Web3 for Better
Whitepaper 3.0
MARCH 2023

1

Table of Contents
01

Vechain’s Journey

Appendix

02

Our Aspiration

Glossary of Terms

03

How We Identify
Sustainability Needs

Table of Figures

04

Building the Blockchain
Biosphere for Sustainability

Works Cited

05

What Does an Ecosystem
Look Like?

Credits

06

Engaging the Individual andBuilding Communities

07

Vechain Technology Landscapeand Roadmap

08

Vechain Governance09

What’s Next for vechain?

10

Conclusion

2

Vechain’s Journey
We established vechain when it was still rare
to see major business applications running on
public blockchains and before public enthusiasm
for blockchain’s potential was on the rise. We
wanted to change that by providing enterprises
with a trusted, distributed platform that could
enable transparent flow of information, efficientcollaboration, and high-speed value transfers.
We released Whitepaper 1.0 in June 2017to present this vision and our aspiration to
become the platform of choice for blockchainbased business applications offering concrete
economic, environmental, and societal value.
As is the case with many technologies, weunderstood VechainThor blockchain would
go through several sequential stages ofdevelopment:
1. Overcoming technical barriers
2. Removing business obstacles to drive
enterprise adoption
3. Reaching scale
4. Subdividing into new breakthroughsin specific fields
5. Starting a new technology cycle

In Whitepaper 1.0, we argued we had entered theearly phase of the second stage. Our VechainThor
blockchain incorporated all the basic requirements
for enterprise adoption of blockchain technology,
including:
A proper governance model with thetransparency and operational efficiency
necessary to enable continual and rapid
innovation
A sustainable economic model (twotoken model: VET and VTHO) designed
to prevent transaction fees from being
directly exposed to the volatility thatafflicts most single-token economic
models
A flexible blockchain developed tocomply with changing regulation andto be easily integrated with a variety ofcomplementary technologies such as
12
34
IoT , RFID , 5G, AI /ML , big data, etc.
1. Internet of Things, 2. Radio-frequency identification,
3. Artificial Intelligence, 4. Machine Learning Machine Learning3

Subsequently, we published Whitepaper 2.0 in
December 2019. In that whitepaper, we expanded
upon our commitment to enable mass blockchain
adoption by established businesses, with the longterm goal of creating value and solving real world
economic problems. With this in mind, we pinpointed
the three major phases of blockchain evolution
which would form the foundation of our strategy
to become the world’s first choice for blockchain:
Technical Consensus, Business Consensus, andGovernance consensus.
We had already moved past the TechnicalConsensus stage, which is typically driven by
developers and focused on building up the initialtechnology infrastructure, and were building
features that could improve business use cases andactivities, including:
Proof of Authenticity consensus algorithm (PoA2.0), which provides safety guarantees on blocks
and transactions at a faster speed than the previous
algorithm.
Meta transaction features, such as Transaction
Lifecycle Control, which grants users control overwhen a transaction is executed or abandoned, evenwhen the blockchain is running at high capacity. Thisis critical for business applications.
Transaction fee delegation, which allows users tointeract with decentralized applications (dApps)
and make payments directly, without having topurchase cryptocurrencies.
With the adoption of the VechainThor platform bymajor enterprises and assurance companies, wewere entering the Business Consensus phase, acritical process in which businesses shape theevolution of blockchain applications towards
features that fulfil their specific needs. We began
to focus on identifying companies and solutions
capable of bridging the digital space with thephysical one (e.g., IoT and tagging companies),while maintaining a particular focus on businessuse cases. Additionally, many developer tools
such as Connex.js and Sync were released tosimplify the development process and improve
the accessibility of the VechainThor blockchain
ecosystem, further accelerating the adoption of
our technology.

The final step to widespread enterprise adoption(development stage 2) was achieving GovernanceConsensus. In this phase, legal authorities aroundthe world join corporations in driving the regulatory
development of blockchain. Specifically, regulatory
requirements must be merged with advanced
blockchain features.
In our Whitepaper 2.0, we envisioned a comprehensive
governance consensus for the blockchain protocol,
attempting to find an efficient balance between
centralised and decentralised governance models
and technologies. As our infrastructure matured, we
continued to embrace decentralisation, graduallytipping the scales in its favour. We designed thevechain Governance Principles and Charters witha focus on transparency, fairness, and operational
efficiency to enable continuous future iterations
and rapid progression in developing solutions.
Our governance must allow individuals to be
stakeholders, alongside corporations, governments
agencies, and other institutions, empowering people
as owners and creators rather than just users. As
we will see in Chapter 7, we are still progressing
through this phase. We are constantly improving
our governance to achieve the goal of operating adecentralised public blockchain with the capacity
to scale and meet the needs of large enterprisesthat create concrete value. At the same time, weare turning regulatory compliance into a valuabletransition; provided regulations evolve as rapidly as
the blockchain industry itself, we can leverage ourresources to facilitate the cooperation of institutions,enterprises and people within this constantly
evolving framework.
Throughout this journey, we've created relationships
with supportive individuals and organisations whoshare both our passion for blockchain technology
and our vision of creating a more transparent way tocollaborate. We have built differentiated underlying
technologies
andformedstrongstrategic
partnerships focused on lowering the barrier toentry for enterprises, while leveraging blockchain
technology to create value and solve tangible
economic problems.

4Differentiating underlying technologies:
VechainThor is a constantly evolving public blockchain committed to helping
global enterprises and governments achieve Sustainable Development Goals(SDGs) efficiently, quickly, and at low cost. VechainThor’s unique Proof-of-Authority
consensus mechanism allows for fast and secure transaction processing
while also enabling secure governance of the platform by a group of trusted
nodes. Additionally, VechainThor is designed to handle many transactions per
second, making it suitable for use by solutions that demand scalability andhigh-volume processing of transactions.
Two-token Design embedded within VechainThor platform includes vechain token(VET) and veThor (VTHO). VET serves as a value-transfer medium (utility token),whereas VTHO represents the underlying cost of using VechainThor (Energy).
The unique, two-token design significantly helps to separate the cost of using
blockchain from market speculation, a fundamental requirement for enterpriseuse of a platform.
PoA 2.0 “Proof of Authority 2.0” is designed to guarantee data integrity while
also providing high-throughput and scalability capabilities to meet the evolving
needs of businesses. PoA 2.0 is meant to combine the strengths of Nakamoto andByzantine Fault Tolerance (BFT) architectures while eliminating their individual
weaknesses, solving one of the great trade-offs in blockchain design — scalability
versus data finality.

Our enterprise partnerships include widely recognised consulting firms, retail andwholesale businesses, and luxury goods companies. Our strategic partnerships
have fostered an array of real-world applications. Some examples of applications
developed with our partners include:
5•

My StoryTM, a blockchain-powered digital assurance solution that enables
brands to share the true and authentic story behind every product directlywith consumers.

•

Walmart China Blockchain Traceability Platform, which allows supermarket
users to scan 30+ product categories (e.g., fresh meat, rice) and acquiredetailed information, including the product’s source and geographic location,
logistics processes, and product inspection reports.

•

A solution for tracking the origin of plastics recovered during
clean-up activities.

Fundamentally, throughout our years of research, study of pain points in numerous
industries around the globe, modelling of industries and initiatives connected byand collaborating through blockchain, and our cooperation with industry experts,
we have always focused on solving tangible problems for enterprises. Recently,
we have seen an urgent desire across industries to tackle growing sustainability
challenges. We believe our blockchain solution can support a viable system ofsustainability that will serve our planet for generations to come.
In this whitepaper, we will articulate our aspirations for a future where sustainableliving and conduct of business is the norm and not the exception.
5. Trademark owned by DNV (Det Norske Veritas)

55

Figure 1 - Timeline of the vechain Project JourneyTraceability · Enterprise Applications · Sustainability
2015
2017

Establishment of the vechain Project

TRACEABILITY•

Vechain ICO•

Vechain 1st Steering Committee Formed

•
•

2018

ENTERPRISE APPLICATIONS

2020-2021

SUSTAINABILITY

2022

Anchored 4 POCs with enterprise clients in France, Norway and China

Whitepaper 1
Launch VechainThor
PoA 1.0
2 token Model
Enabled multiple tech innovation integration
Token Swap from VEN to VET
Xnode campaign
•
•
•
•
•
•
•

2019

Vechain Foundation formed

Authority node set up
Launch of the Vechain Wallet
Draper Dragon, PwC Venture Hub SG, DNV GL partnership
LVMH Innovation Award – Special Mention
Participant of BMW Startup Garage - VerifyCar
Launched Carbon Credits ecosystem with BYD,DNV and Brightfoods
DNV launches MyStory, built on VechainThor

Whitepaper 2
Meta transactions
Transaction fee delegation
On-chain governance
Built in smart contracts
•
•
•
•
•

Announced Vechain ToolChain™ at Vechain Summit
Walmart China Blockchain Traceability Platform
Number of startup and enterprise applications using Vechain ToolChain grew steadily
Launch of VeVote
San Marino MOU with vechain for national Carbon Neutrality signed•

Vechain & I-Dante launched E-HCert, a Digital Lab Test Wallet
deployed at Aretaeio Hospital, Cyprus•

BayerChina launches CSecure a traceability platform
for clinical trial supply chains•

DNV launched MyCare and MyBaby, Tag.Trace.Trust•Hydro Norsk implemented Tag.Trace.Trust for 'green aluminium',
TTT built on the VechainThor blockchain•

San Marino National 'Green Pass' roll out•

Completion of POA 2.0•

Launch VeUSD Stablecoin•

Launched Draper x vechain Fellowship Accelerator Program•

Launched a technical centre in Ireland•

Establishing a new Headquarter in San Marino•UFC, ATP Finals sponsorship•

Launched vechain Accelerator program•

VeCarbon Launch•

New VeWorld wallet6

Our Aspiration
Anyone who wants to change the world for the better knows
humanity’s greatest challenges will only be overcome by acollective global movement. We all must work together inways previously unimagined to successfully combat climatechange, address threats to the environment, bring equity to
our societies and ensure companies act in the best interestsof all stakeholders.
Taking on our world’s greatest sustainability challenges
requires collaborative action. And so, our aspiration is clear:
We seek to multiply individual impact to unleash ourcollective potential for sustainability.
Empowered by blockchain and other technologies, we arebuilding partnerships that will catalyse and support the
coming sustainability transition. Previously, individuals had
limited power to address the critical challenges of our time. As
we enter the Web3 era, we will build platforms to put sustainability
within reach.

Blockchain forour better world
Blockchain is ushering in a newera. It is a technology with thepotential to unite people arounda common sustainability goal
and combine their impact
so that the sum is greater thanthe parts.

Small individual efforts, things like reducing personal food waste, will be multiplied across the community. For
instance, our blockchain solutions will be integrated with municipal initiatives to help people donate food thatis about to expire. We can then track the reduction in food waste at scale. And this is but one, small example.
Our overall goal is to enable people to engage with sustainability every day. We will do this by putting more
power in their hands to make impactful, informed decisions that influence the fundamental environmental andsocietal factors underpinning our existence as humans, such as access to healthy food, clean water, and fresh
air. With ever-evolving technologies like blockchain, we will help people develop real, meaningful partnerships
with organisations, governments, and enterprises. These partnerships will help create a more sustainable
society and economy.

7

We must leverage technology and digital innovation for the good of all humanity — not only for the benefitof the few — and also provide a system of trust and transparency, if we want to meaningfully address thesustainability issues facing us today. Consequently, we propose a new paradigm, one that will allow us toquantify the impact of discrete actions, ensure individuals maintain ownership of their personal data andcontrol its use, and provide secure, trustworthy, and transparent transfer of information and services, as well as
distributed ownership, among individuals, enterprises, and governments.
This is the promise of Web3.

Figure 2 - Core ideas for vechain today

OWNABILITYDESTINATIONIMPACT

We have the vision andcutting edge technology
to silently shape society
in ways yet not imagined

We imagine a future
where our systems areinterwoven in a way thatcreates trust, efficiency,
and optimal decision
makingSaving our planet is themost pressing challengeof our time, and it
will take radical new
ways of approachingsustainability solutions

The interwovensociety will flourish
for generations

And we must bring thisvision to the world for it
to have an impact

It takes a conductorin these moments oftransition to be successful

We believe technology can foster the trust between people, organisations and governments required tobring about this new paradigm. By facilitating transparency and accountability, Web3 provides people
with a basis to trust that enterprises and institutions will uphold their sustainability commitments; that
corporate and governmental reports and communications on sustainability initiatives are substantiated;
and that technology companies are tracking and selling user data properly.
We aspire to surpass Web 1.0 and Web 2.0 and their outmoded philosophy wherein a select few owned andcontrolled most data and access. Because Web3 systems are built atop decentralised networks, people
have control over their personal data and identities. As a practical matter, this translates to greater security
and privacy compared to the incumbent centralised setup and creates a generation of owners and cocreators — rather than users or customers — who can hold each other accountable in pursuing similar
passions and achieving similar goals.
However, Web3’s impact extends beyond information exchange. Web3 is an enabler of value exchange,
too. Moreover, this value is not only economic but also environmental and societal. Indeed, a key driver ofthe sustainability transition will be a fundamental redefinition of “value” as a concept. Web3 technologies
enable us to understand, qualify, quantify, and share the value of an action, including its societal,
environmental, and economic factors.

8

Figure 3 - Journey from Web 1.0 to Web 3.0

WEB 1.0

WEB 2.0

WEB 3.0

1990-2005

2005-2020

2020+

Introduction of the Web

Rise of the Platform

Emergence of the Semantic Web

Users read content on
static sites

Users both read andcreate content

Users read, create, and own theircontent and exchange value

Publishers collect revenue

Networks and platforms control
creators' revenue streams in acentralized manner

Users transact their data acrossdecentralized, blockchain-based
networks without using third parties

In the future, everyday life will be defined by a merger between the physical and digital worlds. Web3 is a phygital
environment powered by blockchain, IoT and other technologies. Collectively, these Web3 technologies
help create sustainable value chains and achieve sustainability missions shared by a variety of different
parties. Individuals will participate equally with other partners in collaborative missions, whether acting aspart of a platform, a corporation, an association, a government body, or even on their own. The priority of
every initiative will become consensus identification and collaboration to execute actions. This will multiply
individual actions so that everyone has the chance to make a perceptible difference in how the world will lookin the decades to come.
Society faces a critical need for new business models, which must encompass activities related to thephysical value chains where sustainability issues are most pressing (e.g., manufacturing, transporting,and purchasing goods). These business models must enable collaboration with other parties andprovide governance that facilitates interactions and transactions. Web3 will be the basis of these new
ways of doing business, and blockchain technology like VechainThor — alongside smart contracts,
6fungible tokens, non-fungible tokens (NFTs ), and decentralised autonomous organisations (DAOs) —is evolving every day to support these collaborative missions. These Web3 features are the ideal engine
for meeting the world’s sustainability needs and transforming the way we understand and unlock value.

What does it mean to be “Phygital”?
“Phygital,” a combination of the words “physical” and “digital,” is a term describing the blending of digital
experiences with physical ones. As communication channels between organisations and users grow, therole of vechain is to build a trusted bridge between the digital and physical. Through blockchain and othertechnologies we can acquire data from the physical world for use in the digital space, where we can create
new concepts of value and new ways of collaborating.

