The GAW is based on blockchain technology. Blockchain enable immutable storage of data and project validation/impact metrics in the GAW. Going forward, the blockchain foundation will also be used to collect and demonstrate a track-record of delivery on project commitments. The platform is built on the Postchain blockchain that has been developed by Swedish blockchain engineers ChromaWay.
Postchain provides the security benefits of a blockchain without discarding the advantages of a conventional database system in the process. Postchain is the first true consortium database. It is open-source, and works together with the most widely used database systems (you can read more about Postchain on ChromaWays website).
Below follows a summary of functions delivered in the first version of the Green Assets Wallet launched in November 2018;
GAW Technology features and function
Three user roles (Investors, green debt Issuers and Validators) equipped with different interfaces that correlate and interact, where
each user role is equipped with specific permissions and constraints about which classes of information that can be modified and how, where
a. issuers of green debt can upload information around deliverables, validation (including specification of the validator) and impact reporting (of projects),
b. validators of green debt can validate the deliverables specified by issuers by submitting a report that corresponds to the validation report created by an issuer, and
c. investors in green debt can create portfolios and identify, evaluate and monitor investments
3. A blockchain backend consortium database (i.e. Postchain based) that allows information, roles, and system of permissions to be submitted, replicated and stored in a back-end consortium database (i.e. over a network of nodes).
4. Finally, a fourth user role for administration of the Green Assets Wallet.
In the GAW, "Issuer" Is used as an umbrella term to represent entities that provide green projects. "Framework" Is an abstraction of the various different ways in which Issuers describe the rules that govern their green bonds. All these terms derive from the first development phase (conducted throughout 2018) being primarily focused on the green bond market but currently represents a range of different users.
A third party could either be an Issuer’s own documentation or a validator. Validator is the name for organizations that registers in the GAW to validate the fulfilment of commitments on behalf of an issuer.
A framework defines a category of green assets and projects. Green assets are issued under a given framework, and they inherit a subset of commitments from it. Projects are indirectly mapped to frameworks, in that they inherit a subset of requirements from the framework that correspond to the commitments inherited by the corresponding green assets.
In the context of the current GAW, an asset is a green bond. In the future this category may be expanded to accommodate different kinds of green financial instruments.
Conceptual structure illustration of the GAW system
1. Issuer creates framework.
2. Third party provides certification of framework (second opinion) and/or project commitments.
3. Assets (e.g. green bonds) are issued under the framework.
4. Projects are funded under the framework.
5. Third party validates the project against the validation criteria.
6. Third party provides impact data.
7. Asset and project may or may not be directly mapped to one another, such that an investor in a given asset can see which specific project the money has been allocated to.
8. The investor can view the issuer profile and projects assets, the validation and impact of those projects, and the framework under which states the conditions of which it all takes place.
Q & A
Why is blockchain used in the GAW?
It would likely be possible to achieve something like this using a conventional database. There are several reasons why it might be a good idea to use blockchain:
Agreeing upon and enforcing standards is challenging, especially across the entire world. A blockchain enforces some kind of standard programmatically, and by necessity. This can be positive in the context of green finance where investments are often made across national borders, and where it is both desirable and challenging to ensure that different actors in different locations would otherwise adhere to standards consistently.
This produces higher quality data, and ultimately to a rich resource for research into the quality and impact of different kinds of "green" activity in different contexts. It is often quite controversial or ambiguous whether something is green or not, or how "green" it really is. High quality data can help to clarify this. A good system of governance means that these standards can arise organically from the collective action of a consortium of stakeholders, as opposed to being imposed by some organisation. This could theoretically be achieved with a centralised platform, but there is little precedent for it.
Physically distributing infrastructure across stakeholders can result in a better distribution of costs. The burden of supporting the system is borne by those who gain the most from it. Increasing the scale can actually reduce the cost for individual members of the consortium.
Better transparency, natural incentives to be as transparent as possible.
Better ecosystem support. A more liberal model for third parties to create services based on GAW data. Potential additionalities.
How is blockchain used?
Blockchain is used to store all uploaded data. There is a simple hierarchy of roles and entities. The key features are:
Secure and transparent replication of data
Enforcement of standards about data validity
Pervasive digital signatures
The accountability for the quality/accuracy/honesty of the information submitted to the blockchain is devolved (as much as possible) to the issuer user. In reality, they are responsible for funds raised to a project. An issuer can input dishonest data, but it will remain there for others to discover which serves as a strong disincentive. Like other blockchains, the GAW aims to reward “good” behaviour.