Circular Economy requires frictionless collaboration
Originally written and published on July 29, 2020 by Constantin Kostenko.
Scaling Circular Economy requires trusted collaboration between humans and machines on an unprecedented scale. Our current solutions are not fit to enable frictionless and economical collaboration, but we have the infrastructure and patterns in place to build this now.
I’m relatively new to the circular economy paradigm. I still have the privilege of approaching, processing, and reflecting on the information from the beginner’s mind. It’s a once in a lifetime opportunity presented to a person who just started to learn a new subject before the curse of knowledge sets in. After a while, you gain sufficient material base and you start to forget what it feels like to “not know”. This budding circularity knowledge combined with blockchain expertise and two decades of delivering large scale software systems yields a different perspective on the circular economy scaling challenge.
During the From Linear to Circular 2020 programme, one of the resources I read was the Accenture’s report — sold as a handbook — on circular economy. The narrative, published in January of 2020, is a quick read and the bibliography at the end of each chapter is a great reference. It feels like the book is written as if the status quo of the industries will continue with the circular economy concepts bolted-on. The transformative nature of the circular economy paradigm along with the interdependencies between industries and the people is not apparent.
I look at this differently. I think of circular economy as a living organism — a mesh — that will span and cross-link all industries. I look at people becoming active participants in building and operating the circular economy instead of profiled consumers buying “circular economy” products. I heard someone describe circular economy as “deliberate disruption”. Circularity is not about small changes — it’s about rethinking the products, the systems, and our relationship with physical things. The success of circularity hinges on our ability to scale cooperation between unrelated parties in the most frictionless way possible.
There is no question that thoughtful amalgamation of technological progress between the biological, physical, and technology domains is needed to enable circular economy solutions. The Accenture’s book nicely summarizes the alphabet soup of the fourth industrial revolution. Yet the book only superficially aligns select technologies to various use cases. In the book, the blockchain technology is relegated to track and trace. That’s an important function. However, this is not why blockchains will enable scaling of circular economy solutions.
Scale Through Collaboration
We need frictionless value based collaboration between unrelated parties to scale and permanently sustain circular economies. Each person or business entity in possession of a product, component, or material should choose the circularity loop that provides highest utility. The “right next circular step” for a given product or a component should be “programmed” into the item itself. A permanent public network needs to keep track of the item’s history, and each next step towards circularity must be rewarded with monetary value incentives to encourage the right action. This tracking and payouts has to last for decades, financial commitments for the right next step must be guaranteed, item’s ownership must be irrefutable. All of this has to be done frictionlessly without creating burden to the original producer of the product or other interested entities such as not for profit organizations or governments.
For circular economy to scale the biggest challenge will be the coordination between people so that the actions of people and businesses in a product’s value chain are incentivized for desired behavior. For example, imagine that iRobot, the manufacturer of Roomba robotic vacuums, decides to expand their revenue through the product life extension business model. For this business model the goal is to keep the vacuum in operation as long as possible and make additional revenue of the accessories such is batteries and replacement brushes. In this example iRobot works with the federal and local governments to encourage responsible recycling of vacuum batteries.
Every Roomba robotic vacuum cleaner comes with a pre-programmed $100 cash reward, a $50 federal tax credit, and a $25 local tax credit if you follow certain actions over the life of the product. When you buy the vacuum cleaner you claim the ownership of its digital twin using GDPR safe privacy preserving methods. Whoever owns the digital twin is eligible to receive the tax credits and the cash reward.
With a general purpose blockchain, like Ethereum, you can build a solution to give a vacuum an identity and program a set rules for unlocking cash rewards and tax credits. The money and the rules for releasing the funds are stored on the blockchain in something called a smart contract. The “right next circular step” actions, such as maintenance activities or return of a battery to an authorized retailer, are pre-programmed actions that are associated with a vacuum’s digital twin and permanently recorded on the blockchain. The successfully performed actions trigger incremental payment release to the owner of the vacuum’s digital twin. These maintenance or parts return actions are orchestrated to incentivize the current owner of the vacuum to contribute to the right circularity loop that provides highest utility or the next best option. Perhaps the first $50 of the $100 cash reward is awarded if the vacuum cleaner is in use after 4 years with all required maintenance actions completed within 2 weeks of the prescribed timeline. And the $25 of the $50 tax credit is applied when a battery is returned to an authorized retailer. During the battery return perhaps the vacuum manufacturer would offer a 20% discount towards purchasing a new battery if it’s installed into this specific vacuum cleaner.
Why blockchain?
The design of the Ethereum blockchain promotes the characteristics of the publicly owned and trusted “always on” utility network. The technical details of how this works may be a subject of another post, but the key point is that thousands of independent computers are incentivized to secure the Ethereum network and keep it running perpetually. This is why we already have the necessary computational and programmable pay-as-you-go infrastructure to enable creation of frictionless long-running collaboration solutions.
The Ethereum blockchain design properties enables creation and execution of long-running (think 10+ years) business logic that is unstoppable. You can program the irreversible promise that a payment will be made for a pre-set amount if a specific battery associated with a vacuum’s digital twin is returned to an authorized center. As soon as the battery is returned the payment is automatically triggered to the owner of the vacuum’s digital twin. Note that the payment is not not made by the battery return center, but rather the action of returning the battery triggers the pre-programmed payment on blockchain.
This can be extended further. Imagine if every battery also had a digital twin and was programmed with the “right next circular step” incentives that can be unlocked by an authorized service center or a recycling facility. Upon return of the used battery the ownership of the battery would be transferred from the account that owned the vacuum cleaner to the account owned by the authorized center. This would allow for subsequent ownership tracking and assurance of the right circularity actions without requiring a centrally managed IT infrastructure paid by the government or the vendor.
In this example we have multiple participants that need to reconcile and verify data in order to make this work. In a traditional system the participants such as the tax authority, iRobot, iRobot’s parts suppliers, authorized battery return centers, the iRobot retailers, would have their own systems with their own records to keep track of their role of the circular economy business process. The act of reconciliation between different participants is what creates the friction: it’s slow, expensive, and error-prone. A blockchain solution provides a single source of truth for all participants interested in the details of the digital representation of an item.
Circular economy is fueled by reuse and circular actions. This is why transfer of ownership of an item or its parts has to be frictionless, permanent, and economical. If the current owner decides to sell the vacuum cleaner just after one year of usage then along with the unit the digital twin should be transferred to the new owner. During this ownership transfer the maintenance history, the remaining credits and cash rewards will transfer seamlessly to the next owner. If the new owner continues to comply with the “right next circular step” actions, then he or she will benefit from the pre-programmed credits.
Conclusion
The example above can be implemented using a traditional centralized IT system. But such solution would only work if all participants involved trust each other through a central authority (e.g., Amazon). Circular economy can only scale if participants that don’t trust each other can coordinate successfully in a trusted way. A blockchain approach is needed for parties that require some trust to cooperate together, but cannot practically and economically do so in a centralized way.
We will need new social, decentralized, and autonomously cooperative systems. These cooperation systems will require trusted transfer of value and trusted proof of activity between people and organizations who don’t know each other, but who need to work together to achieve common goals and needs. These coordination solutions will have to be built on a public general purpose blockchain with the highest level of trust built into the “always on” network. The Ethereum blockchain and related technologies has the desirable features to build solutions to enable frictionless trusted coordination needed to scale circular economy.