6. See chapter 4 for details on smart contracts, fungible tokens, NFTs and DAOs.

9

At vechain, we are building an interconnected platform where individuals will play an active role in making
sustainability aspirations real. This could mean engaging in small actions, such as riding a commuter train
instead of driving a car and then receiving rewards for doing so, or building trailblazing solutions to criticalclimate challenges. We envision a world where everyone — individuals, enterprises, and governments — isaccountable to the new value systems we collaboratively establish to promote healthier communities, protect
the environment, ensure humane working conditions, and provide easy access to clean drinking water.
Our personal actions, big and small, are the basis of this transition. Web3 makes every action count.
Blockchain-enabled technology will help everyone make informed decisions that engender a greener, more
mindful, more responsible global community. Together, our impact will be multiplied across a network of
networks, connecting people, governments, and entire industries to sustainable outcomes that will benefit
us all. In these trusted ecosystems, individuals and institutions will link their efforts to ensure the full value of
every action is recognised and rewarded.
At vechain, we believe in the power of blockchain to transform individual action into collective steps thatincentivise cooperation and improve how we perceive value. In such a world, one plus one no longer equals
two, but three, or four, or five. With these new models of interaction, we can all participate in defining,
creating, scaling, and sustaining new value systems that will protect our shared world and unleash ourcollective potential.

Figure 4 - Our Journey of Inspiration“

Multiply individual impact
to unleash our collective
potential for sustainability.

“

2023

“

…lowering the barrier and enabling establishedbusiness with blockchain technology to create
value and solve real world economic problems…

“

2019

“

To build a trust-free and distributed businessecosystem platform to enable transparent
information flow, efficient collaboration,and high-speed value transfers

“

2017

1010

How We Identify
Sustainability Needs
The previous sections detailed how Web3 canbe used to promote a more sustainable future.
Now, we will examine what sustainability really meansin this context.
Sustainability is often instinctively associated withenvironmental consciousness and broad actions suchas reducing emissions, reusing goods, and recycling
waste. However, the concept of sustainability is muchbroader. Indeed, sustainability encompasses the total
functioning of our global society. Sustainability entails
granting access to essential goods and services
to all people, protecting vulnerable individuals andcommunities, providing humane working conditions
to employees, ensuring that consumer products
and services are healthy and safe, and enabling theregeneration of natural resources.
Building a global culture of sustainability requires
a common definition. In the business community,
sustainability is typically discussed under the rubric ofEnvironment, Social, Governance (ESG). We go a stepfurther and break down this universe of sustainabilityrelated topics into five primary dimensions
7
and 24 sustainability needs.

Environment: greenhouse gas emissions(e.g., CO2, methane, nitrous oxide) andair quality; energy management; water
and wastewater management; waste
management
circularity;
naturalresource use; biodiversity protection
Social conditions: human rights andcommunity relations; customer privacy
and data security; customer welfare;selling practices and accessibility
Labour conditions: human rights andcommunity relations; customer privacy
and data security; customer welfare;selling practices and accessibility
Leadership and governance: businessethics and competitive behaviour;
management of the legal and regulatoryenvironment; risk management
Business model and innovation: supply
chain and responsible sourcing; businessresilience

7. The five dimensions and 24 sustainability needs are based on the Sustainability Accounting Standards
Board’s (SASB) taxonomy. See appendix 1 for further details. Source of the sidebar: “Why do we need toprotect biodiversity?”, European Commission

11

Protecting biodiversity:a key challenge for the future“Biodiversity” refers to the variety oflife on Earth (species, genera within
a single species, ecosystems). Everyliving being, including human beings,
is involved in complex networks ofinterdependent
relationships,
which
are called ecosystems. Many such
ecosystems are currently endangered.
For
example,theglobalanimalpopulationhas
declined
68%
since 1970, highlighting an urgent
need to act.
Healthy ecosystems provide us with food,clean our water and air, regulate theclimate, provide resources for medicinesand other benefits. For this reason,
biodiversity must be protected and,
where needed, restored.

When we apply the five dimensions ofsustainability to different industries, themost pressing issues vary considerably. A
carmaker might be more concerned about
emissions, while a clothing manufacturer
or distributor might pay more attention tolabour conditions in factories.
To account for this variability, we have built
8
a Sustainability Topics Matrix whichhighlights the most important sustainability
needs in different industries. The Sustainability
Topics Matrix was developed using theMateriality Maps published by hundreds ofcompanies in each sector as part of theirmost recent sustainability reports (2019-2021)(see appendix 3 for the methodology of the9
Sustainability Topics Matrix).
The Matrix helps us identify the most pressing
issues for each sector today. It can be
updated to take account for how those needs
evolve over time.

When we apply the five dimensions ofsustainability to different industries, themost pressing issues vary considerably.
A carmaker might be more concerned
about emissions, while a clothing
manufacturer or distributor might pay
more attention to labour conditions infactories.
To account for this variability, we havebuilt a Sustainability Topics Matrix
which highlights the most importantsustainability needs in different industries.
The Sustainability Topics Matrix wasdeveloped using the Materiality Maps
published by hundreds of companies ineach sector as part of their most recent
sustainability reports (2019-2021) (seeappendix 3 for the methodology of
the Sustainability Topics Matrix).
The Matrix helps us identify the mostpressing issues for each sector today. It
can be updated to take account for how
those needs evolve over time.

8. See appendix 3 for the methodology, 9. Maps used byfirms to disclose the sustainability needs they consider
most relevant (see appendix 2 for further details)

12
12

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Figure 5 - Sustainability Topics Matrix

GHG EMISSIONS(& AIR QUALITY)ENVIRONMENTENERGY MANAGEMENTWATER & WASTEWATERMANAGEMENTCIRCULAR ECONOMY& WASTE MANAGEMENTPROTECTING BIODIVERSITYHUMAN RIGHTS &COMMUNITY RELATIONSCUSTOMER PRIVACY& DATA SECURITYCUSTOMER WELFAREEMPLOYEE HEALTH & SAFETY

SUPPLY CHAIN &RESPONSIBLE SOURCINGLEADERSHIP &GOVERNANCE

LABOR
CONDITIONSSELLING PRACTICES& ACCESSIBILITY

BUSINESSMODEL &INNOVATIONSOCIAL CONDITIONSRESPONSIBLERESOURCE USE

EMPLOYEE ENGAGEMENT,
DIVERSITY & INCLUSION

BUSINESS RESILIENCE
BUSINESS ETHICS &COMPETITIVE BEHAVIORMGMT OF THE REGULATORYENVIRONMENTRISK MANAGEMENTThe Sustainability Topics Matrix is the tool we developed to identify and show the relevance ofsustainability needs across industries

13Specific trends in materiality of sustainability needs
Environmental needs are particularly important to heavy industry and sectors that use natural resources.
Those needs include addressing emissions in industries with carbon-intensive production processes,
like oil and gas, and improving waste management in industries where hazardous waste is produced, such as
chemical manufacturing.
Social and Labour conditions are more significant in sectors that are customer centric or labourintensive. Needs related to social conditions range from ensuring safety and quality in pharmaceuticals
and healthcare to protecting customer privacy and data security in e-commerce and financial services.
Employee health and safety is particularly relevant for sectors where production sites present a risk ofsafety incidents.
Leadership, governance and business model innovation needs apply to all industries that are subject
to sudden changes stemming from, among other causes, energy transition, new regulations, disruptive
technologies, or consumer innovation.

The complexity of sustainability derives both from the broad environmental and societal scope it
encompasses and from an inherent need for collaborative action. A wide variety of actors must work
together to move the needle on sustainability, even at the local level.
Consider the everyone involved in the life cycle of a simple chocolate bar: Farms provide the raw
materials and the energy and labor to cultivate them; power companies supply the electricity usedduring the production process by the manufacturer; logistics companies manage transportation;
and wholesalers and retailers handle distribution. Finally, consumers buy and consume it, leaving
municipalities to dispose of or recycle the waste generated by wrappers and shipping materials. And thenthe process begins again.
If citizens wish to consume a product without causing an excessive environmental impact, they mustbe sure that the raw materials have been obtained in a manner that protects biodiversity, that the
manufacturer uses renewable energy to run its plants and has employed an efficient and low-polluting
production process, that the greenest possible forms of shipping are used, and that retailers havebeen careful to manage orders in such a way as to avoid waste. The citizen must then make a personalcommitment to properly dispose of packaging and food waste, ultimately relying on the municipality torecycle them.
14

Figure 6 – Collaboration systems

Example of each actor’s contribution to sustainability needs

All these actors should have an interest in making their actions sustainable. Moreover, since they areinterconnected, they can multiply the impact of their individual sustainability actions and unleash theircollective potential by collaborating and acting in a coordinated, synergistic manner.
More often than not, the greatest sustainability challenge is getting every player on board and coordinatedwith the others. This requires inspiring, facilitating, and managing long-term cooperation and collective
action. However, several obstacles may prevent the creation of effective collaborative ecosystems:

15

Need for trust and
Proof of Authenticity
Lackofvisibility into thesustainabilityofsuppliers’
operations (e.g., difficulties forretailers in identifying the amountof emissions generated by their
suppliers when manufacturing a
specific product)
No traceability and brandliability regarding the usage
and end-of-life of products (e.g.,
no opportunities for municipalities
to verify whether end consumers
dispose of products correctly)
Inadequate or absent proof of
authenticity or definitive productidentification (e.g., difficulties in
identifying whether second-handluxury products are authentic)
A lack of trust and proof of authenticity can prevent
different players from cooperating and addressing
sustainability needs. Everyone must trust each otherand possess sufficient visibility into each other's work.
They must know that the information they receive fromtheir counterparts is trustworthy in order to collaborate
productively. Similarly, customers must be sure theproducts they are buying are authentic and sustainably
manufactured, which means they need insight into how
the goods were produced and distributed. Without thisassurance, consumers will be reluctant to recognise thefull value of these goods. For example, if retailers andend consumers cannot trust information on emissions
or wastewater generated though manufacturing andtransportation of products, they cannot base theirpurchasing behaviour on environmental impacts. If
consumers do not account for environmental impacts
when choosing products, then manufacturers will not
be incentivised to improve their environmental policies.
Another obstacle to collaboration is a lack of data
ownership and privacy. People and organisations witha common sustainability goal must be able to safely
store data and make it accessible to each other in asecure fashion. If they are reluctant to share sensitive
information due to privacy concerns, this will reduce
visibility into each other’s sustainability actions.
Conversely, more data sharing and greater visibility
will make collaboration easier and more successful.
Indeed, the lack of innovative and fast ways to safely
share data may slow down necessary activities (e.g.,
if the sale of medical products requires individuals toprovide a medical prescription on paper).

Absence of traditional trust
mechanisms among specificactors in a digitized and hyperconnected world (e.g., lack oftrust among players who havenever met one another in person
when interacting in an online
marketplace)

Data ownership &privacy challenges
Poor digital maturity and tools
for data collection and sharing(E.g., when refugees flee war zones
without proper documentation,
there is no unified platform where
their home country and NGOs orhost countries can collect andshare information needed to
identify them.)
Concerns about the sharing andprotection of sensitive data (E.g.,
companies may be reluctant to join
ecosystems that require them toshare data with competitors.)
Incomplete or incorrect tracking ofcustomer information (E.g., despite
loyalty programs companies do notknow how consumers interact with
their products after point of sale, ifthey use them, waste them, recycle
the packaging, etc.)
16

Furthermore, people and organisations can only
effectively collaborate if the externalities generated
by their actions are valued correctly. If someone’s
actions produce positive effects for others, but go
unrecognised, they will be less inclined to repeat the
behaviour. Conversely, if someone’s harmful actions
go unnoticed and are not penalised, they may be more
inclined to replicate the conduct, either because they
are unaware of the harm created or because they lack
incentives to improve. For instance, consumers whochoose environmentally conscious options, such as
food packaged in compostable or reusable materials,
often do not receive a reward for their choice, leading
to lower consumer demand and minimal investment
from companies in compostable packaging; if there isno demand from consumers, firms are not motivatedto go the extra mile

Need for attribution ofvalue to externalities
Absence of ways to monetize
positive externalities or incentives
to reduce negative ones (E.g., there
are no incentives for consumers
to bring their clothes back to
manufacturers to allow
for the recycling of fabric.)
Lack of penalisation for generationof negative externalities (E.g., No
effective measures are in place topenalise firms that outsource theiroperations to foreign countries that
employ child labour.)

Figure 7 - Obstacles to Collective Sustainability Action
Need for trust and Proof of Authenticity•

Lack of visibility on sustainability of suppliers’ operations•

No traceability and brand liability on the usage and end-of-life of products•

Inadequate or absent proof of authenticity and definitive product identification•

Absence of traditional trust mechanisms among specific actors

Data ownership & privacy•

Poor digital maturity and tools for data collection and sharing•

Concerns about the protection of sensitive data shared•

Incomplete or incorrect tracking of customer information

Need for attribution of value to externalities•

Absence of ways to monetize positive externalities
or incentives to reduce negative ones•

Lack of penalization for generation of negative externalities
17

17

The obstacles detailed above obstruct lasting,collective, positive action. Indeed, when the impact
on society caused by certain actions fails to be
fully captured, or there is lack of trust and privacy indata exchange, actors in the value chain are morereluctant to pursue virtuous behaviours.
On the other hand, well-structured compensation
mechanisms
canencourage
peopleandorganisations to join forces and collaborate. When
individuals act in an environment that recognises
and values actions beneficial to the community(on a social, financial, or legal level, for instance), it
generates a virtuous circle of positive improvements.
If the system encourages choices that create
more sustainable value for society, then we cancount on a rising number of people, enterprises,
and organisations addressing sustainability needs
collectively, while also reaping a personal benefit: atrue win-win situation.

Examples of positive or
negative compensation
mechanisms
Adding a charge for shopping bagsin supermarkets creates an incentive
for customers to re-use bags they
already have.
Congestion charge zones discourage
citizens from using private vehicles,
thereby reducing emissions (e.g.,congestion charge zone in London).
Emissions trading systems incentivise
companies to finance carbon-removal
projects in exchange for a monetary reward.

Today, most sustainability focused regulations, enforcement regimes, taxation policies, and even the SDG
infrastructure itself, are centred on the actions and initiatives of governments and enterprises. As a result,individuals are rarely directly involved in sustainability efforts, and their actions and contributions are notfully captured nor credited. This also reduces the effectiveness of initiatives undertaken by governments
and companies.
Presently, companies can design their products so that their components are recyclable, but if consumers
are not encouraged to dispose of them properly, or if their municipalities tax them equally regardlessof whether they recycle or not, such efforts will be in vain. It is crucial to identify methods for measuring,evaluating, and recognising individual contributions.
This is a substantial opportunity.
Consequently, vechain partners with enterprises that serve as facilitators and advocates of collaborative
systems aimed at engaging institutions, local governments, and — most importantly — citizens themselves.

