, and non-fungible tokens (NFTs).

Real World Assets (RWAs) are a class of tokens representing physical or tangible assets that have been recreated as a digital representation on the blockchain. RWAs can be represented as either fungible tokens or NFTs, depending on whether the underlying asset is divisible and interchangeable (fungible) or unique and indivisible (non-fungible).

A digital biodiversity credit is a distinct, non-interchangeable (i.e. non-fungible) conservation effort and biodiversity outcome representing a tangible (measurable) value that is manifest in the real world. When a digital representation of this outcome is transferred onto the blockchain it changes from a credit into a RWA token.

Tokens, and in particular NFTs, are extremely versatile tools, enabling a wide range of applications and functionalities. An NFT can be used to capture an exceptionally broad range of value across a diversity of data structures and represented through a variety of metadata and attributes.

Their programmability through smart contracts, which are self-executing programs on the blockchain, further amplifies their potential, allowing for automated and sophisticated functionalities and behaviours. One example of this is the integration of governance features where voting rights are attached to ownership of the token and applied to decisions affecting an associated platform or protocol.

Another example is the creation of dynamic NFTs, a type of non-fungible token that can change or update their attributes and metadata based on external data or events. The means of doing so is through an oracle, a third-party service that provides smart contracts with external data that is not inherently available on the blockchain. For dynamic NFTs oracles provide the external data needed to trigger changes, while smart contracts enforce the rules and logic for how those changes are applied.

Digital biodiversity credits offer a container for positive biodiversity outcomes that are typically bound by area and representative of a discrete unit of time. This packaging, however, stands in contrast to biodiversity, which through the ongoing processes of ecological change, adaptation, and the impacts of management efforts, operates as a continuum in form and structure across broader spatial and temporal scales.

Dynamic NFTs can capture this change in ecological state when credits have been issued using a consistent spatial framework. For example, where the biodiversity credit is continuously monitored using digital tools, the token can be automatically updated to reflect changes in biodiversity or environmental conditions. Although this process would not look to revise and alter the value of the credit as per the time of issuance, it can help to capture aspects of persistence and durability, which could be linked to smart contract mechanics aimed at promoting and rewarding the outcomes of long-term protection. An example of this is a smart contract trigger where the purchaser of a token linked to an early credit is automatically rewarded with portions of future tokens if the improved state in biodiversity is maintained over a long period of time (i.e. an early adopter reward).

Another powerful feature of tokens is fractionalisation, the process of dividing a token into smaller units. A fractionalised token can maintain referential integrity with the parent token through well-designed smart contracts that enforce relationships, track ownership, and manage metadata. The smart contract responsible for fractionalisation can be designed to ensure that each fraction remains linked to the original parent token by assigning each fraction a unique identifier that ties it back to the parent token. Through smart contract design and on-chain storage, this relationship can be made immutable, ensuring that the provenance and history of the fractionalised asset are transparent and unable to be arbitrarily altered. This ensures that the fractional tokens continue to accurately represent their share of the original asset, preserving the value and functionality of both the parent token and its fractions.

Fractionalisation in tokens enhances liquidity, inclusivity and flexibility in ownership, opening up new opportunities for market expansion. Fractionalisation increases liquidity by allowing fractions of an asset to be traded more easily. It also lowers the barrier to entry for participation, with more people able to buy fractions, broadening the base of the market and potentially increasing demand and driving up value.

These outcomes have parallels with the promises offered through the introduction of secondary trading to a biodiversity credit market. However, unlike secondary trading fractionalisation may offer a safer mechanism for democratising access to biodiversity credits and increasing liquidity in the market.

As discussed in Article 1, secondary trading introduces a disconnect between financial incentives and ecological impact, which could lead to unwanted speculation and price volatility especially if not tightly regulated. In contrast fractionalisation can be undertaken without decoupling the credit from its biodiversity impact, with the blockchain ensuring that even small fractions of tokens continue to represent concrete and measurable biodiversity benefits. Blockchain’s transparent and immutable nature also simplifies the regulatory and reporting process, allowing all stakeholders to verify outcomes easily, regardless of the size of their fractional holdings.

