Blockchains and PaaS Business Models

Blockchains Could Accelerate Society Towards Urgently Needed PaaS Business Models

FAB Foundation

Welive on a finite planet, with finite resources, especially natural resources that support all life on Earth. If everyone in the world consumed as North Americans do, it is estimated that we would need 5 to 7 planet Earths to support the typical consume and throwaway lifestyle. Yet consuming less is not a true solution to the problem, it only would delay the inevitable. What is needed is a radical transformation of how we manage the Earth’s resources, and this has been called the circular economy. This article gives a brief introduction to the circular economy and the role that blockchain systems would play in their implementation.

Linear Economy and Waste

It was estimated that in 2010 the world extracted 65 billion tonnes of resources from the Earth. In 2020 it is estimated that this will grow to 82 billion tons [1]. In this article we are not talking only about oil, or elements like gold, but in particular elements that we once thought to be of in plentiful supply, like zinc and copper, and important rare earth metals. Copper is used in everything electrical and electronic, and in recent and upcoming years a high demand is forecasted because electric vehicles use about 4 times as much copper as required in gasoline vehicle. A deficit in copper is projected to start occurring by 2019, growing to 10 million tons (or 37% of projected demand) by 2030 [2]. One impact of this is that the world would not be able to replace as many gasoline cars with EVs, as required to reach global warming targets, a very serious consequence.

Figure 1. Elements in supply risk [3]

Figure 1 shows an annotated periodic table of elements from a Yale University study identifying 62 elements as in supply risk[3]. Note that the chart was based on data from 2008, i.e. already a decade old. Supply shortages will impact a wide range of important products including solar panels, wind turbines, LCD displays, lithium batteries, semiconductors, LEDs, lasers, drugs, fertilizers and jet engines. The brutal truth is that the current model is unsustainable and future generations might simply have to do without these products, or pay extremely high prices and face very restricted supply unless alternative solutions are found. Currently when products are disposed of in landfills, or incinerated, the original raw materials are either impossible or impractical to be separated out again and are effectively “lost” forever. This is the result of what has been termed a linear economy model (figure 1), in which the Earth’s resources are gradually being used up as we produce, consume and then dispose of goods at a faster and faster rate until necessary resources are exhausted; an unsustainable world.

Figure 2. Linear Economy

Even efforts at recycling fall far from hitting the mark. Only a fraction of products get recycled (by many estimates only 20%), and when recycled they are actually “downcycled” into materials or products of lower quality and functionality, for example original virgin plastics used for food containers or household cleaners might get recycled to be park benches or trash cans.

Relevant to this article, E-waste, is very serious problem. E-waste contains hazardous substances such as cadmium, lead, and phosphorous. Over 20 million tons of e-waste are produced globally every year [4].

Figure 3. E-Waste dump

Because proper recycling is too expensive, less than 40% of this is recycled and the remaining 60% ends up in landfills. Even many of what people are led to believe are safe recycling channels actually end up to be illegal disposal channels. The bulk of the 60% goes to developing countries to areas where people try to extract copper or gold from the waste by burning or using industrial acids.

Figure 5. E-Waste residue leaching into a river

Many of people doing this are children, doing so without any protection, inhaling the toxic smoke generated in the process. The residue goes back to landfills or dumped in rivers or water bodies, killing all fish and life in the water, rendering the water undrinkable and unusable for any purpose. The toxic smoke from the fires travels and gets onto food in markets and fields, or is inhaled. The toxins cause cancers, birth defects, and retarded child development [5, 6]. The unacceptable part of this broken system is that neither the producer nor the consumer takes responsibility for the hazardous materials and environmental and social costs that are borne by some of the world’s poorest populations.

Two types of products are at the root cause of this problem. One is products with planned obsolescence, which is when manufacturers artificially limit the usable life of a product shorter than what is actually achievable by making it lower quality, and impractical or expensive to repair, such that consumers are forced to buy a new one more often (e.g. light bulbs [see sidebar], printers, appliances). The other is rapidly innovated products, where new models are introduced very frequently (e.g. cell phones, computers, TVs) such that customers are enticed to continuously buy the newest model with the latest features even though the one they have is perfectly working and will likely continue to do so for several more years. Both types of products lead to waste [9].