18
18

Building the Blockchain
Biosphere for Sustainability

Blockchain Biosphere for Sustainability Framework
In the previous chapter we discussed the Sustainability Topic Matrix and areas where there is an acutesustainability need. We also outlined several challenges that prevent collaboration to address thosesustainability needs. In this chapter, we propose a new conceptual solution to these challenges bydeveloping a framework for how innovative Web3 technologies can thrive in a collaborative model.
Borrowing from the concept of Earth’s biosphere, we aim to enable and support the Blockchain Biospherefor Sustainability. This will eventually consist of many ecosystems dedicated to solving specific needs,
everything from monitoring logistics to get food from point A to point B safely to reducing emissions by
shortening a supply chain.
The Biosphere represents a framework within which we can develop blockchain powered solutions
for sustainability challenges around the globe. These solutions, connected with Web3 technology, will
galvanise the collective action required to overcome the challenges we see today.
The Biosphere will provide a platform for developing ecosystems to solve different sustainability needs, suchas by establishing a circular economy for the fashion sector or mitigating emissions in the energy industry.
Through an interconnected network, individuals will be able to seamlessly explore and participate in
the full spectrum of ecosystems and build or grow their own ecosystems as well.
Two critical components make up the Blockchain Biosphere for Sustainability: the platform infrastructureand disparate but interconnected ecosystems.
19

Figure 8 - The Blockchain Biosphere for Sustainability

As discussed in Chapter 3, mapping sustainability needs by industry sector helps us identify the materialityof the needs and specific industries where there is high demand for a solution.
Sustainability needs might be industry-specific, like a circular economy in the fashion sector, or they mightspan multiple industries, like mitigating emissions across the mining, automotive, and energy sectors.
Platform infrastructure comprises the technical components of the connected technologies, the layer 1
blockchain, and the applications that power and connect all ecosystems.
We aim to expand our current enterprise partnerships and technical and operational capabilities
throughout the Biosphere. Vechain’s operational capabilities complete the support functions of theplatform infrastructure.
The platform infrastructure connects and supports all individual ecosystems similar to how
a power grid connects a community. One can build a house and connect it to the grid for fullaccess to the electricity the grid supplies, plus integration with the wider network. Similarly, theplatform infrastructure enables the functionality of all ecosystems to deliver value in the broadest
sense of the word.
20

Naturally, for the ecosystems to be sustainable,
the infrastructure itself must also be sustainable.
VechainThor, vechain’s layer 1 blockchain, isbuilt with this vision in mind, and it offers anenergy efficient, user friendly, open platform for10collaboration.
VechainThor’s base infrastructure is necessary toconnect ecosystems to each other and provide
the entire Biosphere with the decentralised trust
and transparency that only a public blockchain
can offer. Furthermore, VechainThor will enable
the potential implementation of DAOs — uniting
sustainability communities — while nonfungible tokens (NFTs) and fungible tokens (FTs)
may drive the trade of assets for sustainableapplications. Meanwhile, smart contracts will
power sustainability reporting, monitoring, andtransaction facilitation.
In this new Biosphere, a seller can receive a token
for selling a second-hand coat in a sustainablefashion ecosystem and then spend that token
at a charging station in the electric vehicle(EV) ecosystem.
While blockchain will anchor the Biosphere,
next generation technologies such as AR, VR,
AI, IoT, and 5G, will contribute to the Web3
environment and will be key components ofthe platform infrastructure required to meetsustainability needs.
10. Please refer to Chapter 7 for further details on ourplatform’s sustainability.

What is a DAO?
A Decentralised Autonomous Organisation(DAO) is an institution operating under
member control that is transparent andnot influenced by a central governance.
The members of a DAO vote to determine
their internal regulations and make shareddecisions. The number of tokens owned
determines voting power.
For example, people living in a neighbourhood
may join together in a DAO to set goals forthe community and assign specific prizes(fungible tokens) to citizens who contribute toreaching those goals.

What is a Token?
Tokens are a unit of value, that enabledifferent actors to:•Interact with each other•

Carry out transactions•

Transfer value

There are 2 types of tokens:
Fungible tokens are equivalent to one
another and can be interchanged. Examples
include cryptocurrencies, carbon credits,
rewards, etc.
Non-fungible tokens represent uniqueassets, which are not interchangeable.
NFTs are unique. Examples include productpassports and digital art.
21

We are already seeing these technology
combinations at work in supply chains thatuse a secure blockchain record paired with IoT
and GPS to track food, raw materials, and othercritical products. This is an early step in creating
a full-fledged sustainability solution. Similarly,
a crypto token-driven circular economy canleverage AI and big data analytics to incentivise
reuse and recycling, while cloud computing
helps enable digital wallets. The integration ofthese technologies into ecosystems will require
both hardware and software solutions, plus atech platform that connects these functionalities
within the Biosphere infrastructure.

What is a smart contract?
A smart contract is a decentralised
application built on top of the blockchain
which will automatically enforce contract
parameters when a condition occurs.
A company can use a smart contract toassociate an immediate and certain rewardwith a specific positive action by a community
member, such as the return of empty glass
bottles to the supermarket in exchange forsome form of value.

Collaboration Is Key

The alliances vechain has already formed with founding partners will enhance the ability of ecosystems
to leverage existing markets and expertise. We aim to expand our current enterprise partnerships while
adding strategic, technical, and operational partners and collaborators, including governments, NGOs,
and sustainability experts, throughout the Biosphere.
While vechain currently has the capability to integrate many advanced IoT offerings into the blockchain
Biosphere, with the help of developer partners we plan to explore the creation of even more technologies
to enable a mature Web3 environment and better support users. We are currently seeking formal,
dedicated partners who want to be involved in an ecosystem as owners, not just participant. These
partners will contribute to the design of ecosystems, build dedicated solutions, attract additional users, andcommunicate the ecosystems’ value to the community, all while generating additional value for themselves.
With this in mind, we are committed to enhancing collaboration between start-ups, academia, financing
partners, and developer communities through grants, accelerator programs and other similar initiatives(see Chapter 7).

The vechain Environment
Vechain’s operational capabilities will complete the support functions of the platform infrastructure. We will
not only provide the infrastructure, but also ensure the availability of helpful tools, services, and educational
resources to seamlessly adopt our blockchain for all relevant applications. Through these efforts, we hopeto engage and encourage all builders to grow their ecosystems within vechain’s favourable environment.
We act as the custodian of the blockchain platform infrastructure that connects the Biosphere and enables
partnerships that support and connect ecosystems. By hosting native features designed to facilitate the11
construction and execution of specific sustainability-related solutions, vechain’s layer 1 blockchain is
uniquely qualified to enable the sustainability biosphere.
11. See chapter 7 for a technology roadmap which provides an overview of the technology
features that will be developed for VechainThor.

22

Ecosystems are distinct communities devoted to solving
specific sustainability challenges. Each ecosystem isdesigned with its own unique business model, stakeholders,incentives, value flows, and technology requirements, so as
to maintain its long-term viability.
The modular environment we envision provides anagile development environment where stakeholders cancreate their own ecosystems independently, similar to thedevelopment of apps for a mobile phone, and incorporate
them into the Biosphere. The resulting scalability allows for
tailored ecosystems to achieve their own specific goals whilestill enabling connectivity with the other ecosystems of the
Biosphere. Thus, anyone who builds an ecosystem will haveunlimited access to the myriad possibilities provided by otherecosystems in the Biosphere.
Each ecosystem can include a number of key roles, filled byindividuals or enterprises who share an interest in achieving
the ecosystem’s common mission, such as waste reduction
or fashion recycling.
The main roles one might find in an ecosystem are:•

The sponsor who funds development and go-to-market
strategy or invests in a growing ecosystem by financing
events, conferences, and hackathons.

•

The adopter who demands a solution to a sustainability
need and consumes the offering, while adjusting
behaviour based on incentives set up by the ecosystem.

•

The promoter who attracts enterprises and individuals
to the ecosystem by communicating the value of thesolution and encouraging existing users to understandand leverage the full range of the offering.

••

The developer who builds applications and technicalsolutions to meet specific needs of the ecosystem,
addressing pain points relevant to adopters andunlocking the platform’s capabilities.
The partner who offers unique tech and operating
capabilities that plug-in to the platform, thereby helping
to create the sustainability use-case offerings andproviding additional technology and auditing capabilities
when required.

•

The enabler who acts as the “glue” of the whole ecosystem,
filling in interoperability gaps to fulfil customer anddeveloper needs and bridging business development
shortfalls.

•

The platform provider who supports developers withtools and resources such as SDKs and APIs and createsthe structures and incentives for the whole ecosystem.

Why arethere different
ecosystem roles?
Each role serves a distinct purpose
within an ecosystem, ensuring its
long-term success through thefollowing actions:
Incentivizing participation in an
ecosystem as a sponsor throughactivities such as financing events
Serving the ecosystem
as an adopter who actively
participates or a promoter who
helps attract participants
Creating the ecosystem’s
design and implementation as
a developer, platform provider,enabler, or other partner type23

Depending on the needs of a given ecosystem, the same actor can play multiple roles, or multiple actors canplay the same role. For instance, a start-up software company primarily playing the developer role within an
ecosystem may also serve as the promoter by proactively marketing the ecosystem in its commercial channels.
In that same ecosystem, the start-up may also partner with other start-ups or with independent developers tocreate and maintain dApps for the ecosystem, resulting in multiple actors fulfilling the developer role.
Not only does each actor bring a different skillset to the ecosystem, but each one also receives different benefits
in return. For example, developers bring with them expertise and knowledge of programming languages andknow-how about complex smart contract creation. In return, the community might incentivise developers tocontribute to the ecosystem through financial rewards or recognition.
Corporations may provide resources or infrastructure to support the development and growth of the ecosystem.
Their benefit will be the ability to extract tangible value from what used to be intangible; for example, blockchain
powered traceability of a product’s origin can enable a company to ask for a premium price. Users can create
value for the ecosystem by adopting and using the offering (paying for it monetarily or otherwise), increasing thecirculation and value of tokens. In return, those same consumers can participate in the decision-making process
for improvements.
All these players are vital for the success and evolution of the ecosystem and the validationof its business model.

Figure 9 - Purposes and Roles in an Ecosystem24An ecosystem’s business model must make good economic sense and provide the right incentives to allactors in the ecosystem. If it fails to do this adequately, people and organisations won’t see a compelling
reason to join or maintain membership in an ecosystem. Indeed, companies and individuals have a long
history of defaulting to a concept of value dictated by fiat currency and cash flows. For new ecosystems
to take hold, we must translate this new, broader concept of value that incorporates societal impacts intoa system that rewards and promotes pro-societal and eco-friendly behaviours.
We believe that a self-sufficient, well-planned ecosystem will benefit all stakeholders and provide positive
incentives for everyone to participate and contribute. Everyone should benefit from their participationin ecosystem. Furthermore, the ecosystems that make up the Biosphere will not only interconnect andprovide individually functioning business models but will also be able to constantly evolve and improvesustainability outcomes and value delivery for everyone involved. Web3 technology is integral to instillingtransparency, ownership, and stakeholder agency among participants, so that the business models andincentives of an ecosystem are equitable and trusted.

The Role of Web3
within the Biosphere

These modular ecosystems will have specific technologicalneeds which must be addressed for them to operate
seamlessly. Integrating innovative technology tools andcapabilities is critical. As discussed in Chapter 3, wemust overcome three primary challenges to facilitate anenvironment of collaboration:•

The necessity of trust and proof of authenticity•

The challenges related to data ownership & privacy•

The need for attribution of value to externalities

We must ensure that individuals have the right incentives
to participate in an ecosystem, that trust is fosteredand guaranteed between actors, and that ownershipis distributed equitably using Web3 technology. The
environment created with Web3 technology is uniquely
positioned to provide tools and innovative behaviours
to overcome the obstacles experienced in Web2.
Trust forms the backbone of all transactions in Web3 anddepends on the certainty that the terms of an agreement will
be fulfilled. Because blockchain is a decentralised, distributed
ledger and uses trusted oracles to facilitate and manage theoff-chain to on-chain data connections, records are tamperproof and can be notarised at any time. Thus, blockchain
enables secure and trustworthy storage of data forany transaction.
However, beyond just data, Web3 also facilitates transactions
through smart contracts, which empower parties to enter intotransaction agreements without requiring significant due
diligence on the trustworthiness of other parties. Once theterms laid out in a smart contract are fulfilled, an unalterable,
pre-determined outcome is triggered.

25
25

In the current Web2 world, individuals do not fully control of
their data. The rewards for their work are distributed among
middlemen and, in many instances, the original creators may
only see a small return on their investments. Web3 promises tousher in a wave of distributed ownership where the creators
are the ones who reap the benefits of their creations.
This reorganisation of ownership is possible because of two
key features in a blockchain-enabled ecosystem: tokens,which act as both a stake and proof of ownership, and DAOs,
which are engines for a collaborative community.
Web3 and blockchain allow for the tokenization of positive
externalities that are created through an individual’s actions.
Today, societal, environmental, and economic dimensions
are often not considered in totality when evaluating the fullvalue of an action. Consequently, such value is not stored andexchanged among its creators and consumers. However,positive externalities which go beyond mere monetary value
can be digitized via fungible tokens and awarded to different
ecosystem participants.

Network effects
for social media
Socialmedia
platforms
rely
on network effects, where thevalue of the service increases
proportionally with an increasein the number of users. As moreusers join the platform, the service
becomes more valuable, which inturn attracts even more users. This
creates a self-reinforcing cycle that
benefits the platform by increasing
its user base and making it morevaluable to advertisers, content
creators, and other stakeholders.

The tokenization of value in an ecosystem gives participantsa stake in its success. Token holders are motivated tocontribute to and build on the ecosystems they participate
in, thus growing the value of their own holdings. Furthermore,for ecosystems with a DAO element, token holders can use
tokens to vote on proposals, initiatives, or other DAO-related
activities. In simple terms, these Web3 elements distributeownership and decision-making among all ecosystem
stakeholders, incentivising participation and allowing themto collectively chart a more sustainable course.

Redefining the Concept of Value

Value is the foundation of any business activity: It drives
business investment decisions and incentivises key players
in any ecosystem to improve their contributions. However, theconcept of value has traditionally been confined to economic
value, which mainly considers cash flow projections without
accounting for other potential sources of value.
The concept of value has been evolving for several years
now. For example, the economic valuation of internet-based
platform companies is not only tied to their cash flow but also
to how many users they can harness. This is the result of the
network effect, where users derive more value and benefits
from a product or service the more users there are.
Similarly, the value in the Blockchain Biosphere for
Sustainability contains not just the benefits enjoyed byshareholders in a given company, but also the collective
benefits for society at large. This new concept of value
encompasses economic, environmental, and societal
impacts. This concept also prices positive and negative
externalities, similar to how carbon taxes try to price thenegative externality of carbon emissions.
26

Consumers are beginning to change their behaviour to reflect their personal preferences and a broader
definition of value beyond just the monetary. Indeed, many people are increasingly incorporating societal
and environmental elements into their own personal definitions of value and are using their purchasing
power to select products and services from companies that have demonstrated commitment to similar
12values beyond profit. For instance, a recent Boston Consulting Group survey of approximately 19,000
consumers worldwide found that 16% of them said sustainability was one of the top-three drivers in theirmost recent purchase and a significantly larger share said they can be persuaded to make sustainablechoices if the products or services deliver other related needs. (Case in point, 43% of consumers seek
beverages that are “healthy, high quality, guilt free, and socially responsible”.)

