Blockchain and sustainable business models – preliminary thoughts
Presentation by Professor Jükka Mähönen, Department of Private Law, University of Oslo
In many new financing and business solutions distributed ledger technology or blockchain is a crucial tool. Blockchain is a digital system, based on the Internet and a network of computers, to share and continually reconcile the shared version of truth. It represents a revolutionary system of tracking and maintaining the integrity of data safe from tampering by other individuals or centralized governance mechanisms, governments, banks and corporations. It is a ‘trustless network’ as the parties can transact even though they do not trust each other, and as there is no trusted third party or intermediary, neither public nor private, that approves or denies transactions as it is in the centralized governance models. Rather, the devices, in many cases millions, in the network running complex algorithms are responsible for validating transactions and uploading new blocks to the chain which implements a public ledger.
During the last few years, self-enforcing digital smart contracts organised with blockchain technology have created new possibilities for organizing businesses. Smart contracts are used in value chains, usually through Internet of Things (IoT), automatically confirm transactions. As such, blockchains are an alternative to ownership ledgers based on classical fifteenth century based double-entry bookkeeping. Blockchain can be called a ‘triple-entry accounting’ for the new distributed ledger to describe its enhancement of the traditional double-entry general ledger system in which all accounting entries involving outside parties are cryptographically sealed by a third entry, the chain of validated prior transactions. What is important, blockchains offer advantages in cost, speed, and data integrity compared with classical methods of proving ownership. Blockchains are used for recording ownership rights to variety of endowments, from real estate to financial instruments, vehicles and works of art as well as public records as birth certificates, drives licenses and university degrees.
In the last phase, a firm itself is decentralized from the traditional public and private governance system when it is run through a network of blockchain smart contracts as a desentralized autonomous organisation (DAO) or decentralized autonomous corporation (DAC). A DAO is a program including the required rules and decision-making apparatus for an organization, eliminating the need for public (as law) or private (as legal personality) institutional and human (as board and management) governing roles and so eliminating the agency costs from incomplete contracting that are created through agency relationships between investors of different capitals, boards and managers. A DAO mimics a traditional organisation but replaces law and humans with its respective technology and code. Code is indeed a norm as Lawrence Lessig points out, as the three other modes of regulation, law, markets and social norms. According to Lessig, law regulates through a set of commands, backed by the threat of punishment, markets through price, social norms through sanctions that members of a community impose on each other, and architecture regulates through the way the world is (nature) or through man-made constraints (built environment, computer code, design).
In this presentation some preliminary remarks are made of the possibilities to use blockchain technology and smart contracts to control circular value chains and sustainable business models generally. Lack of capital is one of the most important barriers to the adoption of sustainable and circular economy: shifting from a linear to a circular business model requires novel innovations in distribution planning, inventory management, production planning and management of reverse logistics networks, with high upfront costs and long payback period. As implementing a circular economy business model also demands continuous monitoring and improvement of the products’ lifecycle, resources must be allocated to keep all stakeholders committed. Blockchain technology might give tools to solve these problems.
Coffee, tea and fresh fruit will be served.
You may bring your lunch packet!