Why blockchain for Circular Economy?

Originally published on Jan 1, 2021. I view many challenges in the Circular Economy domain as a massive coordination problem. Blockchain-based technology offers elegant solutions when it comes to aligning incentives and enabling coordination between strangers that need to satisfy a common set of objectives.

I routinely seek out the "why blockchain" narrative from people who are better storytellers. Recently I came across this post by Balaji S. Srinivasan. It is strikingly elegant - albeit a bit technical. I paraphrase and highlight some parts below that relate to Circular Economy solutions.

By blockchain, I mean a public blockchain. Here is a primer on the difference between public vs. private blockchain types. Global circular economy solutions that require multinational and multi-party coordination and reward structure need public and transparent solutions. Anyone should be able to participate to produce and derive value as long as solution-specific rules are followed.

Public blockchain is needed to store common records (units of account or business process states) between parties that do not trust each other. Only valuable data that the parties need, such as carbon credits, should be stored. A public blockchain also requires all participants to follow the same rules for reading and writing the data to the ledger. Anyone can read the data and anyone can write the data with their own private wallet (here is why).

What matters is cryptographically provable data integrity between unrelated parties (i.e., tamper proof).

In a traditional database (or any other data store such as Excel) extraction and transformation activity require reconciliation with a counterparty. This not only introduces an opportunity for error, but an opportunity for fraud. As we know fraud follows the money.  Sustainability spending will grow non-linearly through 2030. The world is spending a trillion $ a year right now. Using a public blockchain reconciliation and data format (interoperability) comes out of the box.

And just as importantly, Balaji Srinivasan points out in his post, that public blockchains also give financial incentives for participants to keep using a common ledger. This is because the entries often represent monetary units of value. Again, this could be carbon credits, money, or other things represented as tokens (digital assets). This means interoperability is very important to participants and everyone is incentivized to instrument their systems to read from and write to a public blockchain.