June 26, 2018

Blockchain and the Circular Economy: An Exploration

“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:

A6 My favourite one is @bext360 - really cool application of blockchain for to make the coffee supply more fair and transparent #circlechat

— Shyaam Ramkumar (@shyaamramkumar) 12 June 2018

A6 Another interesting case is @CryptoKitties: “collectible, breedable, adorable” digital cats, and one of the most popular use cases for #blockchain outside of #crypto! Do you know of other examples? #CircleChat

— Circle Lab (@thisiscirclelab) 12 June 2018 

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:

Any problem that can be solved with a central database. E.g. storing data for yourself, large volumes of data or even any system where you can simply trust a central party. #circlechat

— Circularise (@circularise) 12 June 2018

Thanks! Not saying it’s impossible, only that the benefit of using the tech and decentralizing trust needs to be substantial to justify its impact

— Daniel Hires (@projecthires) 11 June 2018

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.

A3 Supply chains have become so complex that it is difficult to have an understanding of the types of materials in products, or where it is sourced from #circlechat

— Shyaam Ramkumar (@shyaamramkumar) 13 June 2018

Plus who made it, how and where. As we go down the tiers, the visibility and traceability diminishes. #circlechat https://t.co/hGPEpn5Ed3

— Shijo Thomas (@shijothom) 13 June 2018

A3. #circlechat

It is not so much related to transparency and trust, but more related to opaque trace-ability and visibility. How certain can I be of the materials used in a product and the origins of those materials? How scalable is achieving visibility?— Shijo Thomas (@shijothom) 13 June 2018

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:

#Blockchain may actually help to share dismantlement & BOM information at end of life content across multiple owners, if may help to share information on circular assets - from cars to industrial machines or spares.#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

A6 #circlechat1. If the solution can capture all circular transactions from manufacture to re-manufacture.2. Maintains traceability of materials and processes.3. And the above is verifiable and scalable.

— Shijo Thomas (@shijothom) 13 June 2018

#Blockchain plays it advantage where multiple parties are involved. Supply chain work more efficiently if you can share information between parties (and do not wait for paper trail) .#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

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?

Blockchain's is relevant in scenario with multiple parties that do not trust each other. Just thinking of scrap recycling where you need to proof whether the material is stolen or not.#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

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:https://twitter.com/projecthires/status/1007305539670429698Humorous 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:

100%! In its most low-tech version, it could simply be a bribery to the person who certifies e.g. that a fisher was fishing in a certain area or with certain "sustainable" methods..

— Daniel Hires (@projecthires) 14 June 2018

#CircleChat @thisiscirclelab

A1 - If it can guarantee that all supply chain stakeholders provide accurate, uniform and verifiable data, then #blockchain is suitable. Else, it would be another system with garbage in and garbage out.— Shijo Thomas (@shijothom) 14 June 2018

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?

A4 #blockchain is a silver bullet in many people's minds and will automatically enable authenticity, but the data that you put into the blockchain needs to be authentic in the first place and a community to verify this #circlelchat

— Shyaam Ramkumar (@shyaamramkumar) 12 June 2018

A2: Transactions are unalterable. That's great. Now you need to create the link between a physical object and the digital representation - anything from identifying characteristics, to QR codes etc. . #circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018 

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.

Well a good example, I think this was with diamonds, to use measurable characteristics of an object that uniquely identify it. This ID can then be linked to movements.#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

That's one of the issues with certifying working conditions for fair clothing. You need to have a independent certifier on the ground that you trust, I believe. #circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

Exactly. Third party audits. But even that can be tricky in countries with high corruption. #circlechat

— Agnes Krown (@AgnesKrown) 14 June 2018

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.

Tech are there, or can be built. But in a larger system, awareness and changing perception is a harder nut to crack. Without that, you can't force anyone to invest, and hence no tech can help

— Anti-National Indian (@IndianChutney) 13 June 2018 

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

A3 Sadly, supply chains can be very conservative in the way they deal with relationships and trusted parties, which can hinder collaboration towards #circular #supplychains #circlechat

— Shyaam Ramkumar (@shyaamramkumar) 13 June 2018 

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.

Complete transparency is a risk. e.g. as a trader you can be willing to share product features (conflict mineral free), but you do not want to share the identity of the mine and be cut out next time. #circlechat

— Circularise (@circularise) 13 June 2018

It is still easier to just do your own thing and make money. Also, a lot of money is made by keeping information secret. Information = value in supply chains. #circlechat

— Circularise (@circularise) 13 June 2018

A4 #circlechatI think the monopolization is a result of limited knowledge in the industry on where to compete and where to collaborate. In supply chains, there can be a thin line between the two. The result is a duplication of efforts for all parties.

— Shijo Thomas (@shijothom) 13 June 2018

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.

A5: At second thought: #blockchain may actually help to expore just the data you need to share - between partners or competitors that do not trust. Thus, #blockchain could help to deal with confidentiality.#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

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.

A5: I believe it helps if you operate not an open, but a consortium #blockchain. This would be between business partners that normally have a certain level of trust. #circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

Collaboration and transperency for sure. I may prefer to expose information on current transports or transactions rather in a protected environment of customer supplier and service provider - and not with everyone.#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

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.

There should be an agreement on standardized information to be shared. It should also consider safety of all supply chain participants, because we're dealing with multicultural industries. #circlechat

— Agnes Krown (@AgnesKrown) 14 June 2018

A6: My POV: a good #blockchain scenario has inherent value through cost savings or efficiency. You would not even need incentives.If you look at it from an end-consumer side: if I can trust a product is genuine and "purposeful", I might pay a premium.#circlechat

— Stefan Weisenberger (@belobregovic) 14 June 2018

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:

#CircleChat @thisiscirclelabA2 ; Honestly, i don't think this is a valid question. Is lack of trust and transparency a technology problem? Would implementing Blockchain, magically increase trust and transparency?

— Shijo Thomas (@shijothom) 14 June 2018

I don't get why this needs to be on a blockchain though? Isn't the biggest trust issue that the temperature measurement is not being tampered with (rather than the data collector being untrustworthy)?

— Daniel Hires (@projecthires) 14 June 2018

Why do we need Blockchain for tracking and monitoring? This is already being done by so many logistics systems.

— Shijo Thomas (@shijothom) 14 June 2018

This is a good point, many applications seem to plug #blockchain technology because of the hype rather than it having an actual use case #circlechat

— Shyaam Ramkumar (@shyaamramkumar) 12 June 2018

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?

#Blockchaintechnology is in its infancy & lots of teams around the world are working on fixing the most fundamental flaws in the technology. Energy consumption in #blockchain is an issue today, but does that mean that we should wait with #circulareconomy applications? #circlechat

— Circularise (@circularise) 12 June 2018

Is the energy use of blockchains offset by the environmental positive impact they can make by improving circular economy applications? Is there any research or scientific evidence on this? #circlechat

— Nosy Noah (@nosy_noah) 12 June 2018

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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