A Blockchain for the Circular Economy

Introducing Cometa an application-specific blockchain for enabling circular business models

Background

In today’s linear economy, products are made with components obtained from extracting raw material from the earth, assembled and sold to users to be thrown away after often a short period of time. This requires a great use of energy at every step. Many products are not even designed to be repaired or provide actual availability of spare parts. The result of this cycle of extract, make, sell, use, burn is the environmental disaster that we are currently witnessing: the continuous depletion of our finite natural resources.

The only way out is to change the way products are designed, built and sold. We need to treat the resources used along the way with great care and ensure that products created with them are durable and maintainable. We must also maximize the number of components that can be reused. In other words, we need to adopt the principles of a circular economy in which the resources used to make a product in the first place, re-enter the system to create value again and again.

Switching from a linear economy model to a circular one is a strategic innovation that can take many forms, including business model innovation. A usage-based business model in which products are sold for their use and not for their ownership addresses the circular economy goal of decoupling the generation of wealth from the use of energy and other natural resources.

For the adoption of usage-based business models to occur, there are several challenges that must be addressed, starting with providing a compelling value proposition for the customer, who may be accustomed to the ownership business model and must see a clear advantage in switching to a usage-based one in order to make this change.

As the company remains the owner of the equipment in a usage-based business model, it is also liable for the proper functioning of the product. It needs to be able to quickly solve any malfunction, preferably even preventing them with cloud monitoring and the use of machine learning to predict failures.

From seller of goods to seller of their usage, companies become effectively aggregators of services, which include a network of actors, from the companies providing parts, to banks providing the funding, to third parties that commission and maintain products in the field, landlords, utility companies and others.

Moving to a usage-based business model, “generally expands the network of actors and calls for a true system of actors”, and “the contract becomes part of the value proposition as it should formalize the result to reach and the service level agreement that will assess the level of achievements”¹.

Since the core part of the value proposition is now a service rather than a good, the unit of invoice may be hard to define. The competition is still the traditional approach of buying tangible goods. Monitoring the unit of consumption and the service levels in the contract must be a key function provided with the necessary security and transparency as this monitoring provides the units of invoice and must be verifiable by the customer and other actors in the network that makes the service possible.

Cooperation, transparency and trust among actors, in addition to confidence in the ability of the provider to reach the goals, are essential in a usage-based business model, and companies need to demonstrate the ability to create such a network and to monitor and reach the promised result. The relation with the customer replaces the transaction in a usage-based business model.

In addition to the fact that many of the actors in the network of actors are still operating with a linear mindset, the following implementation barriers to adopting a usage-based business model have been identified in:²

1. Need to align incentives among actors
2. High administration costs
3. Complex division of ownership
4. Need to handle micro-transactions

All these difficulties can be mitigated by the adoption of a blockchain, tokenization of fractionalized assets, cryptocurrency and smart contracts.

To address and align the incentives of all actors that need to share responsibility for the proper functioning of the asset, all the actors need to be compensated and share ownership of the asset. In a blockchain where assets are tokenized, payments for use of the asset in a (stable) cryptocurrency are automatically distributed by a smart contract among all owners of the asset.

Administration costs are drastically reduced to gas payments for the use of the blockchain. These are a small fraction of every transaction and are also split among all the validator nodes of the blockchain that ensure security and fairness in the managing of the blockchain transactions and the assets represented in it.

Division of ownership is very simple once assets are tokenized into a (fractional) NFT and managed by smart contracts. Micro transactions are intrinsic in the use of a cryptocurrency that can easily transact fractions as small as one millionth of a dollar at a time.

A product company adopting a usage-based business model will benefit greatly by adopting technologies such as cloud monitoring, machine learning and a blockchain for managing asset ownership, usage monitoring, and billing in its transformation to becoming an integrated solution provider.

Cometa Network

Cometa Network is a blockchain-based platform that blends NFTs, asset tokenization, fractional ownership and smart contracts, facilitating the servitization business model of selling equipment as a service rather than as assets. Cometa is targeting IoT and industrial IoT devices such as robots and autonomous systems, as well as manufacturing equipment, renewable and energy efficient systems in distributed generation, commercial heating, refrigeration, LED lighting and distributed energy systems.

A pay-per-use business model, in order to be effective in terms of enabling a circular model of production, must include all possible actors that are involved in a product or project lifecycle, including the manufacturer, component manufacturers, power companies, financial institutions, installation and maintenance companies, landlords, building management and end-users. All have aligned incentives and penalties to ensure an effective circular lifecycle of a product or a project.

It is obvious that setting up such a complex system of payments, incentives and penalties is difficult from a legal and a logistical standpoint. Cometa provides the technology to create a fair and secure ecosystem for pay-per-use business models based on blockchain, smart contracts and a cryptocurrency for the payment of the performance provided by the managed devices.

Pay-per-use service contracts in Cometa are based on the ability to measure and track use and product performance and are implemented as software in the blockchain which provides the decentralized, scalable, and secure infrastructure for trustless interactions. As a result of acquired product use, the service contract performs all the payments in the blockchain automatically and in a transparent, secure way.

Examples of pay-per-use business models include cooling-as-a-service for air conditioning and commercial refrigeration, work produced by industrial robotic systems, illumination by commercial LED lighting, mobility by electric vehicles, energy generated and stored by systems placed at the point of use (Distributed Energy Resources).