Figure 10 - A new concept of value

In other words, social and environmental consciousness matters; these externalities have value, andtraditional forms of worth assessment fail to take those factors into account. It is through this lens that wechallenge the traditional thinking on valuing goods, services, and actions in search of a more complete,holistic concept of value as it relates to sustainability.
Web3 with blockchain provides the mechanisms to expand our perspective beyond traditional value
conceptions. A more comprehensive view of value includes consideration of a company's commitment tosustainability initiatives and its willingness to cooperate and collaborate with users or other companies tofulfil those initiatives.
12. “Consumers Are the Key to Taking Green Mainstream”, by Kanika Sanghi, Aparna Bharadwaj, Lauren Taylor, Léa Turquier, andIndira Zaveri, September 2022 – https://www.bcg.com/publications/2022/consumers-are-the-key-to-taking-sustainableproducts-mainstream27

In the Blockchain Biosphere for Sustainability, we unlock significant sustainability values from the following
key sources:

Blockchain Biosphere for Sustainability: Sources of sustainability value
Source1. Enabling multi-stakeholder collaboration
towards a common objective

2. Creating communities of impact to spark
network effects for sustainability

Definition
Creating partnerships among individuals, developers,
organisations, and institutions, so they can shareresources and expertise
Bringing people together to work toward a common goalwith the belief that the combined efforts of a group canlead to a greater impact than individual efforts alone

3. Establishing a decentralised governance

Giving individuals the opportunity to be active
participants in the decision-making and ownership of a
project or initiative, rather than being passive recipients ofservices

4. Establishing clear rules of

Ensuring different individuals and organisations sharebenefits; creating mechanisms to coordinate andencourage cooperative efforts

and ownership mechanism to empower
all stakeholders and maximize
sustainability impacts

participation with distributed
benefits for all contributors

5. Incorporating and giving transparency

on the full value of assets, supply chains,and behaviours

8. Using a platform with more energy-

efficient infrastructure and operation

7. Providing a platform facilitating
sustainability-focused projects

Allowing all players to have visibility on the full range ofconsequences and externalities — positive and negative— of actions and choices made by other players andvaluing them correctly
Building an infrastructure that is designed to besustainable over the long-term, taking into accountenvironmental impacts of operations
Creating an open platform that gives space for grassroots innovation to anybody who has a vision and/or
project ideas on sustainability

Addressing key sustainability issues will require cooperative and collective actions among all players inan ecosystem coupled with a commitment to identifying and capturing value that traditional financeoverlooks. To that end, we can employ crypto tokenomics design in an array of ecosystems, which we will
discuss further in this white paper.
Tokenomics — including the tokenomics of VET, VTHO, and potentially newly created tokens designed forspecific ecosystems — will become the next wave of not only a more holistic definition of value but also act
as a foundation for more inclusive governance in the Web3 era. By embodying digital representations ofownership and value, tokens enable the creation of new models for doing business.
By rectifying flaws in traditional valuation methodology, this new paradigm will incorporate traditional
economic value as well as more comprehensive environmental and societal value for all stakeholders.
At the same time, tokens can be used to facilitate governance of ecosystems and communities by giving
members the ability to vote on important decisions, with the tokens acting as a form of digital equity. And the
incentivisation of positive contributions to ecosystems is made easier by rewarding those who participate
in sustainable activities, create content, or take on leadership roles in communities. Overall, tokenomics
empowers a decentralised, transparent, and secure way for communities to govern themselves.
Educating markets and users on this new concept of value and developing new standards, mechanisms,
and metrics will be critical to successfully account for sustainable actions alongside profits.
28

What Does an
Ecosystem Look Like?
Considerations When Designing an Ecosystem
Successful ecosystems will disrupt current value
chains and generate monetary, environmental,
and societal value, without necessarily needinglarge investments.
When designing an ecosystem, we must firstevaluate current pain points (sustainability
challenges and obstacles to actors’ collaboration)
within the traditional value chains we are seeking
to change. The solutions created by an ecosystemgenerate the additional value necessary to attract
and retain new developers, actors, and investors.
Leveraging BCG’s broad experience in sustainability
issues and pressure testing our ideas with a widearray of industry experts, we have constructed
a number of blockchain-enabled example
ecosystems related to food & beverage, fashion,
pharma, automotive and energy sectors. We haveincluded case studies for the three examples that
demonstrate the most promise in the near term:

1. Second-hand market for fashion: bridging thephysical and the digital part of a product(through a tagging process) and creating a
digital passport (based on an NFT) for fashionand luxury items, so as to provide an authenticity
guarantee on second-hand markets and thus
incentivise resale and reuse, extending the life of
the product and thereby reducing waste.
2. EV battery management: using blockchain toenable battery passports (based on an NFT) to
provide for traceability of EV batteries (tagging),
streamlining the recall process and easing therecycling process.
3. Supply Chain at the Edge: harnessing blockchain
to enable real time 3D printing of spare parts
close to end users, thereby decreasing emissions
from logistic processes, increasing efficiency,
and guaranteeing the immutability of thedesign for certified original spare parts.
29

Each of these example ecosystems identifies
specific sustainability and societal needs,
all of which will generate additional value
for ecosystem participants and society atlarge once addressed. For each of the three
proposed ecosystems, we have conducted
an in-depth examination of how theexisting process operates today to identify
its unique pain points. We then explore how
blockchain adoption can help addressthese pain points while also creating
functional communities to maintain theseecosystems for the long haul. We propose
these ecosystems as examples of what
can be built using vechain’s technology
platform. While they will not be developed
and built by vechain directly, we aim toprovide the technology tools to developers
and a collaboration environment that will
make such endeavours possible.
The diversity of the ecosystems we present
reflects the wide-ranging applications ofvechain’s blockchain solution as a catalyst
for change. And new applications canbe developed quickly to tackle a diverse
set of problems across industries. Dueto the modular nature of the Blockchain
Biosphere for Sustainability, the ideationand design process for new ecosystems
can be done independently of other preexisting ecosystems.

30

Ecosystem
Concept 01

Second-hand market for fashion
The first example ecosystem reflects the need for a secondhand marketplace dedicated to promoting sustainable fashion.
The objective of this proposed ecosystem is to promote thesecond life of used clothes and reduce the environmental
impact of the fashion industry, while giving ecosystem
participants control over the authentication process of theirsales and purchases.
The current secondary marketplace model for fashion has three
primary pain points:
1.

Expense of verifying brand authenticity
in the second-hand market

2.

Information asymmetry for buyers regarding
second-hand product information3.

Low fashion resale rates, which result in greater waste
and lead to environmental and social harm as a result

The first pain point — authenticity — is most applicable inmarketplaces selling luxury goods and other valuable items at
a high risk of counterfeiting. The marketplace counters this riskby providing additional authentication services to shield buyers
from fake goods. However, these authentication costs are passed
on to buyers and sellers as additional fees. Unfortunately, manual
authentication not only creates additional friction in an alreadycomplex process but also results in added emissions becauseof the need to ship items to authenticators prior to selling themon the secondary market.
The second pain point — information asymmetry — encompasses
two points of asymmetry for buyers. First, buyers must rely on themarketplace’s reputation and its assurances that a product isauthentic. Buyers lack substantial insight into the authentication
process, and thus cannot make their own judgements about theaccuracy of the authentication. Second, buyers lack access to
product history for items sold on the marketplace, which further
deepens the gap in transparency.

Counterfeits:
An expensive problem
According to the Organisationfor
Economic
Co-operation
and Development (OECD), thevolume of international trade incounterfeit and pirated products
in 2019 amounted to $464 billion(2.5% of world trade).
Footwear, clothing, and leather
goods/handbags
combinedmake up over 50% of global
customs seizures.

Importance of 2nd
hand markets
As a society, we are buying
more and using less. Our
average textile consumption
has doubled in the last 15 years
as fast fashion has become thetrend. As the amount of clothing
we buy increases, the numberof times that we wear garments
decreases — by 36% globally inthe last 15 years according to
the Ellen MacArthur Foundation.
This leads to a situation where
the fashion industry churns
out more items than we canwear. And when we no longer
wear clothes and instead buy
new ones, the items often get
landfilled rather than resold.
31

Low buy-In forsecond-hand markets

According to the BBC, only 15% of resalable
luxury goods are sent to second-handstores annually. This level of waste amounts
to an environmental and sustainability
problem. Discarded clothes take decades
to break down. Meanwhile, the fashionindustry tries to meet the demand of the
primary market and the opportunity torecycle and reuse clothing goes by.

Tagging enables brand andcustomer connection
Tagging articles of clothing is somethingthat the fashion industry has already been
testing to connect with consumers:•

Adidas uses tags to activate amobile experience for customers.1•

Burberry enhances customer
experiences by using a tag toconnect media content specificto an item.2•

Nike embeds tags in the soles of shoes
to enable broadcasting of data.3

We can harness this innovative methodof engagement to help brands andcustomers interact with each otherafter the initial purchase of an item.

The last pain point — low resale rates in the secondhand market — leads to environmental and social
harm: If the initial buyers no longer want an item andcannot sell it in a second-hand marketplace, they
will most likely discard it in a landfill. The blockchainpowered ecosystem adds an element of digital
identity, enabling a network effect that boosts thenumber of users and goods that are traded rather
than trashed.
Given these pain points, a new ecosystem poweredby Web3 technologies can offer some solutions that
benefit all participants. It all starts with companies
embedding clothing or accessory items withtags containing unique ID codes at the time of
manufacturing. Each unique ID code will be digitized
onto the blockchain through the creation of an
associated NFT and item profile. The item profile
will capture manufacturing information related tosustainability (e.g., emissions generated) as well as
product details like colour, make and model, andyear of production.
The tag will remain embedded throughout thelifespan of the item. Each time the item is repaired or
maintained, the action will be recorded onto the NFT as
a new, immutable data point. Thus, the NFT becomes
a complete history of the item. To participate andreceive an authentication guarantee, buyers will only
need to use their smartphone to unlock the benefits
provided by the ecosystem during each stage ofthe transaction. This further helps reduce emissions
because items no longer need to be shipped forauthentication.
Alongside tagging technology, blockchain will playa fundamental role in the design and operation ofthis ecosystem. It enables a high degree of datatransparency, making buyers, sellers, and themarketplace responsible for their actions. Becauseof its transparency and immutability, blockchain
disintermediates the ecosystem by removing thethird-party authenticator role. By incorporating Web3
elements into the ecosystem, participants will havegreater control over the second life of their clothes,marketplace operations, and the distribution of theecosystem’s financial benefits.
The benefits of the ecosystem extend beyond simply
solving the pain points in the traditional businessmodel. The ecosystem also generates additional
value. For example, first and second-hand buyers
could benefit from increased communication withbrands via the NFTs, receiving brand updates, accessto discounts, curated content, and unique loyalty
rewards such as special releases. The increased
direct interaction between brands and buyers ideally
fosters brand loyalty as buyers feel more connectedwith the brand.
32

Under the new model, brands will gain insights into the second-hand marketplace. This improved
understanding of second-hand sales will in turn help them curate product offerings to serve future
consumer demand.
In conclusion, the ecosystem provides an opportunity for individuals to extend the life of their clothing andaccessories. Surveys show that consumers are already highly motivated to consider sustainability when
making purchasing decisions.

Web3 capabilities to drive customer engagement & loyalty
Institutions are starting to lean on Web3 and more creative and open ways to engage customers. Recent
examples in 2022 include Tiffany’s NFTiff, which offers exclusive rights to jewellery pieces resembling the
CryptoPunks NFTs to their owners, and Starbucks Odyssey, which provides the ability to earn and buy NFTs
and unlock coffee experiences and benefits.
With the emergence of capabilities such as on-chain fungible tokens, NFTs, smart contracts, andDAOs, Web3 can help drive greater customer engagement and stickiness within the ecosystem.
Beyond employing digital assets, elements of Web3 can be used to roll out features that incentivise
participation and promote loyalty.
•

Fungible and non-fungible tokens (e.g., spendable loyalty currencies, NFTs) can be used to gamify
interactions, track engagements with sellers, and reward loyalty with real-world perks and benefits.

•

Utility or “Phygital” NFTs, can be issued to reward activity in the ecosystem by unlocking early access,discounts, and unique experiences.

•

Employing blockchain-based tokens opens creative avenues to plug-in external partners andmerchants more easily. With immediate transaction settlement and interoperability rules programmedin, Smart Contracts can automate a lot of the manual overhead that typically goes into managing suchcollaborations.

•

Token gating is gaining popularity as open and connected ecosystems become an alternative to
traditionally closed ecosystems, enabling smoother collaboration between parties to engage andreward users.

•

Brands can also use DAO-like structures to easily enable voting on brand decisions, such as which
product to launch or partnership to bring onboard next. Governance can be configured through the DAO
to give certain token holders’ votes more weight depending on loyalty status, history of engagement,
participation in key challenges, and so on.
33Figure 11 - Consumer Sentiment

1
2
3
4
18

6

5

6

7

19

33

29

42

41

OverallUS

Not at all important

2
2

14

18

2
2
16

26
33

46

25

32

45

37

55

UK

FR

CN

BR

30

NeutralSomewhat important

Extremely important
Very important

Consumers are already displaying a strong preference for sustainability when making purchasing decisions(Source: BCG Pulse of the fashion industry report 2019)

Thanks to favourable consumer sentiments about sustainability and the monetary savings provided by
the elimination of third-party authentication, the ecosystem will replace the old model of only sporadicallyreselling clothing and accessories with a new model where resale becomes the norm. This ecosystem— built on blockchain and Web3 technologies — will power a broad and all-inclusive marketplace whereindividuals and enterprises participate collectively to extend the life of clothing.

34

In the traditional resale market, sellers list goods on the marketplace. Higher value goods requireauthentication at physical locations, in exchange for a commission. Once purchased, the goods areshipped to the buyer, who relies on the credibility of the marketplace for authentication. Payment flows
from the buyer, through the marketplace, to the seller.

In the second-hand market for fashion ecosystem, the seller lists goods on the marketplace.
However, instead of the seller shipping the goods to an authentication site, the goods are sent straight tothe buyer. The buyer can scan the tag to verify the authenticity of the goods. Payments are executed bysmart contracts.

35

Ecosystem Concept 02
EV Battery Management

Our second ecosystem case study reflects the demand for a more sustainable electric vehicle (EV) batteries.
The objective of this ecosystem is to use blockchain to create battery passports to enable traceability of
the EV battery, ease the recycling process, and promote the reuse of critical materials.
EVs are estimated to make up half of all automobiles sold in the US by 2030, according to Bloomberg.
However, that rapid growth means we must examine the challenges facing the sector as it continues
to evolve and scale. We have identified three significant pain points for EVs and their batteries:
1. High initial carbon footprint for manufacturing EVs
2. Low recycling and second life usage of EV batteries
3. Lack of engagement after initial EV sale

Figure 12 - Leveraging battery
2nd life usability

The first pain point — the high carbon footprintof EV manufacturing compared to traditional
internal combustion engine vehicles — is the resultof resource-heavy production methods. EVs only
begin to have a lower carbon footprint whencompared to their internal combustion counterparts
13
if they are driven for more than 21,700 kilometres(13,500 miles).
The second pain point derives from a lack ofsufficient recycling options for EV batteries. To
maximise the sustainability benefits of EVs, batteries
need to be used for as long as possible, a major
challenge given the batteries’ short lifespans for EV
use. Current projections indicate less than a thirdof EV batteries will enter a second life when nolonger suited for EV use.
Additionally, data from the International Institute for Sustainable Development indicates that less than 5%of lithium batteries are recycled. The combination of the two trends leads to significant resource waste,since battery components are not integrated back into the supply chain. A solution for these problems is
made all the more necessary due to a predicted shortage of the precious metals used to construct new
EV batteries.
13. Argonne National Laboratory estimates the breakeven point of a Tesla Model 3 and a Toyota Corolla to be 13,500 miles,
considering thousands of parameters from the type of metal in the battery to the amount of plastic in the car itself.

