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Decentralisation at Work: Cooperatives on the Blockchain

Coops offer user and worker decentralisation. Now, with blockchain to provide the technical decentralisation, Joshua Davila discusses new potentials.



May 27, 2021

The advent of blockchain technology with Satoshi Nakamoto’s whitepaper on Bitcoin during the peak of the Great Recession, brought a new realm of possibility for the question of decentralisation. While bitcoin asked:

‘How can we decentralise the prevailing monetary regime?’, 

blockchain — the technology underpinning bitcoin — begs the question:

‘How can we decentralise even more aspects of our socio-economic lives?’

The Old Quest for Decentralisation

Decentralisation is an old question, which can be viewed through many lenses. In terms of government and politics in Europe, the quest for decentralisation can be traced as far back as the 1600s and into the 1800s, as multiple kingdoms suffered civil and revolutionary wars internally and in their colonies. These conflicts, led by commoners or slaves, questioned the “divine right” of the royalty to rule. In a society that was moving further away from its feudal traditions, should the king still have as much centralised control? Or should power be more distributed through a governing body of many people? Does royalty deserve their centralisation of wealth over those they rule? These were important questions for the masses who began recognising their collective power as nations, as seen in the English Civil War and the French Revolution.

Jumping ahead to the present, it is easy to say that these conceptions of the nation were flawed, as they consequently led to oppression of those who did not fit within the model of the nation and were driving forces of atrocities committed during the first and second World Wars, to name a couple of examples. However, today we do not find ourselves in such a different situation from those that led to the transition from divine kingdoms to nation-states in Europe. In 2019, in the United States, it was reported that income inequality was the highest it had been since Census Bureau started tracking it in 1967. One of the potential drivers for this inequality since the Great Recession is wage disinflation for the middle classes and asset inflation in the portfolios of the top 10% of earners due to the enactment of particular monetary and fiscal policies. Although there has been a growing sentiment to disrupt these policies, there are several political barriers inherent to the American political landscape before significant changes are likely to occur.

One of the lenses that have been used to seek further decentralisation in a way that is attainable without going through politics, is the digital realm and the Internet. Heavily influenced by the cypherpunk movement and Bitcoin, various projects have sought to decentralise the Internet, use the Internet to decentralise different industries, and find ways to circumvent the tendency for state agencies to listen in on the private lives of citizens over the Internet. Peer-to-peer file sharing services, like Napster and Limewire, sought to decentralise music distribution. ArkOS attempted to decentralise server hosting. Namecoin, a project using blockchain, is trying to function as a decentralised replacement for the Internet’s Domain Name System.

In the blockchain community, decentralisation is an imperative, and new areas filled with centralisation should be explored and questioned. One of the largest sources of centralisation in most people’s lives is their “9 to 5” or the place people spend 40 or more hours per week.

Cooperatives: Decentralisation within an Economic Organisation

Covid-19 left working people questioning pre-pandemic habits around the spatial relationships between employee and employer, spurred by the need for remote work. This is far from the first time the nature of work has been questioned. By the 1800s, capitalism had become the dominant mode of production in England, and joint-stock corporations, like the East India Company, accounted for at least half of the world's trade. Due to the disproportional increase in wealth for those who owned the corporations versus those who worked in it, a movement was spurred to create an alternative form of organisation through the work of Robert Owen, William King, and the Rochdale Pioneers, called the cooperative, or coop.

The International Co-operative Alliance (ICA) defines coops as ‘people-centred enterprises owned, controlled and run by and for their members to realise their common economic, social, and cultural needs and aspirations’. While a standard corporate hierarchy can be pyramidal, with the stock holders at the top of the pyramid able to make executive decisions and workers below, in a worker cooperative structure, all workers own a share of the company and have a say and vote in the governance of the firm. However, this is not the only type of cooperative. Consumer cooperatives are businesses that are owned and managed by the people who use their services. R.E.I. - which sells outdoor sporting equipment - is the largest consumer coop in the United States, and all credit unions are forms of financial consumer coops.

