Can cryptoeconomics wipe out solid waste?

My image — West Perth

In brief, cryptoeconomics is the economics created as a result of the blockchain, and specifically the blockchain’s feature of removing the need for centralised enforcement of trust.

This article from Cryptoeconomics Australia lays out some of the ideas around institutional cryptoeconomics. Key to this discussion is blockchain and transaction costs.

Transaction costs and the institution

As referenced in the Cryptoeconomics article:

Oliver Williamson, the 2009 Nobel laureate in economics, argued that people produce and exchange in markets, firms, or governments depending on the relative transactions costs of each institution.

These institutions form a hierarchy, with governments dealing with matters that have higher transaction costs than firms, which in turn deal with matters that have higher transaction costs than can be managed in the open market.

The straightforward example is being paid for your work. The firm assures a salary in return for your work. The alternative is freelancing where being paid is by no means assured, and requires high levels of trust to be maintained or enforced through freelancing platforms.

Institutions, then, exist to most efficiently contain the costs from enforcing trust in transactions. Blockchain, by providing a mechanism for assured trust, radically changes this dynamic by sharply removing transaction costs.

Transaction costs are why unwanted materials become waste

Waste arises, in part, through the intersection of needing to remove unwanted materials in a timely manner, and the transaction costs of moving those materials to where they can be best used.

Collecting unwanted food and distributing it to those who need it is simple. It is not simple to know where the unwanted food is and who can use it before the food spoils. Organisations such as Foodbank and platforms such as OLIO exist to solve for this problem, but transaction costs remain high. They generally address areas where those costs are lowest, such as surplus supermarket stock and long lived items.

Collecting separated spoiled food and for composting or anaerobic digestion is simple. It is not simple to know where and when that food is available.

The same applies to recyclable materials such as paper, cardboard, plastics, metals and so on.

There is no technical barrier to vastly increasing the value of how most materials are managed, whether this is through redistribution, reuse, recycling or recovery of biogas.

The barrier comes about through the high transaction costs from separating and collecting these materials compared with the market value of the materials.

Some of the transaction costs that give rise to waste

The logic for the current system looks to solve the core problem of a surplus of various different types of unwanted materials that needs to be removed to avoid them accumulating. It looks something like this:

1. Unwanted materials need consolidation to reduce the transaction costs for materials management. This usually involves bins, but can involve compacted bales.
2. Bins are designed to be easily and safely used in the absence of knowledge of their contents. This reduces transaction costs first in how they are filled, and then in how they are emptied.
3. Collections are scheduled to ensure that waste is collected on a regular basis, irrespective of whether it NEEDS to be collected. This reduces transaction costs of arranging a collection each time it is needed.
4. Collections are charged on an account and per “bin lift” rather than by weight, and are charged on account. This reduces the transaction costs for weighing each bin or requiring a small payment several times a week.
5. Collection runs are maximised for the collection company, collecting as much waste as possible in a single trip to reduce the transaction cost to empty each bin.
6. Collection vehicles are as large as possible, holding as much waste as possible before needing to go to a disposal facility, reducing the transaction cost to empty each bin.
7. The waste disposal facility is as large, simple and as generic as possible to reduce the transaction costs of specialised treatment. Landfills are ideal because they are inexpensive, scale easily and can receive a very wide range of materials.
8. Companies managing waste are large because it a vertically integrated firm owning each of the pieces in the system reduces transaction costs between each part in the system. It also

The problem of transaction costs means that materials progressively lose value as they move through the system, and the overall system optimises for unwanted materials to be mixed up and disposed. It, incidentally, also optimises for waste generators to be sold more bin lifts than they strictly require.

To summarise, transaction costs are broadly associated with:

1. Separating materials
2. Filling and emptying containers for materials
3. Arranging and paying for collections
4. Collecting materials
5. Disposing of materials

Coupled with generally low values for the materials, the aggregate response to these transaction costs is to mix up unwanted materials and manage them as waste.

How transaction costs can be removed from waste

Developing systems to remove the transaction costs will radically change how waste is done:

• Small sensors, cameras and artificial intelligence to interpret the data gathered will enable automatic separation at the source, where the materials still have the most value.
• Once sorted, different materials can be stored separately, with their collection frequency moderated based on the material (food more frequently than plastic for instance)
• Similarly, separated materials can be managed in a way that is most efficient for the material (plastics baled, glass crushed etc)
• A connected up network can automatically place the bin into a micro-market for collections, and each collector can automatically bid a price for the collection based on proximity and the value of the materials in the market at any given time. It becomes possible to create a highly responsive flow of materials through the economy.
• The bin can be automatically placed in the successful collector’s run, and payment for the collection can be instantaneous and weight based.
• Each separate material can be consolidated and processed at progressively larger and more capital intensive operations, enabling local reverse distribution nodes to feed materials into factories (or farms, or supermarkets).

Most importantly, each of these technology steps already exists, in the wild, in the waste world.

In time, the system can be operated through autonomous vehicles scurrying back and forth with our unwanted materials, making sure that they go where they are most needed and valued. A connected up flow of materials through sensor technology.

The role of blockchain

This technology driven connection of materials is a cool thought experiment, but is insufficient in the absence of a mechanism to ease the transaction costs at each step. Spending minutes of a person’s time to verify a transaction worth cents is irrational. This is where blockchain changes everything.

The blockchain, using sensor technology as its oracle, makes the transaction costs vanishingly small for first separating out, and then separately collecting and processing unwanted materials.

The costs to verify claims about what is in each bin are vanishingly small. The costs for micro transactions, including micro auctions, are vanishingly small. And, by setting these transaction costs to vanishingly small levels and baking in trust, the entire system goes into a “change of state”.

The system, once it has gone through this change in state, retains value throughout the flow of materials. It shifts from a capital intensive “wheels” business moving stuff to disposal points, to a highly sophisticated materials marketplace fanning deep into the economy.

And, by removing transaction costs and retaining value in materials, there is an immense amount of profit unlocked for the businesses generating waste in the first place.

This is clearly an immense space. It is moonshot territory, and the people who manage to position themselves at its inception will gain tremendously, as early plays will remake the entire waste industry. An industry that, in Australia alone has annual revenues of $8bn, and globally is worth trillions.

Not to mention the value shifted from the entire raw materials extraction and manufacturing system.

It is huge. As big as the dot-com boom that spawned the current tech titans.

A global conversation

This deserves a global gathering to discuss it further. The best of the cutting edge ideas coming together in a conference to connect it all up.

An event along the lines of “Blockchain and waste”, deliberately daggy in its reference to waste because those of us who see this know what it really is.

Location TBD. Somewhere easy(ish) for people from around the world to reach, with a good venue and easy to access. Dubai perhaps? The subject of a further article for sure.

If this article and the ideas within it excite you, please reach out. If you’re interested in learning more about the conference, please reach out. If you want to be a part of this moonshot, please reach out.

I’m not hard to find.