How can blockchain technology and the circular economy change the way we live?
The Industrial revolution has formed the way our economy operates today. The origins of mass production dates back to the year 1684 when Thomas Savery’s steam engine was invented. The day the industrial revolution started, both raw materials and energy resources seemed infinite at the time. Today, we embrace the fast pace of technological development, driven by remarkable, emerging innovations.
Nowadays, digitalization, Industry 4.0 developments and new emerging technologies are taking over whilst interconnecting the world. Technological innovations, such as blockchains, are disrupting the traditional economic model. In this article, the importance of the transition from traditional to circular economy models will be investigated with the use of an emerging technology, blockchain. In terms of effectiveness and efficiency, what role does blockchain technology play in the circular model?
From Linear to Circular
The next generation is disrupting the system as we know it, in order to benefit both society and the environment, by shifting from an extractive industrial model to a new system called the circular economy. The transition to a circular economy is based on principles of designing out waste and pollution, whilst keeping products and materials in use, and regenerating natural systems. Thus, the vision and approach of circular business models gives endless possibilities in creating a thriving economy and societal benefits (to help reinvent businesses, governments, individuals and employment). The current economic system is based on the linear economy “take-make-waste system” which is no longer acceptable.
The transition to a circular economy is a systematic shift rather than the reduction of negative impacts caused by the linear economy. In order to make this vision a reality, at least three-dimensional perspectives (social, technological and commercial) and their cooperation is needed. The transition requires a joint effort by stakeholders from all sectors in order to identify, develop and maintain reliable circular sourcing. Businesses can contribute by developing and implementing products to reuse and recycle, and raising awareness of circular business models. If by 2030, all sustainable development goals issued by the UN are met, it may well reassure a surge in circular jobs and regenerations in economic and business opportunities with societal and environmental benefits. Most importantly, this will build a long-term resilience.
Circular economy has many definitions, one of which involves the practice of management in helping supply chain and logistical activities close the loop.
Opportunities & Potential Sources
As discussed, one of the main initiatives is to minimize the industrial waste and to involve consumers. For example, a service company could offer lease services; and after a period of time, when the product is no longer needed or functional, it is brought back for repair or to be recycled. Therefore, the manufacturer or the retailer is responsible for end-of-life of their products, whilst deciding whether to reuse, repair or recycle them. Another aspect is the opportunity of cost reduction and creation of new potential revenue sources by doing one of the “re’s” (reuse, repair, recycle). However, the use of advanced technology is often required to do so, and that can be costly.
Suppliers and users of different types of products, within circular economy supply chains, may originate from different industries and even regions. The whole process and complexity of the global supply chain requires stakeholders to work together and maintain the supply chain continuity considering the risks such as insufficiencies between stakeholders.
Thus, the data and information exchange in blockchain technology features is important for all stakeholders to operate effectively and efficiently. Having the information of the product’s life cycle is important for the circular economy and also for byproduct management planning (if applicable for the industry or business). For instance, if industrial partners provide product material information (or a list of ingredients in the food industry), then non-governmental organizations can offer expertise based on the information they would receive, leading to communities and individuals spreading regional circular efforts.
What about the origin and trust?
The current supply chain, that is a linear economy model, has disadvantages. One of them being, the lack of information for the customer about product origin, and the mistrust between business stakeholders. However, if businesses adapted a new model of supply chain using blockchain technology, it would both empower the concept of the circular economy model and eliminate numerous weaknesses of the current linear supply chain.
What is the role of blockchain in the circular transition?
The interest for blockchain technology is growing accordingly as a consequence of its beneficial features in a wide range of industries from finance, healthcare, utilities, to governmental sectors. Blockchain is an implementation of distributed ledger technology that records all transactions made by users with a complete traceability and chronological order.
Another advantage is the decentralized process of operation, achieving the same functionality level, with the same amount of reliability, but without the need for verification systems. Furthermore, it provides automation of processes and mitigates possible legal conflicts by default. As mentioned above, the implementation of blockchain, using cryptography, in supply chain management and banking systems ensures that the information is highly secure, reliable and prevents companies from 3rd party intruders with the intent to modify, delete or steal data. The technology itself is less costly than any other shared database system in comparison with cloud solutions. Users are also able to make faster and more effective transactions.
As shown in the figure above, on the left is the current linear agriculture supply chain model. With the implementation of blockchain, supply chains are decentralized and all members of the supply chain are able to process and add their transactions on the distributed ledger. Other members of the supply chain can only read those blocks that have a direct connection with them. The new supply chain using blockchain enables the new model to follow the “make-use-recycle” model, with the integration of multi-agent systems.
The main advantage of this model is that products are now tracked and therefore, through traceability it is possible to showcase assurance to the final consumers regarding the origin of their product. Moreover, the end user could get the information whether their product is reused, recycled or manufactured brand new. In this way, customers would be allowed to gain direct insight of the uninterrupted chain from raw materials to finished goods. Furthermore, the end customer can rely on the authenticity of goods by tracing them back to their origin whilst leaving the control of accessibility of critical information to the company.
3IPK offers SaaS digital solutions using blockchain technology for various industries, for the food & beverage industry (such as tracing food ingredients and tracking wine origin) and other consumer goods, including cosmetic products, textiles and art. Emerging technologies, more specifically blockchain technology and its features have a high potential and applicability for the circular transition. Blockchain can improve effectiveness in the supply chain by tracking and tracing sources of materials, ingredients and components of each product.
Companies forced to think ‘sustainable’
Companies are expected to face their responsibilities when it comes to sustainable practices, whilst consumers continue to demand eco-friendly products. However, whether the consumer pursues environmental protection or goals towards a more conscious way of living, is all up to their individual autonomous motivations that influence the decision on product purchase. People tend to purchase “greener” products and adopt intrinsic behaviours like recycling efforts whilst pursuing lifestyle choices. With this regard, many factors have the ability to influence circular adopted consumers, who have adopted circular economy initiatives, directly. Blockchain technology has the power to fuel environmental knowledge and foster motivations in consumers via availability of information from a product’s life cycle to its ingredients or materials. Moreover, start-ups, like 3IPK, can in turn provide businesses with valuable information about their customers, such as post-purchase behaviour, loyalty and even the characteristics of their demands.
The new and improved supply chain
Currently, we measure economic growth by tracking market value on transactions, however the way how linear concepts are set up has negative impacts not just on scarcity of resources (overstretched production) but most importantly, on Earth’s boundaries. The term circular economy is not new to us, but it’s new in terms of our current economic system. The biggest challenge is the process of restructuring the linear system. In linear supply chain management, the main problem identified was the lack of trust and inadequate information. The working system of blockchain, would confront contractual relationships between stakeholders and enable the circular economy market whilst retaining secure and unmanipulated transactions. The characteristics of this technology strengthens the reliability of blockchain in the supply chain and reduces the need for trust based on third party transaction verification. Therefore, blockchain technology can benefit the circular economy through information management.
There are many possibilities of blockchain applications for the supply chain, however the implementation remains challenging, and the progress of advancement still requires resources in software development and preparation in the IT systems landscape…