Blockchains – Cooperatives for the Digital Age

Independent entrepreneurs work together in cooperatives – for the benefit of all involved. Until now, this form of cooperation has mostly been regionally limited. Blockchain, the technology behind Bitcoin, enables fair, equal cooperation in decentralised networks with global reach.

Everybody’s talking about Blockchain

Bitcoin is all over the news. Everywhere you can read about the rapid rise and supposedly soon end of the crypto currency. But Bitcoin is only a beginning.

The real revolution is the blockchain. This is the technology behind Bitcoin, which makes it possible to handle digital business transactions securely without middlemen. Blockchain technology can be transferred from digital payments to almost all sectors of the economy and their transactions. Bitcoin was only the first application of this technology. Bitcoin’s long-term importance is indeed questionable. However, the blockchain itself offers considerable potential for companies to take better advantage of the opportunities offered by digitisation.

This is why innovative companies have long since begun to test the new technology. The fact that the financial sector is at the forefront, for example with Commerzbank or the auditing firm Deloitte, is not surprising given the origin of the blockchain as a technology for digital payments. But, for example, Airbus and the Maersk shipping company also use blockchain applications to make their logistics processes less bureaucratic and thus cheaper and faster.

Even in the German federal government, several ministries are working on a comprehensive blockchain strategy to create the regulatory framework for companies to benefit from the technology as quickly and easily as possible.

Blockchains are nothing new

Organisationally, blockchain systems are very similar to a well-known concept. Blockchains are exactly what Wikipedia defines as a “cooperative”: “A cooperative is ‘an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise’.“

Cooperatives were invented by men such as Robert Owen (1771-1858) and, for example, Welsh and English weavers in the 18th century who wanted to improve their work conditions as well as the economic outcome of their labour. Cooperatives were formed to solve entrepreneurial and social problems in the midst of the industrial revolution. They are still relevant today, and everyone knows examples such as cooperative banks or regional purchasing cooperatives or producer cooperatives.

Blockchain technology now transfers the concept from the 18th and 19th century to the 21st century to solve the economic and social problems associated with the digital revolution.

Blockchain fixes many problems of today’s systems

Usually we organize companies, industries and systems with hierarchies, committees and strong middlemen. Everyone knows the problems involved. Bureaucracy and hierarchies paralyze efficiency and innovation in large companies and the state alike. Many global markets are controlled by dominant middlemen such as Amazon, Facebook and Google, who exploit their central position to the detriment of smaller market players.

The blockchain solves some of the problems of today’s structures by abolishing hierarchies and middlemen. All market and system participants work together on an equal footing in a jointly operated network. With a series of algorithms, the so-called “protocol”, the participants in a blockchain network determine how processes in the system run correctly. In a distributed database, the “blockchain”, all business transactions are documented immutably. Blockchain networks are practically cooperatives with a digital operating system.

This results in some advantages of blockchain systems:

• Transparency: In principle, all network participants have the same access to data. There is no single authority that has more information than the other actors and that can exploit this position to his or her advantage.
• Consistency: Since all participants use a common database, they share a common “truth” and a common view of reality.
• Efficiency: Processes in blockchain systems are controlled by so-called “smart contracts”. They ensure high process speed and reduce the risk of human error during processing.
• Audit-proof: The blockchain algorithm automatically ensures that all transactions are stored unalterably.
• Reliability: Since blockchain systems are operated by several participants, there is no “single point of failure” whose failure paralyzes the entire system.

Blockchains bring the cooperative principle into the 21st century and offer additional advantages.

The blockchain in action

In addition to applications in the financial world, blockchain projects have so far primarily aimed at making logistics networks more efficient and secure. The players in a supply chain network use a common blockchain system in which business transactions are automatically processed and documented using smart contracts.

There are 17 million containers worldwide. Of these, approximately 5 to 6 million are in motion at any one time. The bureaucracy that is necessary to keep an overview is estimated to account for 20 percent of shipping costs. It is therefore not surprising that the Maersk shipping company is connecting all stakeholders in a single system using a blockchain project. It is easy to imagine how much paperwork is avoided, how processes are accelerated and how much more transparent logistics chains become when shippers, recipients, middlemen and authorities use a common system.

In the fight against counterfeit medicines, the logistics company DHL is working to ensure that the path of a pharmaceutical package can be traced seamlessly from the manufacturer via the wholesalers to the individual pharmacy. For this purpose, the pharmaceutical packages are made identifiable with barcodes. All packaging, shipping and transfer transactions are then stored in a blockchain in an unalterable and audit-proof manner without any major bureaucratic effort. This way, all parties involved, right up to the end consumer, are able to trace the path taken by a drug.

Numerous projects in the food industry follow the same approach. Where does my steak really come from? Is my apple really organic? These questions can be answered safely and relatively easily if the complete life cycle of a product is documented in the blockchain.

Blockchains facilitate cross-company collaboration

Today, when companies work together in overarching IT processes, they usually require central servers that are operated by one of the system participants, thus putting him in a prominent role. This is why IT cooperation between competitors or between companies in a customer-supplier relationship is difficult or even impossible.

Since a blockchain is operated by all parties equally, the technology offers a new opportunity to make the cooperation of several companies more efficient through common IT systems.

In the 19th and 20th centuries, cooperatives made it possible for independent entrepreneurs in a region to work together on an equal footing. With blockchain technology, we can now extend this successful idea to global networks and implement fair, global cooperation.