36

Regarding the third pain point, when an EV is sold on a first- or second-hand market, the communication
between the buyer and the manufacturer or seller may be limited or non-existent after the purchase.
This is a missed opportunity for information sharing. The EV owner may not fully understand the charging
infrastructure available to them or miss important announcements from the manufacturer. Furthermore,
there is additional post-purchase support or education that the owners could benefit from, and clear,ongoing communication would improve the overall EV ownership experience.
Governments around the globe are applying regulatory pressure to the original equipment manufacturers(OEMs) of EV batteries and are requiring them to increase the recycled content of batteries. For example,
the European Union’s battery mandate requires that a certain percentage of a lithium-ion battery’s content
come from recycled sources. Additionally, governments are providing significant monetary incentives tobuild-out the EV battery supply chain and set up recycling systems. These trends, taken together, further
incentivise the adoption of new solutions.

New regulations around the globe are fuelling an EV surge:
EUROPEAN UNION

UNITED STATESCHINAThe EU will use €127B
to develop the battery
value chain in Europe,with investment of €382B
1
expected by 2030.

The Inflation Reduction
Act (2022) will provide
approximately $370B ofenergy-related spending,including up to $20 billion
in loans and $2 billion in
grants for new and existing2
EV facilities.

China’s 14th 5-year plan will
focus on electric transportand building a complete
battery recycling system
3
by 2025.

1. Source: “Questions and Answers:
The European Battery Alliance:
progress made and the way
forward”, European Commission

2. Source: “The Inflation Reduction
Act deal could benefit clean energy,EVs", iShares

3. Source: “China's 14th Five-Year
Plan (2021-2025): Spotlight on New
Energy Vehicles (NEVs)”, Global
Policy Watch

To address these challenges and establish a more sustainable and transparent EV market, we propose
creating an EV battery management ecosystem. This ecosystem would use blockchain to establish an
NFT battery passport to store information about the EV battery, including manufacturing information
related to sustainability (e.g., emissions generated), battery specifications, and ownership. The battery
passport will be attached to the EV and transferred to the new EV owner if the vehicle is ever sold on
the secondary market.
37

The NFT passport enables verification along multiple
stages of an EV battery’s lifecycle. Manufacturers
can use the NFT passport to track recycled content
of batteries to meet regulations, while secondhand buyers can leverage the passport to obtain
information about the battery for both second-handusage of the EV or second life applications for the
EV battery itself.
By leveraging Web3 elements such as NFTs andblockchain technology in the EV battery ecosystem
to create an NFT passport, we can increase trust
and transparency around sustainability in the supply
chain and secondary market and promote recycling
and reuse of EV batteries to reduce waste
and emissions.
NFTs are a critical enabler of information disseminationand interaction in this ecosystem. Through the battery
passports, OEMs and EV sellers can communicate with
first and second-hand buyers throughout the lifespanof the vehicle.

Second life applications
for EV batteries
Second life repurposing of
EV batteries in pilot stage:•

Storage of solar or wind power•

Backup for smaller power grids
or single-family homes•

Power source for smaller
vehicles such as forklifts•

Increased power stability andcapability by providing power
during energy usage peaks

The volume and complexity of transactions needed to trace the composition and use of EV batteries overtheir lifespan is substantial. This makes processing performance critical to the success of any EV battery
tracing ecosystem. Blockchain plays a foundational role in enabling this type of complex data tracking ina transparent and trustworthy manner. Blockchain will also facilitate interoperability between the multiple
actors in the ecosystem through data consolidation and integration of disparate data systems. Lastly,
given the increased regulatory oversight of EV battery supply chains, the data security that blockchain can
provide is critical for companies seeking to reduce their compliance risk with government mandates.

38
38

In the traditional EV battery lifecycle, there is a lack of credibility regarding sustainability throughout
the supply chain. Consumers have little insight into the manufacturing of EVs, including the batteries.
Additionally, there is a lack of traceability of the battery after the initial sale of the associated EV, as batteries
are then often brought to landfills or recycled.

In the EV Battery Ecosystem, a battery passport becomes an enabler of sustainability behaviour.
The passport collects information throughout the manufacturing process. Second-hand customers, andeventually recycling facilities, can access the EV battery passports to retrieve battery information.

39

Ecosystem Concept 03
Supply Chain at the Edge (SC@E)
Ultimately, we want enterprises to join vechain in reimagining
the world’s manufacturing supply chain and logistics industry.
By harnessing the power of 3D printing and combining
it with blockchain technology, we can create innovative
solutions to address the sustainability and economic needsof the logistics industry.
To illustrate the potential of this ecosystem, we will focus on the
supply chain and logistics industry for automobile spare parts.
While this is a well-established industry, there are three significant
pain points which cause friction among the different actors:
1.

Supply chains as significant
contributors to emissions

2.

Expensive and lengthy transportation of spare parts fromoriginal equipment manufacturers (OEMs) to end users

3.

Unused stock leading to waste andworking capital losses by the OEMs

The current global supply chain accounts for 8% of global
emissions, according to the International Energy Agency. And
the magnitude of supply chain and logistics emissions is only
projected to grow in the coming decades. The International
Transport Forum has predicted that global demand for freight
will triple by 2050, driven by economic growth in Africa, Latin
America, and Asia. This increase in demand is expected to
double emissions from the supply chain sector.

Logistics industry& its pain points
As the logistics industry grows, theexisting pain points will only growmore profound across industries.
In the automotive sector, there
is high demand for repair andmaintenance services coupledwith unpredictable needs forspare parts.
The
aerospace sector
mustgrapple with multi-year productdevelopment and long lead times
for products, rising fuel costs driving
up the cost of aeroplane ownership,and low volumes of production.
The medical sector’s pain points
include the need for speedy
turnaround times for parts and arequirement of patient-specificcomponents in many therapies

40

In addition to the emissions generated by transporting
materials and parts around the globe, transportation also
involves an expensive and lengthy logistics process. Many
suppliers manufacture goods overseas at facilities which areoften thousands of miles away from their final destination. For
already manufactured parts, end users must often enduresignificant wait times when ordering new spare parts due tolong-distance shipping and all its potential delays. If inventory
levels are low and new parts must be manufactured, buyers
may have to wait weeks or months for orders to arrive.
Rather than endure unexpected delays and long delivery
times, many OEMs instead stock up on spare parts inventory.
However, this is an inefficient and costly solution which leads
to a suboptimal use of resources and can result in working
capital losses, since OEMs must maintain an overstock. And if
parts never sell, they end up as waste.
These pain points make the overall supply chain and logistics
industry for spare parts inefficient and environmentally
damaging. However, we have devised a solution called Supply
Chain at the Edge (SC@E) to address these pain points andreimagine how supply chains will work across the globe.
SC@E functions by replacing traditional manufacturing withblockchain-enhanced 3D printing. A customer will initiate theprocess by placing a request for a spare part. The request will besent to the owner of the spare part’s intellectual property who
will relay a digital blueprint of the part to a 3D printing facility
close to the customer. The 3D printing facility will use the digital
blueprint to print the part and ship it only a short distance tothe customer.
To make the switch to a new logistics process possible,
VechainThor will securely facilitate data transfer and intellectual
property management. Automobile OEMs can send blueprint
files to service bureaus anywhere in the world, and thoseservice bureaus will then print the needed part, all while
keeping proprietary data safe and secure.
The SC@E ecosystem will generate three sources of value
and yield savings and incentives for participants while also
directly addressing the three pain points identified with thetraditional ecosystem:

Examples of
3D printing
Legacycompanies
andinstitutions are already using
industrial 3D printing to reinventand decarbonize their supply
chains. Aboard the amphibious
assault ship USS Essex, the U.S. Navyis testing the use of a liquid metal
3D printer to fabricate metal parts— from hand wheels to spanner
wrenches — at sea. Volkswagen
became the first major automakerto implement 3D printing in theirproduction process when theGerman carmaker installed abinder jetting machine at theirproduction plant in Wolfsburg
in 2021.

•

The first source of value is the emissions savings that results from using blockchain-enabled 3D
printing to manufacture physical goods and parts closer to the end customer, rather than shipping
parts thousands of miles.

•

The second source of value derives from delivery time savings due to the drastically sped up supply
chain process in SC@E. 3D printing a part in a local facility takes only 12–24 hours, followed by a quick
delivery time, compared to manufacturing oversees and transporting a part for days or weeks to a
final customer located in a different country or continent.

•

The third source of value stems from additional economic opportunities enabled by faster supply
chains. A faster supply chain allows OEMs to reduce their inventory stockpiles since they can rely on
just-in-time and on-demand 3D printing to cover any short-term spare parts needs. This reduces
OEMs’ working capital costs and lets OEMs scale down their inventory warehouses.
41

Furthermore, a faster supply chain also allows end customers(car dealerships or repair shops in the spare auto partsindustry example) to avoid over-purchasing parts to meetpotential future demand. Customers can rely on spare parts
being delivered quickly to cover any maintenance issues.
These sources of value will incentivise individuals and firms
to participate in the ecosystem. However, the differentiating
elements of blockchain are key to facilitating this ecosystem.
The complex exchange of highly sensitive blueprints makes
blockchain’s security features critical to protect intellectual
property (IP) rights and maintain transaction integrity. By
establishing clear ownership rights and transparent tracking,blockchain enables OEMs to maintain clear control overtheir IP to prevent fraud and maintain visibility into how the
blueprints are being used and by whom. With the technology
innovations enabled by Web3, an ecosystem that reimagines
how the world’s supply chains function could create a newnorm for manufacturing in the near future.

Ecosystem economic
benefits summary•

Faster manufacturing of parts
with 3D printing over traditional
manufacturing•

Faster delivery times for parts,
since they are 3D printed close to
the location of the end-user•

Reduced need for spare parts
inventory due to on-demand
manufacturing, reducing working
capital costs•

Elimination of tooling costs
associated with subtractive
manufacturing such as CNC tools•

Agility to address unforeseen
industrial challenges that
affect physical supply chains42

In the current supply chain and logistics industry, OEMs manufacture a spare part far away from the end
user. This part may be transported hundreds or thousands of miles to the end user through a variety oftransportation methods, generating significant emissions. The whole process can take days or weeks,leading to long lead times in the case of supply chain shocks.

Supply Chain at the Edge is a more versatile and streamlined process in which the OEM is only responsiblefor designing the parts. When an end user has a request for a part, that part will be printed close to themafter the digital file has been sent to a 3D printer via blockchain. The lead time for parts shrinks drastically,
as does the emissions related to the product’s manufacturing and delivery.

43

Ecosystems reflections
In this chapter we examined three examples of
how Web3 tools can be used to build ecosystems
and how, through collective action, participants canachieve their sustainability objectives and solve pain points.
The ecosystems demonstrate that communities can cometogether and contribute to building solutions to address waste
in the fashion industry, enable the recycling and reuse of criticalmaterials in EV batteries and reimagine the world’s supply
chains. By detailing potential ecosystems, we hope to inspire
people, companies, and communities to participate
in and build their own ecosystems. As we move
owards a more decentralised and inclusive
Web3, the power of the individual toshape the world around them andunlock new flows of value willcontinue to grow.

44 44

Engaging the Individual
and Building Communities
15

The power of individuals should never be
underestimated. The belief that power should be
distributed among the many and not concentrated
within a few has been at the core of blockchain’s
history and development. We believe that every
person’s efforts count, and every voice matters in
the Web3 world. This is especially true when it comesto solving sustainability challenges, and it makes
Web3 a conducive environment in which to tackle
these issues. Small changes, such as choosing
to recycle or resell something rather than throw it
away, can have an enormous positive impact when
multiplied across an entire population.

In 2022, we attended Nitto ATP Finals (thethrilling final instalment of the ATP tennis tour)
with inspiring professionals across industries. This
shared experience naturally sparked stimulatingexchanges that inspired ideas and collaboration.
These interactions build momentum and makeprojects come to life. We create and foster
communities from screens to arenas to connect
individuals
andultimately
unleashourcollective potential. Through these strengthbuilding efforts, we hope to inspire each memberof our community to actively imagine, create, andgrow the ecosystems they believe in.

Vechain is investing heavily in building an engaged
and inviting community that will eventually help
solve sustainability and other global challenges.
In our early years, we focused on building a solid
technological community. We will now extend ourefforts to also foster large-scale involvement byenterprises and sustainability-minded individuals.
Such virtual communities grow from shared interestsand goals across the globe, and we want to extend
that bond beyond the screen.

For the fair and successful deployment of theseecosystem, we take inspiration from DAOs, whichremove barriers to entry and guarantee allmembers have an equal opportunity to propose
improvements and influence decisions. The DAO
model allows individuality to shine and efforts tocollide.

We aim to create spaces for passionate minds toconnect, exchange, and ultimately build. Throughseveral international events, we have witnessed theimpact of bringing our virtual connections to thefield. For instance, our regular events inpartnership with UFC14 (the world’s premier mixed
martial arts organisation) provide a conducive
space to build real life bonds within our existing
community. On the sidelines, projects arebrainstormed, argued, and built.

Beyonddemocratisingthedecision-making
process and giving power to community members,
we believe that DAOs can be powerful tools toconnect individuals across the globe, regardless ofprofessional background, age, race, or educationlevel. They can unite people with common values
and goals via borderless collaboration andcommunity building and foster a sense of belonging
and inclusivity.

14. Ultimate Fighting Championship; trademark owned by Zuffa, LLCS,
15. Season-ending championship of the ATP (Association of Tennis Professionals) Tour; trademark owned by ATP

45

We envision a community where everyone canparticipate and make meaningful contributions
to initiatives they believe in. By forming DAOs,
our community members become active andempowered contributors and owners of theirecosystems and are able to multiply theirindividual impacts to advance the chosen initiative.
DAOs remain a relatively new concept, yet we believe
they could revolutionise human organisations.
We are therefore actively exploring their potential
to create an inclusive decision-making system.
Starting from research and practical applications,vechain aims to study and experiment with thisin internal governance (see chap. 8) and broader
organisational contexts.
A community brought together in a DAO could
set out to achieve multiple goals. For instance, inthe second-hand market for fashion ecosystempresented in Chapter 5, participants may graduallyshift to focus on a more philanthropic aim:
Members can choose which community-focused
projects to support, which environmentally andethically conscious brands to promote, and whomto endorse as social justice advocates. For amember participating in the ecosystem as a seller
or buyer, fungible tokens could empower them tovote and propose new plans of action. Establishinga DAO grants flexibility as the community and theirgoals mature.
That being said, DAOs may not yet be suitable forevery ecosystem due to variations in their size, culture,
governance structures, and sustainability needs.
DAOs may gradually be considered and establisheddepending on each ecosystem’s overarching goals
and governance needs.
To motivate participation, provide a more interactive
platform, and enhance community engagement
beyond DAOs, we intend to implement incentive
mechanisms to reward individuals and developers
who are active members of ecosystems.
Furthermore, adding more action-based activities
can make the ecosystems more interactive, sociallyengaging, and approachable.
For instance, these activities could include
granting active participants access to special
events and curated experiences with brandpartners, creating new customisation features
for community developers, setting up bounty
programs to foster a sense of achievement andprogression for blockchain users, and awarding
prizes to the winners of hackathons hosted
by vechain.

Examples of reward mechanisms in the sustainable second life forfashion & luxury ecosystem
DESIRED INDIVIDUAL ENGAGEMENTREWARD / INCENTIVE RECEIVED

Join the second-hand marketplace to promote thecircular economy and sustainability in luxury andthe fashion industry.

•

Sense of accomplishment: instant digital NFT
badges issued for “Your first listing,” “Your firstreview,” “Your first sold item,” etc.

