Blockchain and the Cooperative

Rethinking P2P models into cooperative structures

A cooperative is “an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise”.

Photo by Hossein Ghaem on Unsplash

Cooperation dates back as far as human beings have been organizing for mutual benefit. Depicted in movies and part of folklore, tribes and societies were organized in cooperative structures, allocating jobs and resources among the members, trading services with other communities and societies. Reports have suggested that cooperatives tend to have a longer life than other types of enterprises, primarily owing to the model of having shared risk and rewards between its members. Cooperative model has been very successful in areas of agriculture, dairy and social finance highlighting names like Amul in India, Dairy Farmers of America in US and numerous local credit unions and microfinance setups in semi-urban and rural India, Bangladesh and some other south Asian countries.

Coop put their values in practice through a set of guidelines, also referred to as the Rochdale Principles. These are –

  1. Voluntary and open membership

2. Democratic member control

3. Economic participation by members

4. Autonomy and independence

5. Education, training and information

6. Cooperation among cooperatives

7. Concern for community

In essence these are the very same principles which form the value system of a decentralized and distributed digital ecosystem aka Blockchain.

In a 2009 paper, someone under a pseudonym Satoshi Nakamotu suggested a novel method for a transfer of value system employing distributed ledger technology over a peer-to-peer network, now known publicly & referred to in the media as Bitcoin. Over the years academia and industry had been working on new ideas in form of protocol improvements, governance models and usecases redefining how blockchain can change the way society and businesses function and operate.

Switching back to our discussion on cooperatives, blockchain frameworks offer a distinct one-on-one overlap with the underlying principles of a cooperative setup.

1. Voluntary organization — Blockchain offers the flexibility and operational readiness to adapt to an open and voluntary membership requirement. System requirements of identity management, membership referrals, social scrutiny and monitoring can be seamlessly built for purposes of verification and security. Blockchain offers the classic trait of being capable of end-to-end membership-management.

2. Consensus in governance and protocol — Distributed consensus is the core value proposition a peer-to-peer ecosystem like blockchain offers. In the past 9 years of public existence and several consensus models later we can confidently predict blockchain to be capable of deploying the “rule in the code” modifiable only through stakeholder consensus. Blockchain technology today also offers multiple formats of consensus mechanism, identifying and reflecting with the need of network.

3. Peer-to-peer interaction — Individuals in a cooperative can work together or exchange services, finances, value under the prescribed protocols set by the cooperative. Blockchain allows for free, open and transparent p2p transaction within the network through auditable ledgers which supplement the system through automatic book-keeping, reducing overheads of administration and monitoring.

4. Collaborative financial structure — Blockchain offers a transfer-of-value network with option to automate complex processes and functions through the use of smart contracts. Financial transactions, contributions, disbursal and book keeping can be managed, monitored and automated through simpler digital interfaces.

5. Regulatory Compliance — Blockchain network works on coded protocols, thus allowing for rules compliant with the law of the land to be implemented. On top of it, blockchain offers distributed, immutable and auditable ledgers of public transactions and interactions.

6. On-Chain and Off-chain collaboration between cooperatives — Different cooperatives employing blockchain for operation and administration purposes can work seamlessly within and amongst them through inter-network protocols which can help bring business relationships and transactions on the chain.

7. Decentralized control and distributed implementation model — Enough is said already :-)

The question is, can the success model of Amul or of Dairy Farmers of America or the microfinance model in rural and semi-urban India and Bangladesh be operationally and administratively optimized though innovative digital technologies such as blockchain.

If yes, can we architect these models on robust, scalable blockchain infrastructures and replicate them to other markets?

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