Pay-per-use business models for industrial and commercial devices provide incentives and motivation for manufacturers to design and make more durable products that are easy to maintain and have a longer life, with components that are easy to recycle and spare parts promptly available. From the user side, there are incentives in adopting newer and more energy efficient products because they are not capital expenditures and there are lower risks to adoption.

Basic Mechanism

Products are provided by the owner, for instance, the manufacturer, a bank or other asset management company, for use by their customers with a certain performance representation and charged by unit of performance. The products are equipped with a secure hardware module with certain cryptographic capabilities and with firmware capable of measuring the product performance and communicating with a Cometa blockchain node in the cloud.

Every product is tokenized as an NFT in the blockchain and usage is tracked in the NFT by firmware in the secure hardware module of the product. The firmware measures performance, with dedicated blockchain transactions sent by the hardware module to the blockchain at regular intervals.

Based on measured performance and the product tariff, the blockchain automatically performs cryptocurrency payment transactions from the user to the owner or owners of the product.

Fairness is guaranteed by the consensus mechanism in the blockchain, which has a number of independent validators, in the form of the nodes running the Cometa blockchain software.

Consensus

Cometa uses the Tendermint energy-efficient Proof-of-Stake (PoS) consensus that consists of many validators, either trusted or potentially byzantine. When a system such as Cometa handles value, the integrity of that system becomes very important. One way to ensure integrity is by sharing the responsibility of maintaining it with a large group of independently-motivated participants serving as validators that run the Cometa blockchain node simultaneously.

Tokens

The blockchain has two tokens: the COMETA native token and a stable cryptocurrency token used for the payments of product performance, for instance USDC.

The COMETA token is the native token of the blockchain. COMETA is the staking and governance token, as well as gas for the network. When staking COMETA, a token holder is bonded to a validator helping to confirm blocks and secure the network. Holders of the COMETA token will control governance, as well as receive the network’s commission. It will be distributed in a way to be decided and will become available to the public after a SEC-compliant Initial DEX Offering (IDO) on a market maker for the Cosmos ecosystem such as Osmosis.

Cryptocurrency for the payment of product performance is USDC, a USD-pegged stablecoin available in the Cosmos blockchain.

Hardware Components

Products incorporate a hardware module in firmware to execute a metering function and connect to a blockchain node in the cloud. Products have their own blockchain account with the corresponding private key secured in the hardware.

Requirements

1. A trusted execution environment such as the one provided by the ARM TrustZone technology for Cortex-M processors.
2. Secure data storage with their account private key.
3. Active tamper detection.
4. Network connection.

An example of this would be the ST Microelectronics STM32U5 microcontroller using a proper runtime such as the Twilio Microvisor.

Firmware Functions

The main function of the hardware module is to meter the use of a measurable quantity representing performance of the product that is used as a unit for charging for the use of the product. The firmware metering module constantly tracks usage of the measurable quantity that determines performance. Performance is measured in units, the meaning of which depends on the device.

At regular intervals, the firmware broadcasts a metering transaction to the blockchain with a message containing the value of the metered billing measurable quantity in “units”. This transaction triggers the “software contract” in the blockchain, causing it to initiate the payment transaction in the payment crypto currency to the device owners in the amount established in the configuration in proportion to the owner fractions.

Oracle Approach

An alternative to having the secure hardware component installed in the device, an oracle will be developed to provide off-chain messages to communicate the metered performance of devices to the Cometa blockchain. With an oracle, an off-chain message can be then brought into the blockchain and used to trigger the same payment logic used when using the hardware module.

This approach may very well provide the same level of security in a system where, for instance, energy consumption is measured by a smart meter and used as a measurable unit, with the energy consumption informing the oracle for the devices that are managed by Cometa. If a utility company can be trusted with the measurement of energy, its Automated Meter Infrastructure (AMI) platform can also be trusted to “feed” the oracle.

Conclusions

A pay-per-use business model requires more than a simple vendor-buyer interaction, as a network of actors needs to take responsibility and share ownership of the asset that is servitized. Technology such as the Cometa blockchain can be essential to this system.

Using a blockchain can be key to providing certainty and trust. This is particularly evident when the flow of payments can be both directions among stakeholders. This is the case, for instance, with the disbursement and distribution of energy efficiency incentives that can be triggered by a specific product achieving certain measured consumption reductions, with a payment then distributed among owners and the user of the product, The same can be said in a Distributed Energy Resources (DER) system of several grid-interconnected products, with many owners, users (that are owners themselves), and the utility company having bi-directional flows of energy and payments among each other.

Cometa is still at a very early stage and, while a prototype and a demo have been implemented, there is no network of validators yet to provide the decentralization needed for an actual permissionless blockchain to operate.

At the same time, it proves that blockchain technology, such as the Cosmos SDK, can be effectively used to conceptualize an application-specific blockchain that allows for tokenizing assets, and that embeds the smart contract logic with the required performance to enable the pay-per-use business model even with a wide network of actors and stakeholders.

Future work involves the deployment of an actual proof of concept with manufacturers and blockchain companies that are interested in cooperating in the Cometa Network development.

[1] Sempels, C. and Hoffmann, J., 2012. Les business models du futur: créer de la valeur dans un monde aux ressources limitées. Pearson Education France.

[2] Toxopeus, H., Achterberg, E. and Polzin, F., 2021. How can firms access bank finance for circular business model innovation?. Business Strategy and the Environment, 30(6), pp.2773–2795.

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