Make frequent purchases in the second-handmarketplace and leave quality reviews onpurchased items•

Sense of ownership: Rewarding tokens with DAO
governance voting rights to repeat buyers whogive fashion/luxury items a second life•

Pleasant surprises: A mystery box with a
discount code for a virtual store in the metaverse
sent to buyers who make recurring purchases orsubmit detailed reviews with pictures•

Process of co-creation: Empowerment as
an essential marketplace builder throughcontributions that make the marketplace morereliable and honest

Promote frequent interactions among buyers andsellers on the second-hand marketplace, including
sharing product stories and answering questions.

46

Examples of reward mechanisms in the sustainable second life for fashion & luxury ecosystem (cont.)
DESIRED INDIVIDUAL ENGAGEMENTREWARD / INCENTIVE RECEIVED

Encourage self-authentication of second-handluxury items by buyers and sellers to promotemarketplace credibility and anti-counterfeiting.

•Sense of ownership: Rewarding tokens with DAO
governance voting rights to repeat buyers whogive fashion/luxury items a second life

Invite others to join and educate them about themeaningful impact of sustainable fashion.

•

Social influence and sense of belonging:Participation in community channels andaccess to new connections with those whoshare a common mission of sustainability andwaste reduction•

Access to invite-only events: Access to closedlist events (e.g., SDG TED Talk, Web3 conferences),
fashion made of recycled material, and othercustomised options

We plan to further engage with the community, leveraging gamification design and Web3 capabilities (e.g.,fungible / non-fungible tokens, or phygital NFTs) to incentivise engagement and enhance user experience.
In a gamified environment, incentives act as a form of behavioural feedback to motivate participation. People
are at the centre of game design, as their motivations and needs will shape how the incentives are designedin the game.
For ecosystem enablers/developers, gamification can enhance community engagement, generate deeper
insights into consumer behaviour, increase retention, and more. For participants, gamification can promote
feelings of belonging, accomplishment, and ownership. Tactics tied to these drivers can effectively alter
an individual’s behaviour.

What is gamification?
Gamification is the process of incorporating gamestyle mechanics into everyday or non-game activities
to drive specific behaviors emphasizing human
motivation and increasing actors’ engagement.
Game design leverages as points, rewards, leader
boards, and social gifting, etc. to incentivise
specific behavior based on customised needs fromdifferent participants.

47

Tech integration use cases
for sustainability andcommunity engagement
Enabled by maturing Web3 technology,
we are building a future of true individualownership and collective accountability.
We live in an exciting time where many
fast-evolving technologies like IoT, Big
Data, and 5G have already begun toscale and allow for phygital integration,with many successful use cases andapplications already on the books:•

The State of California has allowed
its residents to choose blockchainbased delivery of vital records,
including birth certificates andmarriage licenses, allowing forfaster, cheaper, and more efficient
record services.

•

The city of Raleigh, North Carolina,
uses machine learning and AIpowered video analytics to improve
mobility and urban planning. The
city has transitioned from employing
personnel to manually count cars toanalysing traffic patterns in real timethrough machine-learning software,thus providing policy makers withmore accurate traffic data.

•

Disney has leveraged IoT and
RFID technologies in their Disney
MagicBand to allow park visitors todigitally consolidate park tickets,
credit cards, and room keys,
while also providing for a more
personalized guest experience.

For example, a journey can be created to increasesecond-hand buyer engagement with brands,
leveraging NFT and token-gated access. The digitalproduct passport (tokenomics design as an NFT)
can transfer ownership of a product from seller tobuyer in a secure and immutable way, providing
additional emotional assurance and an engaging
experience for the buyer,to, further enhance thesense of ownership. As the buyer collects moreproduct digital passports, they can monitor theirstatus along the journey and be motivated toearn the extra tokens rewarded when a milestone
is reached (e.g., their tenth purchase). Tokengating can expand the aperture of gamification
across multiple brands, enabling more nuanced
hurdles created with a combination of different
brands (e.g., partnering brands) to achieve ahigher level status. We plan to further explore
which incentives best drive engagement forour community members.
Vechain is determined to support and encourage
people striving for a better future, and gamificationis one tool we can use to drive engagement andparticipation. We will do this, in part, by adding
more engaging features and incentives to our techplatform. The vechain platform and the Blockchain
Biosphere for Sustainability will act as a conduit forsocially responsible individuals to contribute to andcollaborate on far-reaching sustainability goals
while enjoying the rewards of their contribution
to society.

Sources:"New Law Allows Californians to Store Vital
Records on Blockchain." Pymnts.com"Raleigh, North Carolina Taps NVIDIA and Esri for
Traffic Management Machine Learning Project."State Scoop“Disney’s Internet of Things MagicBand.” IEEE
Innovation at Work
“Disney's MagicBand: The Secret Tech
Behind the Happiest Place on Earth.” Wired,
Conde Nast

48

Vechain Technology
Landscape and Roadmap
Update on VechainThor blockchain

Since the inception of vechain in 2015, we have had
the pleasure of working with amazing people andorganisations who share our passion for blockchain
technology and our vision for the future. Our business
partners have been incredibly supportive and havedemonstrated a serious belief in the potential of
our VechainThor blockchain. We have always beencommitted to supporting ecosystem participants
who are striving to solve real world economic
problems by enabling the creation of new businessmodels and value chains. Today, we want to go one
step further by promoting economic gains alongsidesustainable value. Through its energy efficiency,
new Proof of Authority mechanism, accessibility,
and openness, VechainThor has become the ideal
platform to jumpstart sustainability initiatives.
Additionally, enterprises and people without
cryptocurrencies may also seamlessly use theplatform in pursuit of these initiatives through fee
delegation and multi-task transactions.
To briefly recap, in Whitepaper 1.0, we discussed
the key features for the next generation of publicblockchain to enable continual and rapid innovationand onboard businesses and companies. At thetime, the focus was on “translating” real-world

products, participants, and business activities onto
the blockchain, facilitating opportunities to drive
holistic growth and maximize economic benefits.
Then, in vechain Whitepaper 2.0, we outlined ourstrategy based on the phases we envisioned forblockchain technology. Having already achieved
the first stage of technical development, we werepreparing to move from a blockchain driven bybusiness needs to a more holistic direction that
also considered governing entities and regulators.
This was the first time we introduced our conceptof a new and improved Proof-of-Authority (PoA).
Generally, PoA is a consensus algorithm that requires
nodes to be authorised before they can participate
in the blockchain. Once authorised, all nodes havean equal opportunity to create new blocks and earn
rewards, without the need to spend vast resourcescompeting against each other. This ensures thatricher nodes do not have an unfair advantage
over other nodes in the system. Additionally, PoA is
efficient in terms of network bandwidth usage, as it
quickly selects block producers, allowing more time
for transmitting transaction data.
49

Despite its many advantages over other consensus
mechanisms, such as increased security andefficiency, the PoA 1.0 consensus algorithm hassome limitations. For instance, it lacks an algorithmbased method to deter a node from manipulating
the system. Although PoA ensures that any traced
misbehaviour can be used as evidence against
the node later, it still doesn’t have a mechanism
to prevent the misbehaviour from occurring in thefirst place. Another limitation is that, like otherNakamoto consensus algorithms, PoA only provides
probabilistic assurance to the safety of transactions.
This means that there is a small probability that an
attacker may be able to disrupt the network, andthis probability increases in situations such as largescale network partitioning. This may not be sufficient
to maintain system consistency in extremely
asynchronous situations where a high level of security
is required.

To address the data security (finality), highthroughput, and scalability challenges discussed
above, the vechain blockchain development team,in collaboration with researchers and partners
within our vechain community, invested significant
resources in the design and implementation of PoA
2.0, a protocol-level upgrade to introduce finality
as well as additional security mechanisms into
VechainThor.
Instead of replacing the PoA consensus with acompletely new one, we have chosen to design andimplement a finality instrument, named the Finality
with One Bit (FOB), which should allow us to run dual
modes of consensus, namely, the Nakamoto and
BFT consensus, at the same time.

VechainThor provides a sustainable and inclusive infrastructure
VechainThor is one of the most energy efficient
blockchains, using just 0.000216 kWh of electricity
per transaction (0.04% of other comparable
blockchains). The 2022 carbon footprint ofvechain’s core network of 101 authorities’ nodes
was calculated to be 4.46 t of CO2 emissions
peryear. The calculation methodology, developedin collaboration with DNV, is based on Life Cycle
Assessment as described in ISO 14040 and ISO 14044.
The unique Proof of Authority 2.0 mechanism
provides data integrity alongside high scalability.
VechainThor relies on just 101 authority nodes
to validate and sign blocks on the blockchain,processing transactions and validating blocks in a
fraction of the time and with much lower processing
power and energy consumption requirements thanother blockchains.

Being a public blockchain, VechainThor is highly
accessible by nature and provides an open
platform for individuals, developers, companies,
and other actors to interact and collaborate.
Open-source tools, blockchain-as-a-service, andturnkey solutions are readily available for builders
and developers who want to work together handin-hand to build the next viral dApp for sustainability.
Imagine citizens seamlessly accruing carbon credits
through their eco-friendly actions, which they
are then able to spend on goods and services in
an inclusive economy. VechainThor's unique feedelegation technology empowers these citizens toparticipate without directly owning or managing
crypto, widening the universe of potential users ina sustainability ecosystem.
50

The PoA 2.0 consensus algorithm has beentheorised around two key components as outlined
in proposals VIP-214 and VIP-220: a VRF-basedsource of randomness, and a passive block finality
confirmation process. The combination of thesetwo components offers several advantages forthe blockchain compared to the previous iteration.
First, it guarantees block finality, ensuring thatonce a block is added to the blockchain, it cannot
be modified or reversed. Second, it maintains
the usability and robustness of the system
by decoupling finality from the PoA process,allowing the blockchain to grow even in adverse
environments. Third, it helps reduce the complexityof the current PoA-based system, minimising
the potential risks caused by unknown design
deficiencies and implementation bugs. Lastly, it
adds minimal extra information — just one bit per
block — for network communication, so as not tosacrifice system performance to achieve block
finality (for more technical details on VIP-214 &VIP-220, please visit our website vechain.org).
The PoA 2.0 consensus mechanism is one of thefirst in the world to combine the strengths of the twomain consensus types, Byzantine Fault Tolerance(BFT) and Nakamoto Consensus, while eliminating
the weaknesses of each, solving one of the great
trade-offs in blockchain design — scalability ordata finality. This upgrade makes blockchain morerobust and secure, while maintaining sufficientscalability from PoA 1.0, meeting strict regulatorydata-protection standards and answering thecall for from real-world clientele for a scalable
and secure platform for the digital-sustainability
revolution.
Note that this blockchain update is especiallycrucial to prepare vechain to address global
sustainability challenges, as it reaches an optimum
balance between speed and security. We willcontinue to develop more features customised for
the Blockchain Biosphere for Sustainability, and weenvision vechain becoming the best blockchain
for sustainability applications.

51
51

How We Are Building
Thriving Collaborations
Vechain aims to address today’s sustainability
needs by using the untapped potential ofcommunities. Consequently, we are committed
to enhancing engagement and collaboration
between start-ups, academia, financing partners,
and developer communities.
With these goals in mind, we have been building
momentum to:•Engage developers, system integrators, andstrategic partners through forums and codevelopment opportunities•

Promote research & innovation throughuniversity partnerships, research grants,
and accelerator programs for start-ups

Engaging Developers, System Integrators, and Strategic Partners
At vechain, we recognise that independent
developers are the lifeblood of our platform and our
future ecosystems. Without them, we wouldn’t havethe diversity of perspectives and talent required to
become the blockchain solution of choice for somany enterprise applications.

The Web3 universe already supports upwards of
100 dApps, including NFTs, DeFi projects and games.
And vechain will continue to incentivise developers
and groups to build in the community throughhackathons, bug bounties, grants, and accelerator
programs.

Developers who build in the vechain universe haveready access to a variety of resources for coding,testing, and implementation. Whether they areusing the official Telegram channel for developers
or accessing FAQs and tutorials or sample code,
creators enjoy an array of support materials in theirjourney to improve existing applications or launch
new ones.

Our investments in people and technology reflect
our commitment to developers. We have also worked
with VechainStats to improve the functionalityof the blockchain explorer and user experienceduring exploration of blockchain data. Additionally,
we developed Connex so that developers could
easily use vechain’s core unique features. The Web3
adaptor enables developers familiar with Web3
libraries to build their dApps on VechainThor. The
vechain community has built additional tools, suchas an Ethereum NFT bridge via xp.network as well
as several NFT marketplaces, and wallets. Moreover,
Vechain.energy is building a fee delegation service.
We will continue working with the community toenhance our tech offerings.

Among the tools that developers can use to
create, test, and release dApps within the vechaincommunity are a Connex library, a Web3 adapter,standard openZeppelin smart contract libraries,
Web3-as-services, a dApp interface, various wallets
and mobile SDKs, and a testnet.

52

And these developments andinnovations are just the beginning.
This year, we are on track to hire even more developers
dedicated to improving the VechainThor platform.
Some imminent plans include:•

Our Web3-as-a-service portal VORJ•

A smart contract development
frameworks integration•

Vechain managed and sponsored
DEX/Defi protocols•

An Ethereum token bridge•

DID implementation•

A DNS naming system for vechain•

A DAO development framework.

VORJ to attract new developers
VORJ, our Web3-as-a-service offering, will democratise the Internet and give ownership back to users throughsustainable technologies. We envision VORJ as a Web2-based portal to cater to the most demanding Web3
needs. Here, users can create, mint, and manage VechainThor-based fungible and non-fungible tokens
all in one place. They can also access smart contract templates as well as a smart contract wizard anddeployer to quickly implement and deploy smart contracts. We anticipate a free, rate-limited version of
VORJ will be available to vechain community members by mid-2023. We are already providing an API-onlyversion for enterprises and community projects.

We also plan to introduce a carbon footprint explorer
on VechainStats, launch a community driven, vechain
managed and sponsored NFT marketplace forsustainability, and release a wallet (browser extension
and mobile) for ecosystems.
Currently, we are dedicating significant resources
to improving developer tools and interconnectivity.
To make development easier, we are working hardto establish contract development framework
integration, a contract development IDE, and a smart
contract library, such as OpenZeppelin. Furthermore,
we plan to develop oracles to link with real-world data
and bridges to link with other leading blockchains.
In addition to building a platform and tools to empowerbuilders, vechain further connects blockchain
technologies and the real world by co-developing
applications with enterprise partners and othertech partners.
We have a strong track record with established
enterprises, including big box retailers, premierautomotive companies and more, allowing us toleverage vechain’s technology across multiple
industries. A wide variety of applications have alreadybeen enabled by VechainThor (one example isan automotive company’s platform for keeping
vehicles free from forgery). These applications
have demonstrated the business value ofvechain’s technology.
Vechain has also built strategic alliances with majortech partners and consulting firms. These partnerships
extend the platform across various use cases, test
modularity, and supercharge adoption. For instance,
AirTrace has built an innovative, low-code digital
service platform integrated with vechain solutions,which their clients can use to implement traceability
in industrial processes and to ensure secure andreliable data and automated reporting.Our longterm partnerships have yielded a wide range ofapplications across consumer products healthcare,sustainability, and more. A recent partnership witha smart fingerprint technology company will
generate solutions that integrate blockchain withscanning technologies.
53

Typically, we join forces with enterprises and businesses who invest in research and developmentof blockchain technologies. Together, we drive quick blockchain and Web3 adoption in the business world
by closing the gap between business needs and technological offerings and progressively testing andlearning through real world use cases.