In addition to offering a safer path to the benefits of financialisation, fractional ownership also supports the growth of new digital business models and services based on micropayments. This is enabled through the introduction of programmable, automatic, small-scale transactions on lower transaction cost blockchain solutions, a concept that is explored further in the next article.

Having now worked from the supply side through to the demand side of the system via the measurement, creation and distribution of a digital biodiversity credit it is worth capturing a simplified overview of the structure involved. The term I have coined to describe this is the ‘encapsulation cascade’, a linked hierarchy of encapsulating elements that contain the complexity of a system within a simplified structure. For the system I’ve described, the encapsulation cascade combines hierarchical structuring, tokenisation, and fractionalisation to create a robust framework for managing and distributing biodiversity data, while also facilitating market transactions and investment in conservation efforts.

The base unit is the spatial container, a quadtree structure that partitions the spatial data into ecosystem-appropriate quadrants. The next unit is the credit represented by a quantifiable measure of the ecological state, alongside other program level descriptors, all captured within the spatial container. Once recorded, the credit becomes a token in its entirety on the blockchain. Finally, the token undergoes fractionalisation into smaller sub-units. A schematic overview of the encapsulation cascade is given in Figure 1.

Encapsulation is a fundamental concept in object-oriented programming, where the internal state and behaviour of an object are hidden from the outside world, exposing only what is necessary through a well-defined interface. The idea is to bundle data and methods that operate on that data within a single unit (or object), while restricting direct access to some of the object’s components.

Representing the system as a nested set of encapsulating elements has several benefits. This first is that it makes the system easier to conceptualise and interact with. It also highlights the modularity of the system, giving name and function to the deployable units and offering participants a greater understanding of their role and contribution. Finally, it describes how the credits, tokens and fractions remain spatially referenced and maintain direct linkage to the biodiversity outcomes and program level descriptors, features that can be used to drive consumer interest on the demand side.

With significant demand for biodiversity credits from the corporate sector yet to materialise (see Sam Sinclair for reasons why) there is reason to explore potential for a consumer-led market, where direct consumer interest could drive demand, provide funding, and stimulate innovation.

A consumer-led market has several key advantages over an enterprise-led market. It benefits from rapid scalability, as products can achieve exponential growth through word-of-mouth, social media, and network effects. Consumer markets are highly agile and innovative, driven by shifting preferences that push companies to continuously adapt and improve. Products often build strong emotional connections and brand loyalty, making them more appealing and engaging. The focus on individual needs in consumer markets leads to intuitive, user-friendly designs and broader demographic reach, enabling faster market penetration.

Additionally, consumer-led markets are influenced by social trends, allowing products that resonate with current cultural moments to gain popularity quickly. Direct feedback loops in these markets enable companies to respond and iterate on products in real-time, enhancing their relevance and effectiveness. By leveraging these consumer-led market benefits, the adoption of biodiversity credits could scale more quickly, leading to more significant and positive environmental impacts sooner than in a slower, enterprise-led market.

Creating a successful digital consumer product involves several important factors. Firstly, understanding the market is key, to ensure that a clear value proposition is driving demand, and that the product aligns with consumer behaviour and preferences. User-centric design is also crucial, with the product requiring an intuitive and seamless user experience, with a focus on smooth performance and reliability. A strong marketing strategy is also required to help reach and engage the target audience, while excellent customer support is important to enhance overall user satisfaction.

Tactics like nudges and incentives can also be used to drive user adoption. Nudges gently guide users toward desired behaviours or actions without restricting their freedom of choice, often using behavioural insights to make certain options more appealing or easier. Incentives, on the other hand, offer rewards or benefits that motivate users to engage with a product or service.

In the web3 space, a new manner of incentivising and aligning community participation is emerging as one of the great breakthroughs. Web3 technologies enable innovative incentive structures through mechanisms like token rewards, decentralised governance, and community-driven initiatives. These approaches can foster deeper engagement and alignment by directly rewarding user contributions, promoting active participation, and creating a sense of ownership and value within the community.