Figure 6. Today’s products fall into 2 types, both causing waste [8]

Circular Economy and Product-as-a-Service

The solution is a complete transformation of the economic model to what is known as a circular economy. In a circular economy, products are first designed such that they can be easily and safely disassembled and recycle 100% of the material content into new goods when they are no longer needed. It is important to note that the recycling is a lot more than what we might consider as 100% recycling today. The recycling does not downgrade the quality of the materials, but retains the original quality, thus allowing “upcycling” as opposed to “downcycling” referred to earlier [10]. Also of particular note is that both resource extraction and waste from the linear model do not exist.

Figure 7. Circular Economy

However, to design a product for 100% recycling is costly compared to today, so the concept of Product-as-aService (PaaS) is introduced to change the relationship between the producer and the consumer. This is best explained first with an example.

The example given by Thomas Rau of Turntoo will be simplified and paraphrased here [9]. To light your home or your office, let’s suppose that instead of buying light bulbs, you buy “light-as-a-service”. How would this work? You are only interested in light, the outcome, and thus pay for a the amount and quality of light for the hours that you need. Thus you pay for light-hours just like you pay for kiloWatt-hours when you buy electricity from your electricity service company. The supplier is responsible for providing this, in whatever manner they choose to. So if the light is provided by light bulbs, the supplier is responsible for installation, maintenance, repair, and eventual removal at the end of your service contract. The supplier is even responsible for the cost of electricity, because you have contracted for light, and if electricity is required, that’s the supplier’s problem. Throughout, the supplier retains ownership of the light bulbs (materials), and when they are returned to supplier they are responsible for disassembly and recovery of the raw materials for reuse or remanufacturing in future products.

Thus you can see that the supplier is incentivized to design the product to be very reliable to minimize maintenance costs, and also to be energy efficient, easy to install, use the minimum of raw materials and finally easy to disassemble for recycling and recovery of all the original materials because they are bearing all the related costs. There are no externalized costs, especially environmental costs. Furthermore, the consumer enjoys the use of a very high quality product, one that they probably would never buy themselves.

Circular economy / PaaS models are not simply hypothetical, but rather many successful projects have been implemented in the real world, applied to lighting, large appliances like washing machines & refrigerators, headphones, furniture, carpet, buildings, MRI equipment, automobiles, jet engines and even clothing [9]. The fact that PaaS has been shown to be economically viable on a low cost product, light bulbs, shows that it can be viable on a very wide range of products because generally the higher the cost of the product, the more sense it makes [11]. Products including tires, automotive parts, construction machinery, copiers and printers have been sold in a circular economy model for many years [1]. In December 2015, the EU adopted a plan to transition towards a more circular economy, and set to strengthen this plan in 2017 [12]. According to an IDC 2014 report, 40% of discrete product manufacturers will provide PaaS platforms by 2018 [13]. Accenture’s research indicates that the circular economy could bring $4.5 trillion in benefits by 2030 [14]. Similarly, it is estimated that the EU would save $520B to $630B per year in material costs after changing to a circular economy [1].

The Role of Blockchain Systems

Blockchains can play a very important role in the new PaaS and circular economy paradigm. It is easy to see that any of the hundreds of types of devices that we use, even products that we now find with added electronic sensors, controls or displays could be “metered for use”, such that we pay for use. In many cases they should be metered for use because wear-and-tear maintenance costs are proportional to usage, and energy consumption is proportional to usage. Plus there are benefits to a pay by the hour, minute or second model for both the consumer and the supplier. This is a perfectly natural application for the microtransaction capability of blockchain systems. Furthermore, the explosion of IoT technology, where billions of “things” in the future will have connected real-time sensors for monitoring and control, everything from street lamps to bridges, roads, parking spots, wearable health products, and appliances could and should be paid for use via a blockchain software system. The low transaction cost and overhead of blockchain microtransactions is really a necessity to make the PaaS model viable for many “products”. In one sense, in the future, we can envision that cryptocurrency mining ironically will replace conventional mining for metals and elements from the earth, once the transition to the circular economy is complete.