Promoting Research & Innovation
At vechain, we understand the significance ofcontinued research and innovation efforts forcollectively enabling Web3 advancement.
Through our global grant, veResearch, we aim tosupport academic research on blockchain-related
advancements. Since its launch, veResearch has
been a major driving force behind blockchainrelated progress, collaborating with leading
global research bodies and co-developing newtechnologies with a specific focus on sustainability.
Vechain and the Mathematical Institute at the
University of Oxford have been working together as
close partners. Recently, we jointly wrote a technicalpaper on blockchain consensus protocols. The paper
was accepted and published by the Association
for Computing Machinery (ACM) in 2021. Ongoing
research activities focus on building mathematicalmodels for tokenomics and incentivisation, with the
purpose of making ecosystem compensation morebalanced and sustainable. Broadly speaking, eachcontributor in an ecosystem brings a different skillset
to the ecosystem, yet they also receive different
benefits in return. Such compensations may impact
the scale and quality of actors who participate toour ecosystem, and ultimately to its scale of impact.
Studying the dynamics and nuances of theseincentives or compensations is instrumental in the
successful growth of ecosystems and therefore of
our contribution to sustainability goals.

Likewise, vechain has a partnership with the
National University of Singapore. Our latest
discussion with the Department of Mechanical andEnergy Engineering at NUS focused on potential use
cases and collaborations with blockchain protocols
for Smart Materials. The research focuses on thedevelopment of innovative intelligent materials fora cleaner, sustainable future. It aims to mitigate
the challenges of sustainable energy through thecreation and application of functional intelligent
materials. Such materials will potentially provide
alternatives in extracting additional energy fromthe environment, revolutionising energy production
and control processes, battery technology, catalysis
processes, machine-human interfaces, artificialorgans and tissues, and smart membranes, among
other applications.
Finally, vechain’s partnership with the Crypto-Fintech
Lab at the Hong Kong University of Science andTechnology (HKUST) has also advanced thinking on
Web3 and blockchain technologies. This work has
helped to improve education about the subjects.
It has also incubated innovative student projects
for vechain’s ecosystem and has helped them toidentify and conduct research on technologies that
support Web3.

54 54

Across the board, the research led and supported
by vechain has helped unlock the potential of Web3
and accelerate enterprise adoption by speedingup the development of technological enablers,
including blockchain consensus, token economics,
cryptocurrency market predictions, smart contract
security, blockchain-based ecosystem design andmore. We see a direct line between advances in
research and innovation and new, practical uses of
Web3 and blockchain technologies in the pursuit ofa more sustainable society.

Technology Roadmap
Our technology development serves a central
mission: becoming the platform of choice
for sustainability. The way we choose which
technological features to develop and how tocustomise and prioritise them over time is based on
this mission.
In Q1 2023, we are laser focused on improving support
for developers. We are adding libraries, developers’
frameworks, Web3 connectors, Web3-as-a-service
infrastructure, and a browser extension wallet.
These tools will make it easier for developers to workwith our technology platform and build exciting new
ecosystem solutions on top of it.

How we build technology tosupport our sustainability
mission: an example
NFT-related technologies will be developed
incrementally—enabling
different
features along the way — to target specificsustainability needs. Firstly, we aim toleverage this technology to create digitalproduct passports, linking an NFT to a single
physical product to showcase different
product characteristics (for instance, proof ofthe emissions generated by manufacturingit). The NFT will also link the product to carbon
credits purchased to offset the previously
mentioned emissions. Then, we will go a stepfurther by transforming physical products
into phygital ones, enabling the showcasingof product features in digital environments(e.g., in the metaverse).

Our goal is to empower developers and make theirjobs easier. We believe this precious community
can deliver more and more robust and feature-richapplications, which are crucial for future growth.
By providing developers with the right tools andresources, we can foster innovation and creativity.
The developers working on our platform today
are building the future; the more developers who
participate, the greater the sustainability impact we
can make.
Our second phase, in Q2 2023, will focus on
improving engagement and the experience forend users. We will be releasing a mobile version of
our new wallet and standing up a user portal. This
portal will be a resource for both businesses and thebroader community, enabling them to interact withvechain’s offerings and applications.
The third phase will encompass both Q3 and Q4 of2023. This phase will focus on the interoperability of
VechainThor with other blockchains as well as the
addition of foundation backed DeFi protocols and
NFT marketplaces. These advances will enhancethe experience for developers and create more
opportunities for users.

55 55

Finally, in 2024 we will continue to make further interoperability enhancements and also focus on
integration with Web2 systems. We will provide frameworks and wizards to help the community build
DAOs focused on sustainability.
Overall, this technology roadmap will help us achieve our goal of becoming the platform of choice forsustainability ecosystems and encouraging mass adoption. Additionally, by continuously gathering
feedback from users and considering their needs, the infrastructure tools can be refined and adapted tomeet the changing demands of the market. This approach ensures that the development process remains
dynamic and responsive, leading to continued growth and success.
In Figure 12, we have outlined a technology roadmap of the tools and capabilities we will focus on in theupcoming phases of our journey.

Figure 13 – Vechain tech roadmap 2023

01.
Sustainable
Infrastructure

02.
Technology
features03.
Sustainableecosystems
applications

H1 2023

H2 2023

Q1 2024••

Explorer v2 (users balance)••

Implementation of otherreduction actions(e.g., AN specs)

Explorer v3 (user
offsetting) andintegration into
sustainability
ecosystems•

Other network
sustainability actions

Carbon footprint
explorer(VechainStats)•

AN network offsetting•

Carbon footprint
model (other layers)•

DEX/DeFi

•

DID

•

•

Wallet browser extension••

Ethereum Token Bridge

DNS (vechain naming
system) - community

Decentralised
file storage••

NFT Marketplace(community dev)•

Asset lending platform –community

Layer2 (e.g., Rollup,
zkRollup)••

Node API extension
for jsonrpc•

Multichain Genericdata bridge

Smart contract security
analysis tools••

Development tools:
Contract Dev framework
integration (e.g. truffle,
hard-hat),•

Oracles

Algorithmic Tokenbacked stable coins –community••

DAO governancewizards•

Libraries (e.g.,Openzeppelin), Contract
dev IDE (e.g., Remix)

Web3 aaS (e.g., Node/Thorapi services, tokens as aservice, custody solution
interation, etc.)•

DAO operating system•

Product NFT Passport

•

•

•

SupplyMe Inventory
Management protocol

Product NFT for metaverse(digital assets & phygital)

DAO ecosystem smart
contract library••

Ecosystem as a service•

Product NFT with credits

Credits and tokenization forsustainability and metaverse•

Wallet for ecosystems•

Smart city ecosystems•

NFT Marketplace•

Platform for ecosystems

56

08

Vechain Governance
It is our belief that the scalability issues associatedwith blockchain adoption are not only related totechnical limitations, but also to governancerelated consensus concerns. Vechain plans toimprove its governance model to enable rapid
innovation and development while also complying
with regulators, meeting the needs of our users,
community, and fast-growing enterprises, andserving sustainability needs.
Unconventional governance models, including
DAOs and the experimental voting mechanisms
their structures enable, are already being adopted
in various fields and are constantly updated aspart of a natural evolution of the technology.
By implementing DAO principles, our goal is toprogressively decentralise platforms, reducing theneed for intermediation and making ecosystems
more efficient.
In whitepaper 2.0 we argued that for blockchain
solutions to reach mass adoption, the governancemodel must be efficient, cost-effective, transparent,
and also balance the views of all blockchain
stakeholders. Vechain is more than just a blockchain
platform, and the governance structure of ourorganisation is being carefully designed to beadaptable and efficient, with oversight provided by
the Steering Committee, which is elected publicly
by nodeholders.
Most importantly, our approach is based on
nonstop improvement and iteration as technology
advances and ecosystems mature. We will continue
to evolve our governance model to better align with
our sustainability and Web3 aspirations, including
exploring new governance guidelines such as a
DAO infrastructure. We will share progress updates
on an ongoing basis.

Here at vechain, we want to not just talk the talk, butalso walk the walk, which is why our final focus will
be on governance and operations best practices
to support and enable our partners, sponsors,developers, and users. We believe that having a welldefined, efficient, and effective internal governanceand decision-making process at vechain will set an
example for the DAOs and governance structuresthat will arise in ecosystems within the Biosphere.
Indeed, by meeting the expected standards andperformance guidelines we have set for ourselves, wewill help demonstrate to the world just how dedicatedwe are to the Biosphere and its long-term viability.
Vechain is not just building a sustainable platform,
but also a public blockchain that is actively
developing and implementing applications that
promote sustainability and generate tangible
economic value. As we continue to work on thevarious projects, tools, and technologies in thedevelopmental pipeline, we aim to bridge thegap between Web3 and the real economy.
The Steering Committee’s election process helps topromote member diversity, enabling us to benefit
from their varied perspectives and expertise. The
most recent election was carried out in February2023; all nodeholders were granted voting rights
and were encouraged to actively participate
and help shape the future of our organisation.
The establishment of a Steering Committee
constitutes the first step towards decentralisation.
Moving forward, the decision-making process will
devolve from the committee to become ever more
distributed between Biosphere participants.

57

The ongoing changes are not limited to theSteering Committee. Since the publication ofwhitepaper 2.0, vechain has been enhancing its
team and driving collaboration with our partners
and the community at large. With the objective to
evolve as a sustainable organisation, we focus onfour key areas:
1.

Tech development: We have expanded ourteams to support the blockchain upgrade(e.g., the PoA 2.0 update) and build platform
infrastructure (e.g., implementing the techroadmap). Our technology roadmap aims
at transforming vechain into the best
layer 1 option for sustainability, through thedevelopment of specific features that simplify
enterprise and user adoption. We select andprioritise our initiatives with the goal of inspiring
more developers to build infrastructure tools
and services with us. As a result, our techdevelopment is continuously shaped by ourcommunity’s input.

2. Business development: We built up dedicatedteams to closely monitor sustainability trends
and the evolution of new technologies. These
teams support sustainability transitions and thedevelopment of new sustainability initiatives byenterprises and developers and help us steadily
upgrade our strategy and support our mission.
Additionally, we regularly engage with advisors,
consultants and system integrators to illustrate
how vechain’s infrastructure (VechainThor) andgovernance can inspire and support themin building solutions to address their clients’sustainability needs.

3. Community engagement:Thevechaincommunity has always been a crucial partof our development, and we are expanding
the engagement team to build newcommunities centred around sustainability. In
our understanding of Web3’s potential, every
individual counts and becomes a builder. Overthe years, we have witnessed the power of thecommunity through the infrastructure andtools we provide, and we plan on continuing tobuild momentum for and with our supportive
community.
4. Internal governance: Our People, Finance andLegal functions have also been expanded tobetter support the growing team in vechain.
We continue to be one of the most open
and transparent public blockchains, and werelease our financial report quarterly. We also
continue to closely monitor the developmentof blockchain policies and other relevant
regulations, such as data protection codes,
and make sure that vechain is fully compliant
with them. Staying true to our ambitions in thefield of sustainability, we will take the necessary
measures to carry out sustainable practices
and uphold our values internally. Evolving
towards sustainable governance is imperative
to our mission.
Moving forward, the organisation will continue to
evolve to serve a nascent global sustainability
community; we will take inspiration from the bestpractices of DAOs to build organisational structures
customised specifically for vechain. More details will
follow soon.
58

09

What’s Next for vechain?
We set on our journey in 2015 with a mission to pioneer real-world blockchain applications across the globe.
In our first years, we strengthened our nascent technological offering with the aid of an ever-growing
community of developers and partners. We soon turned our attention to the widespread obstacles — suchas difficulty in sharing information safely or a lack of trust and auditability in transactions — which hinderedcollaboration and value creation potential across several industries.
Indeed, even in an era of increasing consumer engagement, we still saw a struggle on the part of both
enterprises and organisations to catalyse the potential power of communities. Over the years, we
engaged major companies and public organisations in a discussion on how Web3 solutions could help
resolve these collaboration pain points and foster value creation. As discussed at length already in thisdocument, in the year 2023 no Web3 system would be complete without accounting for a broader
meaning of value and what people working together in complex ecosystems can accomplish forsociety, humanity, and our planet.
This embrace of Web3 enabled sustainability is not a reinvention of vechain, but rather the natural next
step in our journey. We’ve been building up to this moment for a long time, improving our governancemodel, developing and refining infrastructure, tools, use cases, and applications, and demonstrating ourongoing efforts to leverage vechain’s technologies for good. We know the vision of a more sustainable
world, collaboratively built by communities and enabled by Web3 and blockchain is a grand one. It’s not
something that can be achieved overnight. Yet, vechain has concrete plans to reach critical scale, power
breakthrough achievements, and making this future real.
Creating a successful ecosystem won’t happen without an active push and deep investment in termsof time, energy, and resources. First and foremost, we will need more strategic technology partners tobuild out the Biosphere’s platform infrastructure. In the past we have connected with innovation leaders
in complementary technologies to, for example, co-create blockchain-guaranteed tagging and tracing
solutions for consumer or luxury items. Going forward, it is critical that we leverage the great work of ourdevelopers to add features to a blockchain that must have the inherent capability to interoperate withtechnologies such as IoT, 5G, 6G, edge computing or AI/ML.
We are actively seeking out technology partners who will combine their capabilities with ours for varied
sustainability missions, such as: tracking the lifecycle of an EV battery via NFT, tagging biogas and greenhydrogen to certify their origin, and sharing a person’s biometric information on a secure blockchain tocreate a globally recognised humanitarian passport. All of these sustainability-minded use cases have
Web3 technology in common, but they also require very different data collection and tagging technologies.
Ensuring the flexibility of VechainThor, our layer 1 blockchain, and the collaboration of the correct partners
is crucial for each ecosystem.
59

Tech partners and developers are clearly not the only collaborators we need to strengthen our Biospheretechnological layer. Ultimately, our vision will be confirmed by real world applications and successes. To
put this vision into action, we’ll need key opinion leaders — users and enterprises who attract attention for
their sustainability efforts — and key strategic partners to all come together as enthusiastic supporters andpromoters. We have been growing our network of partners since vechain’s early days, but now we must put
even more focus on it. We must secure lighthouse enterprise partnerships to quickly generate awarenessand build recognition, requirements for the mainstream adoption of our vision so far.
The primary benefits of these lighthouse enterprise partnerships are:•Giving valuable feedback on the platform infrastructure or how an ecosystem is set up and operated•

Providing strategic collaborations which can help vechain grow and scale the Biosphere or a specificecosystem•

Serving as influential testimonials for the Blockchain Biosphere for Sustainability or its ecosystems

Launching and establishing the first ecosystems and progressively building the Blockchain Biospherefor Sustainability must be a priority in the near future. We will require engagement and participationfrom all players in the ecosystems to support the development of the minimum viable product andpilot project. We’ve already been the platform provider helping companies create pilot applications
for blockchain in the real world. Now, conceptualising the Biosphere, we want to coordinate andenable something even grander. We must identify players who can fit into the roles required for eachsustainability ecosystem to operate and understand the correct incentives for all stakeholders toparticipate. Our differentiated underlying technologies and a portfolio of real-world applications(co-developed through enterprise partnerships) will springboard vechain to become an enablerof Web3 and empower people and communities to drive positive change.
Attracting companies, investors, governments, and the general public into the Biosphere will require afocus on educating the market about our enhanced concept of value which incorporates environmental
and societal value. From the very beginning, our vision has incorporated an element of outreach to ouraudience, including tech partners, enterprises, and regulators. We are used to opening paths in unexplored
fields, and we understand that with awareness of the use of Web3 to support sustainability still low, wehave yet another uphill climb. But with the right combination of marketing and communications — such ascase studies, webinars, blog posts, social media campaigns, marketing partnerships, or even additional
whitepapers — we can galvanise the first wave of Web3 owners who understand that blockchain-enabled
protocols are crucial to empowering collective action to solve sustainability issues.
Our goal is to both introduce a new definition of the concept of value and demonstrate that blockchain canenable and support many sustainability opportunities and ecosystems.
We are eager to embark with our partners on the next phase of creating the premier destination for Web3
sustainability solutions.

