Rights management is the world’s best solution for managing resource scarcity, preserving supply and driving value through water. However, the market is far from perfect. The blockchain — a distributed database shared across nodes — could be the solution. It could permanently reshape how market participants approach trading.
The Need for a New Paradigm in Water Rights Management
Since water access entitlements can involve buying, leasing or selling in whole or part — and federal, state and municipality regulations vary drastically — trading can be overly complex and inefficient, resulting in missed market opportunities or poorly calculated decisions.
If regulator governance is substandard, markets can foster distrust, stifle inclusivity or become vulnerable to abuse, leading to unintended adverse effects like scarcity exacerbation. Even in the best-case scenarios, opaque transactions, mutable logs, lengthy trade times and unsatisfactory recordkeeping are still possible.
The mitigation banking market is a good example. Passing the liability of ecological damage through credits and debits is inherently unnatural, meaning it relies on miscellaneous regulators. If their review and monitoring processes are anything but holistic, net loss is arguably unavoidable.
A Distributed Ledger Solution
With a distributed ledger solution, industry professionals can resolve the market’s long-standing pain points, drastically improving equity. Market prices must reflect supply and demand — there is no gaming the system. A decentralized framework for logging activity, automating trades and resolving disputes could revolutionize water rights management.
Jiri Kolbelka, the chief executive officer and co-founder of Tatum — an open-source blockchain infrastructure platform and software development kit — shares this sentiment. For him, blockchain technology offers a transformative solution for managing water rights by enhancing transparency, efficiency, and accountability. It addresses fragmented records, opaque trading, and disputes, making water governance more equitable and sustainable.
“In Australia, the blockchain-based Water Ledger platform has revolutionized water trading. During a pilot in the Mareeba-Dimbulah Water Supply Scheme, it reduced trade times from months to seconds and provided real-time pricing, cutting transaction costs by 40%. In China, the China Water Exchange (CWEX) facilitates national water rights trading, and researchers have proposed blockchain-based platforms to secure and streamline agricultural water rights transactions, improving efficiency and reducing costs.”
For Kolbelka, globally, the smart water management market is projected to grow from $16.6 billion in 2023 to $28.2 billion by 2028, driven by sustainability initiatives and investments in infrastructure.
“Blockchain, coupled with IoT sensors, could further enhance water management by enabling dynamic pricing based on availability and automating equitable distribution through smart contracts. Scaling these solutions requires public-private partnerships and stakeholder education. The success of Water Ledger and CWEX demonstrates blockchain’s potential to redefine water governance and address one of this century’s most pressing challenges: equitable water access.”
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An Overview of the Blockchain’s Role in Water Management
With distributed ledger technology, industry professionals can view, authenticate and share real-time data points related to water supply, consumption and discharge.
The information is stored on a decentralized network of participating nodes. Each new block is linked to the previous one, making it computationally impossible to modify information without immediate detection. In this way, every market participant has access to the same opportunities.
The most fundamental application of distributed ledger technology for water rights involves enabling peer-to-peer transactions. As soon as a trade is completed, a new block is formed. Smart contracts — self-executing digital agreements — can automate these exchanges based on predefined triggers.
Claire Adelgren, the global head of blockchain sales and operations for EY Blockchain, describes how her organization has applied this technology,
“Blockchain keeps a precise, immutable record of any transaction, which works for various use cases, including water management. With blockchain, stakeholders can have a traceable and verifiable source for water rights, eliminating allocation disputes while increasing trust and transparency.”
She says that by leveraging blockchain to convert traditional business contracts into smart contracts, organizations can automate and enforce complex business logic with precision.
“For example, water rights allocations can be seamlessly executed based on specific criteria or predefined time periods. This not only enhances efficiency but also significantly reduces costs and streamlines operations. From a sustainability point of view, blockchain is becoming a trusted platform for emissions and carbon credit traceability, but a similar approach could also be taken to water rights management.”
Incentivizing Clean Water Practices
Also, with blockchain, one could track who is using the most water and “reward” those who use below their allocation – incentivizing sustainable practices.
