Blockchain and the Circular Economy: An Exploration

June 26, 2018

“The best thing since the Internet” or a solution looking for its problem? Could it be both?

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“The best thing since the Internet” or a solution looking for its problem? Could it be both?

 

Blockchain is often touted as the key to improving trust and transparency across industries and moving towards more equitable and collaborative systems. But could it also be the key to a circular economy?

To explore the potential for blockchain to support and accelerate circular supply chains, Circle Economy and Circle Lab hosted a series of Twitter chats on June 12, 13, and 14, where they invited people around the world to join the discussion online, share their insights, and explore what problems currently hindering circular supply chains the technology could help solve.

Insights from our conversation below:

A primer on blockchain

First things first: what is blockchain, and what problems is it really trying to solve?

Blockchain is essentially a ledger or a spreadsheet that is duplicated thousands of times across a network of computers (or “nodes”) and is designed to be regularly updated and continually reconciled. It’s the technology powering Bitcoin, but its applications go beyond cryptocurrency:

 

What really makes blockchain unique is its decentralisation, and as such, using the technology really only makes sense in situations where no alternative, centralised solution can do the trick:

 

 

Blockchain and the circular supply chain

 

From a lack of proofs of concept and economic incentives to a regulatory environment that still favours linear business practices, we’re in no shortage of barriers to circular supply chains.

Most relevant here, however, is the current inability of supply chain actors to track the provenance of materials, components, and products throughout the chain so that anyone along the way can assert their circularity – from the moment they were first extracted or created, all the way through their (many) life cycles.

 

By translating complex chains of custodies into distributed, immutable, digital trails, blockchain could enable manufacturers, recyclers, all the way to consumers to confidently assert the circularity of their products:

 

 

 

 

And applications already exist! Bext360, for example, uses a combination of new technologies, including blockchain, to monitor coffee beans and provide fair compensation to farmers, and A Transparent Company also uses blockchain to improve transparency in the fashion industry!

But it’s not all that easy.

Garbage in, garbage out

Blockchain is often cited as a particularly effective solution to situations where there is fraud or lack of trust in a system – but is that really the case?

 

 

The notion that blockchain can guarantee all data authenticity and cut out the need for trust entirely quickly falls apart when data entered in the blockchain is wrong or tampered with in the first place. This is how someone managed to convince the technology they were the original artist behind the Mona Lisa, for example:

Humorous as it may be, this example sheds light on the serious implications of assuming data on the blockchain is always authentic – from fraudulent information on data of origin for different materials to potentially much more harmful implications on e.g. child labor or fair working conditions:

 

 

Not a bandaid for trust

If blockchain cannot guarantee data authenticity in a system with inherent trust gaps, what can? Could pairing the technology with additional processes and on-the-ground, independent certification help ensure the validity of the information?

 

It seems like third party audits, tamper-proof technology linking physical objects to their digital identity, and trustworthy partners still have useful purposes to serve in a blockchain-based system – especially where sensitive and hard-to-measure information is involved.

 

 

Changing mindsets: from competition to collaboration

If trust still has a role to play in a blockchain world, then so should education, as a change in mindset will be key in getting stakeholders to work together, rather than against each other.

 

Since the industrial revolution, supply chains have mostly followed a competitive model of doing business, limiting their opportunities to find, create, and leverage synergies.

 

 

A reluctance to share information, deeply rooted in the global race to low costs, coupled with information asymmetry that continues to benefit many actors in the supply chain – regardless of efforts being unnecessarily duplicated – all contribute to a competitive and counterproductive mindset.

 

 

Consortium blockchains, and other versatile uses

To nudge supply chain actors further towards collaboration, initiatives like Circularise are leveraging blockchain, zero knowledge, and smart questioning to enable privacy and confidentiality among those that want to remain anonymous, don’t necessarily trust each other, but are still committed to greater transparency and collaboration within their supply chains.

 

Consortium blockchains are another alternative for those supply chain participants that already trust each other but are not willing to share their data in a public forum. Semi-private and partially decentralised, consortium blockchains are controlled by a number of pre-selected nodes and deliver a number of advantages at the intersection between centralised systems and fully public blockchains.

 

Designed properly, a blockchain could enable its participants to collaborate without compromising on key competitive advantages or on confidentiality and privacy issues, and would, in and of itself, present advantageous gains not to warrant additional incentives for participants.

 

 

Hammering the right nail in

Finally, it is worth noting that because blockchain is, to some extent, a solution looking for the right problem to solve, it’s just as important to recognise when not to use the technology. Taking a problem-first approach and asking the right questions is often crucial in identifying what an appropriate solution should, or shouldn’t look like. For example:

 

As tempting as delving into the world of blockchain is, we should be cautious not to try and fit square pegs into round holes.

What about today?

Is the technology appropriate for circular applications, as it currently stands today?

 

 

To drive the adoption of and improve the technology, we definitely need more organisations and individuals experimenting with blockchain, and there is great potential for the technology to address key circularity barriers. But ultimately, the circular economy calls for systemic change, and technology is but one of the many drivers we need along the way.

Key takeaways:

  1. Make sure blockchain is the right solution to your problem
  2. Educate your ecosystem to move away from competitiveness to collaboration
  3. Design your blockchain so it delivers value and meets the needs of supply chain participants
  4. Make sure you have the right mechanisms in place to ensure data is authentic

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