60

10

Conclusion
Web3 technology can provide the critical infrastructure needed to multiply individual impacts andunleash our collective sustainable potential. With Web3, we can collaborate to solve some of the biggest
sustainability issues of our time – from climate change and emissions to food insecurity and unethicallabour practices.
Vechain proposes the development of a Biosphere of interconnected ecosystems that will allow individuals,
enterprises, and governments to all play an active and collaborative role in overcoming specific obstacles,
whether that’s allowing consumers to resell unwanted articles of clothing or fashion accessories rather
than throwing them away or developing systems to promote recycling of EV batteries.
Those ecosystems will provide the foundation for developing collaborative systems of action thatincentivise communities of people to commit to and achieve key sustainability goals. This interconnected
network, powered by blockchain, will give individuals the tools to seamlessly participate in any ecosystem— or even grow their own.
The promise of Web3 technology is its ability to distribute power among the many instead of concentrating
it among the few. With ecosystem governance under the direction of the community — enabled by DAOs
— inclusive decision-making will become the global norm instead of the occasional exception.
Through our promotion of continuous research and innovation, in partnership with academic institutions,developers, and strategic partners, vechain will work to advance Web3 and blockchain technology to
power practical and efficient solutions for real-world challenges. With new governance and economic
models that will allow for smooth and scalable adoption of blockchain and its integration with other key
technologies such as IoT and AI, we envision mainstream embrace of our Biosphere model. This will leadto a new era of building communities of action globally and establishing accountability for individuals,
governments, and enterprises as they seek to build a more sustainable world.
A sustainable future for all is just ahead, and vechain aims to leverage blockchain for our better world.
61

Appendix

Appendix 1: Sustainability needs
according to SASB
The five dimensions identified are based on the Sustainability
Accounting Standards Board’s (SASB) taxonomy:
Environment: impacts on the environment, either through the use of non-renewable, natural
resources as inputs to the factors of production (e.g., water, minerals, ecosystems, and biodiversity) or
through harmful releases into the environment (such as air, land, and water), which may negatively
affect natural resources.
Social conditions: the perceived role of business in society, or the expectation that a businesswill contribute to society in return for a social license to operate. This addresses the managementof relationships with key outside parties, such as customers, local communities, the public, andthe government. It includes issues related to human rights, protection of vulnerable groups, local
economic development, access to and quality of products and services, affordability, responsible
business practices in marketing, and customer privacy.
Labour conditions: the management of a company’s human resources (employees andindividual contractors). It includes issues such as employee engagement, diversity, and incentives
and compensation, as well as the attraction and retention of employees in highly competitive or
constrained markets for specific talent, skills, or education. It also addresses working conditions andthe management of labour relations in industries that rely on economies of scale and compete on
the price of products and services, and in industries with legacy pension liabilities. Finally, it includes
the management of the health and safety of employees and the ability to create a culture of safety
in companies operating in dangerous working environments.
Business model and innovation: the integration of environmental, human, and social issues in
a company’s value-creation process, including resource recovery and other innovations in the
production process, as well as in product innovation, including efficiency and responsibility in thedesign, use phase, and disposal of products. It also includes management of environmental andsocial impacts on tangible and financial assets — either a company’s own or those that it manages
as the fiduciary for others.
Leadership and governance: the management of issues that are inherent to the business modelor common practice in one industry and that are in potential conflict with the interests of broader
stakeholder groups (e.g., government, community, customers, and employees). This includes
regulatory compliance, and regulatory and political influence. It also includes risk management,
safety management, conflicts of interest, anti-competitive behaviour, and corruption and bribery.

62

Appendix 2:What is a materiality map?
Firms use Materiality Maps to disclose the sustainability needs they consider most
relevant based on two dimensions:
1.

Relevance of the need to long-term business success

2.

Importance of the need to stakeholders like investors, governments,
and consumers

Figure 14 – Materiality Maps

63

Appendix 3: How was thesustainability Topic Matrix built?
We built the Sustainability Topic Matrix through the following process:1.

A comparable group of relevant companies was selected for each sector.

2.

The material sustainability needs were identified for each company, based on
firms’ Materiality Maps, and then aligned terminology to our taxonomy based on
SASB definitions.

3.

A consolidated Materiality Map was built for each sector as an average of materiality
maps from individual firms within a sector.

4. The consolidated Materiality Maps from all sectors were integrated into an overall
Sustainability Topics Matrix showing one sector per line and one sustainability need
per column.
The matrix also reflects interviews with multiple industry and Climate & Sustainability
experts, which helped us consider the future evolution of sustainability needs to ensurecomparability across different
industry sectors.

64

Glossary of Terms
3DP – 3D printing OR 3D printerAgile – A philosophy of software development
characterised by early and continuous iterationand delivery of software.
AI – Artificial intelligence – the ability of acomputer or machine to conduct tasks thattypically require human intelligence, likelearning, problem solving, decision-making,and language comprehension
API – Application programming interface –a set of rules and protocols that lay out how
two software systems should interact andcommunicate with each other
AR – Augmented reality – the enhancement of
the real world with digital information and data,such as visual and audio content.
EV – Electric Vehicle
Big Data – The management of extremely large
datasets that are often difficult to process using
traditional software and database technology.
Bridge – Aoftware that allows users to exchange
digital assets from one blockchain to anotherwithout using a centralised exchange.
Carbon footprint – A measure of the total
greenhouse gas (GHG) emissions caused by aperson, company, organisation, event, good, orservice.
CNC – Aomputer numerical control – atechnology that uses computers to control theoperation of 3D printers.
DAO – Aecentralised autonomous organisation– a type of organisation that is controlled bymembers, transparent, and not influenced bya central government.

dApps - Decentralised application –decentralised applications built on top of
blockchain using smart contracts.
DeFi – Decentralised finance – a type offinancial system that is built atop decentralised
networks such as blockchain and is designed to
be open and accessible to anyone.
Ecosystem – A structure enabling a set ofpartners to actively cooperate by pursuing
a common objective and creating common
value using tokens to exchange value acrossparticipants.
Externality – An economics term for aconsequence of a transaction that is experienced
by a third party and not reflected in the market
price of the good or service being exchanged.
Fiat– Currency issued by a government, backed
by the faith and credit of the government, andnot by a commodity such as gold or silver.
GHG – Greenhouse gas – a type of gas that traps
heat in the Earth’s atmosphere and contributes
to the greenhouse effect and climate change.
IDE – Integrated development environment – asoftware application that provides a range oftools and features to help developers write, edit,
and debug code.
Information asymmetry – A situation where
one party in a transaction has more information
or better information than the other party,
leading to imbalances of power and market
inefficiencies.
IoT – Internet of Things – the interconnected
network of physical devices and objects thatare equipped with sensors, software, andnetwork connectivity, allowing them to collectand exchange data.
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Layer 1 blockchain – The base infrastructureof blockchain.
Materiality – The high demand and significancefor a sustainability solution
ML – Machine learning – a class of artificial
intelligence that allows computers to learn
and improve their performance without being
explicitly programmed.
NFT – Non-fungible token – an asset or commodity
which is not interchangeable; NFTs are designed to
be special or unique.
NGO – Non-governmental organisation – anorganisation that is formed and operates
independently of any government and whose
objective is typically to address a social orpolitical issue.
OEM – Original equipment manufacturer.
Phygital – The integration of the physical and thedigital world, referring to how technology is used
to blur the line between the physical and digitaland creating hybrid experiences.
Platform infrastructure – The foundation of
the Biosphere encompassing the technology
platform as well as the operating and support
capabilities layers.
PoA – Proof of Authority – a consensus modelwith a small number of pre-approved verifiers. It
consumes very little energy.
PoW – Proof of work – a consensus model, usedby blockchains such as Bitcoin, designed to solve
the problem of “double spending” and ensurethat all transactions are valid. Mining computers
randomly guess numbers to solve a cryptographic
puzzle, where the winner receives a significant
block reward. In Bitcoin, it takes an average of 10
minutes for miners to find the winning answer.
SASB – Sustainability Accounting Standards
Board – a non-profit organisation that develops
and maintains financial reporting sustainability
standards for publicly listed enterprises in the
United States.
SC@E – Supply Chain at the Edge.
SDGs – Sustainable development goals –a set of 17 global goals adopted by the United
Nations in 2015 as part of the 2030 Agenda
for Sustainable Development, which involve auniversal call to action to end poverty, protect
the environment, and ensure people havethe opportunity to live peaceful, healthy, andprosperous lives.

SDK – Software development kit – a set of tools
and resources that allow developers to createsoftware applications for a specific platform.
Service bureau – Business that owns andoperates 3D printers and 3D prints parts.
Smart contract – A decentralised application
built on top of blockchain, which willautomatically enforce contract parameters:
If event A happens, then transaction B is
executed.
Sustainability topics matrix – A matrix thatmaps materiality for sustainability topics
across various industry sectors to organiseand prioritise sustainability needs.
Testing centre – A business that validates 3D
printed parts for quality assurance; could besame as service bureau.
Token – A unit of value of a blockchain-based
ecosystem that enables different actors tointeract with one other, carry-out transactions,or transfer value; each fungible token, or
fraction of a token, is equivalent to the next.
Tokenomics – The application of economic
principles and game theory to design thetokens on a blockchain to ensure desired
incentives and behaviours from users andthat tokens are effective and efficient.
VechainStats – Blockchain network analytics
for the VechainThor blockchain.
VechainThor – Vechain Foundation's blockchain
technology.
VET – Native vechain token.
VIP – Vechain Improvement Proposal. It is a
design document providing information or
describing a new feature. VIPs contain ideas
from developers and communities to improve
the VechainThor blockchain.
VR – Virtual reality – the computer-createdsimulation of a 3D environment that can beinteracted with in a seemingly real way by auser with specialized equipment.
VTHO – Native vechain token used to pay fortransaction gas fees.
Wallet – A software application that allows
users to send and receive digital currencies
and assets by storing private and public keys
and interacting with various blockchains.

66

Table of Figures
Figure 01 - Vechain timeline

6

Figure 02 - Core ideas for vechain today

8

Figure 03 - Journey from Web 1.0 to Web 3.0

9

Figure 04 - Vechain aspiration journey

10

Figure 05 - Sustainability Topics Matrix

13

Figure 06 - Collaboration systems

15

Figure 07 - Obstacles to Collective Sustainability Action

17

Figure 08 - The Blockchain Biosphere for sustainability

20

Figure 09 - Purposes and Roles in an Ecosystem

24

Figure 10 - A new concept of value

27

Figure 11 - Consumer Sentiment

34

Figure 12 - Leveraging battery 2nd life usability

36

Figure 13 - Vechain tech roadmap 2023

56

Figure 14 - Materiality Maps

63

67

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69

Credits
VechainMarina Fortunato
Project Manager

Jay Zhang
CFO

Sunny LuFounderPeter Zhou
Chief Scientist

Antonio Senatore
CTO

DNV contributors
Federica Guelfi
Circular Economy
Project Manager

Gabriele Manno
Head of Digital
Assurance Platforms

Friendly contributors - Luca Crisciotti, Renato Grottola
Boston Consulting Group
Lamberto Biscarini
Senior Managing
Director & Partner

Edwardo L. Sackey
Managing Director& Partner

Guy Gilliland
Senior Managing
Director & Partner

Federico ColombaraPartner & Associate Director

Marco Tonegutti
Senior Managing
Director & Partner

Qingyuan Lin
Principal

Thomas Baker
Managing Director& Partner

Antonio Sangiovanni
Project Leader

The authors thank BCG collegues Gaia Dell'Eugenio, Anne Deng, Giulia Gargiulo, Jonathan Greene, Jan Joho,
Liana Lei, Mimi Li, Laura Morano and Elisabetta Sagretti for their contributions to this whitepaper.
Furthermore, we would like to express our gratitude to all the enterprises and individuals who havecollaborated with us and participated in the discussions that have inspired the drafting of this whitepaper.
For any information on this Whitepaper or vechain, please write to info@vechain.org

70Disclaimer
The Boston Consulting Group (BCG) was engaged and paid by Vechain Foundation San Marino S.r.l. (vechain) to undertake anextensive analysis of vechain’s global business and to make recommendations to vechain on a sustainability strategy andcommunication plan as part of a Strategic Partnership. The Whitepaper to whichthis Disclaimer is attached is the product of that
extensive analysis by BCG. The Whitepaper was prepared by BCGfor the purpose of publication, and the content included hereinstems from vechain’s engagement of and payments to BCG to help prepare and write the Whitepaper.
BCG helped prepare and wrote the Whitepaper in good faith based on information and materials available before its initialpublication. BCG did not independently verify any of the information or materials that was provided by vechain or any third parties
and reproduced in the Whitepaper. Changes in the underlying data or operating assumptions will clearly impact the analyses
and conclusions of the Whitepaper. BCG does not guarantee or make any representation or warranty with respect to the accuracy,
reliability or completeness of the third-party information and materials underlying BCG's analyses in the Whitepaper or withrespect to the Whitepaper's usefulness in achieving any purpose. Readers of the Whitepaper are responsible for assessing therelevance and accuracy of its content. BCG included in the Whitepaper data from various sources and assumptions provided to
BCG from other sources. BCG has not independently verified the data and assumptions from those third-party sources. Changes
in the underlying data or operating assumptions in the Whitepaper will clearly impact its analyses and conclusions.
BCG and vechain disclaim any liability for any loss, damage, cost, or expense incurred or arising by reason of any person using
or relying on the information in the Whitepaper. To the fullest extent permitted by law, neither BCG nor vechain shall have any
liability whatsoever to any person in connection with the Whitepaper, and any person using the Whitepaper hereby waives any
rights and claims it may have at any time against BCG and vechain with regard to the Whitepaper. To the fullest extent permitted
by law, receipt and review of the Whitepaper including this Disclaimer shall be deemed agreement with and consideration forthis Disclaimer.
The Whitepaper is based primary on qualitative and quantitative research executed by BCG. Neither BCG nor vechain provides
legal, accounting, or tax advice. Readers of the Whitepaper are responsible for obtaining independent advice concerning thosematters. That advice may affect the guidance in the Whitepaper. Further, neither BCG nor vechain has attempted to update theWhitepaper after its initial publication, notwithstanding that such information in the Whitepaper has or might become outdated
or inaccurate. Neither BCG nor vechain provides fairness opinions or valuations of market transactions, and the Whitepaper
must not be relied on or construed as such. Further, any evaluations, projected market information, and conclusions contained inthis document are based upon standard valuation methodologies, are not definitive forecasts, and are not guaranteed for any
purpose by BCG or vechain.
The Whitepaper does not purport to represent the views of the third-party companies mentioned in it. Reference herein to any
specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise, does not ecessarily
constitute or imply its endorsement, recommendation, or favoring by BCG or vechain.
The Whitepaper may not be used or distributed for any purpose without the written consent of vechain.
The V, vechain, VechainThor, VTHO, and VET trademarks are owned or licensed by Vechain Foundation San Marino S.r.l.

71

Thank you
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