Niel Schoeman and Johan “Joe” Pretorius, the co-founders of fibre network operator Vumatel, are behind a new digital currency venture hoping to fight climate change.
Well-known venture capitalist Michael Jordaan has provided initial financial backing for the venture.
The payments platform, called Toco – or toco, lowercase, in the case of the digital currency – wants to “fix the current economic model so it places a value on the environment” and to “unite a global community that shares the belief that carbon reduction has intrinsic value”.
Its launch follows the development of a technical paper on the subject by Pretorius.
Stellenbosch in the Western Cape is already the stage for a trial of Toco, and the toco currency, before it is launched nationally in the second half of the year and internationally soon thereafter.
Toco’s third co-founder is Paul Rowett, founder of edtech company Lobster Ink, who will appear in an episode of the TechCentral Show (TCS) to be published later on Tuesday. In the interview, Rowett, who will serve as Toco’s CEO, expands in detail on the new currency and how it works – look out for the interview on TechCentral or subscribe to TCS on YouTube to be notified when the episode is live.
“We decided to start in our backyard, but the platform is open to everyone,” said Schoeman in a statement shared with TechCentral ahead of the launch. We will lead the way here in South Africa to show the world how we all can agree that removing carbon has intrinsic value and that the simplest way to demonstrate such agreement would be to use carbon removals as a means to base our money on.”
In the same statement, Jordaan, who co-founded digital bank Bank Zero and who is a former CEO of First National Bank, described the concept as “profound” and said it could “completely transform how the world thinks about money, the economy and the environment”.
“This is money 2.0,” he said. “It can democratise the carbon markets and enable communities to take part in the battle against climate change.”
Toco is short for “tonne of OCO”, OCO being the molecular formula for carbon dioxide.
In short, and as explained by Toco in its statement:
- One toco represents one tonne of carbon dioxide that has been “credibly removed” from the atmosphere.
- The carbon dioxide is removed through a wide range of activities including direct carbon capture, re-forestation and soil sequestration. These carbon removals, when verified by independent accredited third parties, become tradeable certificates (carbon credits, carbon offsets or carbon mitigation assets).
- In the case of the Toco payment platform, each unit of toco in circulation is represented by such a carbon mitigation asset, held and owned centrally by an entity called The Carbon Reserve.
- The Carbon Reserve is an independent non-profit foundation set up specifically for this purpose and is regulated in Switzerland. It is responsible for toco issuance, purchases and custody of the carbon assets. It is mandated to maintain the convertibility of tocos to carbon assets and to grow the toco supply responsibly and expand the voluntary carbon market.
- It has a similar monetary framework as the more traditional gold standard where the money in circulation was linked to the gold held in a nation’s central reserve. The central reserve’s function was to ensure that this relationship was maintained and that the convertibility of the currency into gold was maintained at a fixed rate per ounce of gold. In the carbon standard adopted by toco, the relationship is maintained as one toco per tonne of carbon reduction achievable.
The platform is available to users on the Web, Android and iOS. The app is free, though a 1% transaction charge is levied on users – not merchants – when a payment is made. The transaction fees are used to fund the activities of The Carbon Reserve and the operation of the payment platform.
Many merchants in Stellenbosch — from coffee shops and restaurants to supermarkets — are already part of the pilot, according to Rowett. Anyone can buy (or sell) tocos, not only those living in Stellenbosch, ahead of the national launch later this year.
Users can exchange rands for tocos or tocos for rands at the prevailing exchange rate via the Toco app. The app allows users to make peer-to-peer payments, online payments and in-store payments at participating merchants – in tocos.
“The payment platform is a custom-built, permissioned blockchain that is mobile capable, can process large transaction volumes, quickly settle transactions with finality, and complies with regulatory requirements,” the company said. It takes about six seconds to complete a transaction, making it comparable to payments using bank cards. Users pay by scanning a QR code at the point of sale, with other payment mechanisms to follow.
“Toco is designed to be used as a store of value (saving in carbon reductions), a means of exchange (paying with carbon reductions) or as a unit of account (counting carbon reductions achieved),” the company explained in its statement. “Toco is therefore a new form of money, where the available money supply is based on the available carbon asset supply.
“The more people choose to use toco for their daily money needs, the more demand is created for carbon assets, which, in turn, stimulates and incentivises investment in carbon removal activities and projects.”
Pretorius explained that there has been a failure to address climate change due to what he called a “classic collection action problem”. He cited the “inherent disparities that exist in the economic welfare and ambition among different nation states; the question of how to allocate the costs of historic emissions; dealing with the variation in the planetary impact felt by different countries across the globe; and the inter-generational nature of trading immediate economic benefit for future environmental costs”. Despite “irrefutable facts, governments fail to take the kind of collective action required”.
Our governments and institutions are simply not equipped to deal with this… We need a global community united behind a single shared value
“Our governments and institutions are simply not equipped to deal with this… We need a global community united behind a single shared value: that carbon reduction is a valuable product for us all, and that anything that creates carbon reduction – whether it is a forest in Brazil or a direct-air-capture factory in Iceland – is a valuable asset for humanity and the economy, and should therefore be rewarded for that activity,” Pretorius said. “Expanding and improving the current carbon markets will be a vital component in the fight against climate change.”
“We support the premise of carbon markets. They rightly assume the climate change problem arises from a market failure where the price of goods and services are not reflecting their true cost to society. Unfortunately, current carbon markets are rather small, illiquid and filled with trading friction. We think toco can play a significant role in changing that,” added Schoeman.
“Up till now the demand for carbon has mainly been driven by the compliance needs of a handful of regulated industries in some countries or by the ethical needs of organisations and individuals who wish to reduce their carbon footprint,” he said.
Said Rowett: “We need a significant actual use case for carbon reductions that has everyday utility. We think toco can provide that. The properties of carbon credits are perfectly suited to be the basis for money supply. Because it is a commodity, albeit thinly traded, there is an institutional market and price providing some intrinsic economic value at inception. More importantly, it is costly and difficult to produce, making supply reasonably inelastic and predictable, which naturally limits supply shocks. It also has no real-world commercial usefulness, so sudden demand shocks are almost impossible.
“These are the properties needed to keep currency values stable. A prerequisite to any form of exchange is that its supply is predictable. The supply of these carbon credits is also naturally limited, giving it the necessary scarcity, which, combined with the high effort to produce, are the requirements for it to be a good store of value.
“Younger generations are placing far greater cultural value on the environment. Similarly, the means to measure and demonstrate one’s personal contribution to ensure a sustainable future environment, is increasingly becoming more important to individuals and organisations alike. This makes carbon not only a good basis to store and exchange value, but also as a unit of account that demonstrates environmental value creation,” Rowett said.
The Toco payment platform is built using blockchain distributed ledger technology, though Rowett insists it is not a cryptocurrency – and it will not be tradeable on crypto exchanges. The founders chose to use a blockchain to achieve scale and transparency. Transparency is important to create trust in the toco community, the company said. Anyone can query the quantity and quality of the carbon credits held in The Carbon Reserve, and also see the amount of toco circulating in the economy. The toco blockchain is non-anonymous and “permissioned”. All toco wallet users undergo customer identification and verification, while transactions are monitored for anti-money laundering purposes — similar to opening a bank account.
“The integrity of this initiative is too important to risk its unlawful exploitation,” said Schoeman. “We recognise that consumers of financial services and payment networks need to be protected and we support the authorities charged with this. The development of a global payment system and financial infrastructure based on environmental assets such as carbon reductions is a massive undertaking. Its success depends on its trusted and safe integration with the existing financial system and the protection of the community that uses it.” — © 2023 NewsCentral Media