“We’ve been at the forefront of incentivizing clean water practices through our work with Allott, a Norwegian nonprofit sustainability organization. Through the deployment of EY OpsChain Traceability, Allott tokenizes its donation data. Now, donors can prove their impact by tracing the exact use of their funds to tokenize environmental data, such as the amount of plastic that has been removed from water.”
With conventional trading platforms, applications like environmental impact measurement and quality monitoring were unfeasible. Metrics would range from optimistic estimates to downright dishonest approximations.
Accuracy is guaranteed with a distributed ledger solution. Market participants can use this decentralized solution to monitor water meters, resolve ownership disputes, authenticate water quality data and mitigate fraud.
How Technology Integrations Support This Novel Approach
While this technology is powerful on its own, integrations can bridge the gaps where firms need enhanced collaboration or insight extraction. For instance, cloud-based Aliquot — a platform for water management — can integrate with enterprise software to maximize efficiency and cost savings.
Christian Hed is the co-founder and chief marketing officer of Dstny — a provider of cloud-based business communications solutions that serves over 3 million users. He knows how to drive seamless integrations and establish strong local partnerships. Under his leadership, Dstny expanded across seven European countries, generating around $260 million in annual revenue. He believes the Internet of Things (IoT) could be huge.
“The Integration with IoT for monitoring blockchain is incredibly futuristic. Sensors tracking water flow, quality, and even leakages in real-time, all feeding directly into a blockchain ledger — imagine all of this and more. This has already been deployed to streamline water management and reduce waste. This needs to be a bigger part of the conversation.”
He mentioned a use case that according to him doesn’t get enough airtime: water quality tracking.
“Right now, keeping tabs on water safety involves a patchwork of data sources, many of which are… let’s say, “optimistically” recorded. Blockchain’s immutable nature makes it perfect for this. You can trace contamination back to its source, enforce safety standards, and hold people accountable—without anyone fudging the numbers. Water data is sensitive. Who’s using how much, where it’s coming from, who owns what rights—this sensitive data needs to be protected. Blockchain has decentralized systems that mean no single point of attack, and encryption means no prying eyes. If you’re worried about cyberattacks or unauthorized access, this is the solution.”
Benefits of Distributed Ledger Technology for Water Rights
Leveraging distributed ledger technology for water rights management doesn’t just benefit the market’s typical participants. Decentralization improves accessibility, enabling locals to participate more actively in consumption monitoring, waste reduction and resource conservation.
Since the blockchain operates on a consensus mechanism, it only works with unanimous agreement, helping build confidence in the system. Its immutability and decentralized nature further foster trust, helping establish it as the industry standard. Scalability won’t become an issue since information is stored on a network of participating nodes.
Since this platform enables such granular tracking, it incentivizes waste reduction. Peer-to-peer trading prompts market participants to conserve water to avoid paying premium prices during shortages.
However, people are also encouraged to sell or lease excess to maximize their earnings — and because transactions are public, connecting their behaviors to their brand reputation.
This approach could play a significant role in stabilizing market prices and combating scarcity. Although approximately 70% of the planet’s surface is covered in water, only a fraction is clean and drinkable. Promoting sustainable behaviors by making consumption information accessible and trading equitable could help sustain resource-scarce regions. At the very least, it would support equitable distribution in line with demand.
Even when considering post-integration challenges like countries’ limited technical capabilities, the threat of cyberattacks, regulators’ red tape and distributed ledger technology’s high energy consumption requirements, this technology can still be beneficial.
For instance, encrypting sensitive information can solve the security problem. The Rivest-Shamir-Adleman encryption algorithm can prevent data loss and value inconsistency in databases, ensuring accuracy.
Ultimately, though, industry professionals must navigate the complexities of compliance. A private blockchain — one where a centralized agency acts as a certificate authority that can modify the consensus mechanism or alter transactions — offers fewer benefits but can help secure regulator buy-in.
The Future of Blockchain Technology for Water Rights
Since a distributed ledger solution is largely unproven outside the cryptocurrency market, it will take time to catch on for water rights management. The sooner companies secure regulator buy-in — which would require government support, private investment and international collaboration — widespread implementation can begin.