Decentralization and the local economy (part 3 of 3)

November 1, 2022 - 3 minutes
Article by Paul Van Vulpen & Edwin Fennema

Blockchain is often about cryptocurrency, the speculation with it and undesirably high energy consumption behind the computing power required. However, blockchain technology can do much more. For example, it can also shape decentralization of centrally regulated entities and encourage unbundling of such entities.

In a series of three articles, we explore the topic of decentralization with blockchain specialists Paul van Vulpen (business developer blockchain at Centric Startup & Innovation) and Edwin Fennema (business developer metaverse at Centric Startup & Innovation). This third and final article in the series focuses on the local economy and how we can support it with blockchain.

What is a local economy?

Paul: “A local economy is a complex interplay of actors operating within a given region, such as entrepreneurs, associations, residents and administrative institutions. Together they try to facilitate the local environment in their services. What you see now is, is that the local economy is increasingly being sidelined by globalization and digitalization.”

Is that a bad thing? Is a local economy something we should strive for?

Paul: “I think almost everyone thinks a vibrant local economy is important. We don't just want large-scale, anonymous stores around us, but also small SMEs who know us as regular customers and where expertise often takes precedence over price. And that very group is struggling right now because of the corona pandemic and the energy crisis, among other things.

As humans, we generally like to have other people around us - this was evident during the corona crisis. We are social creatures and need community because of human contact. You don't get that personal contact by ordering a package from Amazon, you get it by visiting the local bookstore. What good is a super efficient local economy if the human dimension and social cohesion are completely gone in it? So a local economy is definitely something to strive for.”

‘With blockchain technology, you can realize shared ownership’

What does it take to establish such a local economy?

Paul: “If you look at our economy, you see that certain things are centrally controlled, when in fact the economy belongs to all of us. With blockchain technology, you could realize a kind of shared ownership over, say, a currency or the platform on which financial transactions are carried out, so you get an economy at the local level. For example, with its own currency that is carried by the community itself. Blockchain can play a big role in this.”

Edwin: “In an earlier article I wrote, Blockchain basic applications II: distributed ledgers & smart contracts, I provide seven examples of blockchain applications that can contribute to such a local economy, namely:

  • decentralized construction of the maintenance and transaction history of movable (vehicles) or immovable property (premises)
  • decentralized creation of legal certainty about the identity of a resident in his/her role as owner, heir or user of property
  • decentralized protection of rights, such as intellectual property on trademarks and patents, creative property rights on music or literature and environmental rights, such as emission rights, noise rights and production quotas
  • decentralized tracking and tracing of routes taken by a product before it reaches its destination
  • decentralized capture of online valuation, such as the bidding process in online auctions, the course of online gambling, the history of loyalty points
  • price trends in online exchanges and the legitimacy of online brokering
  • decentralized regulation of which computer output from blocks of data can and cannot be shared with other parties and the decentralized securing of contractual right to payment, such as from an insurance policy, from an employment contract or from a mortgage loan

These examples are mainly legal and form a set of rules that allow cohesion to be maintained even when there are conflicting interests. With these examples in hand, one can argue that within a municipality, not only are the transactions organized locally, but also the rules we agree on with each other. And those rules keep us together. Compare it to bricks and cement. The cement keeps the bricks from sliding off each other. That makes local society more secure.”

Paul: “That set of rules has to be there, but such a local economy does not have to be completely buttoned up. I would prefer that we assume that people build something together. That is also what drives such a local economy: in fact the archetypal Dutch polder system.”

‘Everyone wants a vibrant local economy'

Looking at blockchain and the local economy; what could be a concrete application?

Paul: “If we want to create such a local economy, we can facilitate it by developing a platform where people can conduct transactions with each other at the local level. Next, you develop a currency that you can only spend at a select group of stores in your area. If you arrange that, you have created a secure environment within which you have a local economy that is partially cut off from the global economy. By giving that currency special properties - for example, by decreasing its value by 1% each month - you give people an incentive to spend that local currency at those actors operating within the local level.”

Edwin: “We already see this in practice. For example, entrepreneurs in Sardinia settle their bills among themselves in the local currency Sardex. Bristol in England has the Bristol Pound and Rotterdam introduced the Dam.”

Paul: “Centric, too, is already dealing with this. Municipalities see that SMEs are struggling and understand that if they do nothing, many businesses will be out of business in 10 years. So they are looking for a way to get people to buy locally. We offer municipalities a platform for such a local currency and together with our partners can build an alternative local economy.”

Edwin: “By the way, the word platform here is used for technology that is open to many different types of parties working together toward a goal. All kinds of stores and people can connect to this platform. So it ensures that within that mini market, supply and demand come together. And the beauty of a platform is that it's controllable. It is a typical example of decentralization, because the platform is completely self-supporting. The only central party involved is the technical facilitator: Centric in this case. It ensures that the platform runs, but does not regulate - unless a party wishes to do so. You have retailers and you have people who come into stores and they are connected to a currency: simple as that!"

Paul: “Such a local economy is a very good example of decentralization. Blockchain can really make a difference here, by letting participants not just be passive consumers, but really participate and even own them. So I expect that this will allow us to build new cooperatives. Cooperatives that work on a local level with people who are involved. This will bring the economy closer to us Dutch again!”

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