Another aspect where blockchains play a role is setting up and managing the contractual aspects of PaaS products. The smart contract capabilities of blockchain applications are a natural fit to set up the service (initial contracting), and to handle conditions of loss, theft, damage or breakdown of the product, such that the materials are tracked. Recall that the supplier retains ownership of the materials even though they may be in the possession of the customer. However if the product is lost or stolen, this must be accounted for, so that the manufacturer is compensated for the cost (automatically via smart contract) and especially in the case where the product contains hazardous materials in order to avoid externalization of potential environmental costs. The natural fit of blockchain systems to product traceability and providence applications also obviously applies here.

To enable such applications in the future, it is obvious that blockchain platforms need to massively scale up to handle the volumes of products and transactions that are anticipated in this new paradigm.

We do not inherit the earth from our ancestors; we borrow it from our children.Summary

In the digital realm we have witnessed a huge shift to the software as a service (SaaS) model, and streaming of music and video. Consumer acceptance of X-as-a-Service in the digital realm has been virtually complete, and we have learned that “Ownership is over-rated”. Therefore we pay for the use, enjoyment and benefits of the “product”.

Now for physical products, we have similarly described how PaaS in the context of a circular economy model is not only possible, but also beneficial and necessary for a future sustainable planet. The circular economy requires a complete transformation of the way that we approach not only the use of products, but more importantly their design, recycling and reuse. Even more importantly it requires a change in our mindset, to respect all materials that have come from the Earth as having value even after the product that it might be in has served its useful life. In a circular economy, as in nature, waste does not exist.

Finally, we discussed how blockchains can play a very important role in PaaS models, enabling efficient contracting, payment, and providence tracking of the “product”. This concept has enormous implications for our future society, and has many interesting dimensions that we have not been able to discuss in this brief article and we encourage the reader to delve into this further. References [1], [9], [10] and [15] are recommended as an excellent starting points.

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References

1. Ellen MacArthur Foundation, Towards the Circular Economy- Volume 1, 2013.
2. Dejardins, J., The Looming Copper Supply Crunch, Visual Capitalist, June 23, 2015.
3. T. E. Graedel, E. M. Harper, N. T. Nassar, et. al., Criticality of Metals and Metalloids, Proceedings of the National Academy of Sciences, April 2015, 112 (14) 4257–4262.
4. IFIXITORG, The E-Waste Problem, https://ifixit.org/ewaste
5. Zhao, M., E-Waste: Dumping on the Poor, 2007, https://www.youtube.com/watch?v=EXzsqTFwV3Q
6. Vitola, G., E-Waste Hell, SBS Dateline, Oct. 2, 2011.
7. Centennial Light Bulb Committee, website: Livermore California’s Centennial Light, http:// www.centennialbulb.org/
8. Krajewski, M., The Great Lightbulb Conspiracy, IEEE Spectrum, September 24, 2014.
9. Rau, T., Circular Economy: Thomas Rau at TEDxZwolle, TEDx talk, March 12, 2013.
10. McDonough, W., Braungart, M., Cradle to Cradle; Remaking the way we make things, North Point Press, 2002.
11. National Zero Waste Council, Circular Economy Snapshot: Philips Light as a Service, Circular Economy Case Studies & Snapshots. 12. European Commission, Report from the Commission to the European Parliament, The Council, The European Economic and Social Committee and the Committee of the Regions on the Implementation of the Circular Economy Action Plan, Brussels, Jan. 26, 2017. 13. Ashton, H., The Rise of Product-as-a-Service in Manufacturing and Some of the Technology Impacts, IDC Community, December 17, 2014 14. Scott, M.,”Jeans, phones, engines: circular business models are growing, but how to finance them?”, The Guardian, August 8, 2017. 15. Potocnik, J., New environmentalism and the circular economy, TEDxFlanders, March 26, 2014. 5