Tokens are central to the web3 community model as they act as networked assets, driving value through participation and connectivity. They enable access and membership by granting users entry to exclusive features or services within a platform. Additionally, tokens align economic interests by linking rewards and benefits to the project’s success, fostering deeper engagement and commitment.

Nature-backed rewards

One potential approach for unifying these various components is through the creation of a nature-backed rewards program.

Rewards programs are structured systems designed to incentivise and engage users by offering them tangible benefits or incentives in return for specific actions or behaviours. These programs typically involve earning points, credits, or other forms of currency that can be redeemed for discounts, products, services, or other rewards. By encouraging repeat interactions and loyalty, rewards programs aim to enhance customer satisfaction, drive engagement, and foster long-term relationships between businesses and their users. They leverage various mechanisms, including tiered rewards, personalised offers, and gamification, to motivate continued participation and build brand loyalty.

Web3 technology and tokens offer a means of revolutionising consumer behaviour by integrating nature stewardship into these reward systems. Tokens can represent and reward contributions to nature, making the rewards more impactful.

Unlike traditional loyalty schemes, which tie reward points to utility within the program (like discounts or exclusive offers) with no inherent value beyond their use, nature-backed reward schemes link rewards to real-world assets, such as positive biodiversity outcomes. This gives the points intrinsic value and aligns consumer incentives with both community stewardship and asset-backed value creation.

By using blockchain technology for data provenance, transparency and accountability, web3 enables a more engaging and effective way to motivate consumers. Surfacing data contained within biodiversity tokens — such as information about species, people, and places — presents a unique opportunity to engage consumers and build sub-communities around specific data attributes. By making detailed, transparent data accessible, consumers can connect more deeply with aspects of biodiversity, such as their favourite species or conservation projects tied to their local areas. This connection fosters a sense of ownership and personal relevance, encouraging more active participation and support.

Additionally, these data attributes can be used to create specialised sub-communities, where users with shared interests or geographical connections collaborate, share insights, and drive collective action. This targeted engagement not only enhances the overall impact of biodiversity initiatives but also strengthens community bonds through shared passions and localised efforts.

A digital nature-backed rewards program can be seamlessly integrated into the digital economy by aligning it with the existing consumer market for digital content, assets, and gaming items (Figure 2).

By linking rewards to digital purchases, transactions, or engagements — such as buying virtual goods, participating in online communities, or using gaming items — tokens can be earned and redeemed through these interactions. This approach directly ties the value of digital assets to real-world biodiversity improvements, making it easy for gamers and digital consumers to contribute to nature while enjoying their favourite content. The incorporation of nature-backed rewards into gaming not only adds an eco-conscious dimension to the gaming experience but also leverages the extensive market for digital assets to drive engagement and support for nature. As consumers increasingly seek to align their digital activities with personal values, embedding these rewards into the digital economy offers a compelling way to foster nature stewardship and enhance the appeal of digital content and gaming experiences.

In a nature-backed rewards program, the partner network plays a critical role in shaping the program’s value and impact. By collaborating with partners that provide nature-sensitive goods, services, and experiences, the program aligns consumer incentives with environmental stewardship.

These partners help ensure that rewards are not only desirable but also contribute positively to biodiversity stewardship and conservation goals. A carefully curated partner network ensures that each reward redemption promotes responsible products and practices, reinforcing the program’s core mission. Additionally, it builds consumer trust, as participants know their engagement supports businesses committed to nature-friendly values. This synergy between partners and the rewards program maximises both positive impact and consumer satisfaction, making the program more appealing and authentic.

Congratulations on making it to the end of Part 4C of the Biodiversity in the Digital Age series. The next part of this article will explore pricing, funding and financial flows for the system.

In the meantime, if you believe that memes can help us build the world’s best biodiversity market then jump over to the EcoMemes project.

Mint this article as an NFT!