It’s been proposed that for small business under the threat of closure due to the economic ramifications of the pandemic, worker ownership could save these businesses, while also protecting its employees thanks to the likelihood of lower rates of internal inequality, as workers decide jointly on rates of pay. For example, the Mondragon Corporation, based in the Basque Region of Spain, is one of the largest and most successful cooperative enterprises, as it is a federation of 96 worker coops employing more than 81,000 people, and selling in more than 150 countries in four industries. Mondragon coops have a CEO-to-line-worker pay ratio, ranging from 6-to-1 to 9-to-1, as compared to the European average of 129-to-1 and the US average of 339-to-1. Historically, the Mondragon Corporation coops have been less affected by economic downturns compared to standard hierarchical corporations.

Emilia-Romagna is a region in Italy known for having one of the highest quality of life indices and lowest rates of unemployment, partially because coops make up 30% of the region’s GDP and involve 2/3rds of the population as members. In the United States, there has also been a major increase in trailer parks converting into community-owned coops to provide alternatives to the encroachment of private equity-funded parks that seek to maximise rent fees and minimise investments into infrastructure. Even the global financial system that was criticised by the creator of Bitcoin is facilitated by a coop. SWIFT, the entity that enables banks around the world to send a receive information about financial transactions, is a cooperative society under Belgian law, owned by its member banks. Some of the largest banks and agricultural businesses are also coops, like Rabobank, Desjardins, and Groupe Crédit Agricole.

Cooperatives for the Internet Age

The most recent evolution of the coop, made for a digital and connected world, is the platform coop, an alternative to venture capital-funded and centralised platforms, that puts stakeholders before shareholders. The term was first coined by New School professor, Trebor Scholz, in a Medium article in 2014 that criticised the sharing economy. The sharing economy was represented by quickly (at the time) growing centralised platforms, like Uber, Airbnb, and Taskrabbit, that were able to tap into digital technologies to create new business models based on their platforms.

Platform coops were proposed to give workers that relied on work provided by these platforms ownership in the business, direct governance of the platform that directs their work, and provide employee benefits that centralised platforms don’t provide. For example, Proposition 22 recently passed as a referendum in California, exempting ride-sharing companies from treating drivers as employees, limiting workers’ abilities to receive health insurance through the gig work platforms that provide for their income. It was reported that Uber, Lyft, and DoorDash spent over $200 million on the “Yes on 22”campaign. Uber and Lyft drivers in California filed a lawsuit to try to overturn the bill claiming it “illegally” excludes ride-hail drivers from the state workers’ compensation program.

Additionally, social media platforms are facing increasingly difficult choices on moderation and censorship as research increasingly shows social media as an enabler of “fake news,” that continues to have negative impacts on democracy. The growing trend for alternatives to platforms like Facebook and Twitter show that consumers want more decentralisation, privacy, and choice in digital marketplaces. It is interesting to note that in September 2016, journalist and professor of Media Studies at the University of Colorado, Nathan Schneider, published an article in The Guardian calling for Twitter to be converted into a platform coop so that the most active users have the ability to vote on things like how their data is monetised and community moderation.

Some existing platform coops have been able to fill gaps in the market with success in various industries. Stroudco is a platform coop based in the UK that helps farmers sell their products online, now also part of the thousands of food cooperatives around the world that make up the Open Food Network. Equal Care is a social care platform coop in the UK that uses a multi-stakeholder model (supported members, advocate members, investor members, and worker members) to improve social care work conditions without increasing the cost of social care. Stocksy is a platform owned by photographers that sells stock photos at a fair price and practices fair profit-sharing with around 980 photographer shareholders. These examples show the upside of decentralised ownership in business.

Decentralised Autonomous Cooperatives on the Blockchain

Once smart contracts proved to be viable through the creation of the Ethereum public blockchain and the Ethereum Virtual Machine, the idea for decentralised autonomous organisations (DAO), organisations fully automated through smart contract code, was close behind. If smart contracts could automate the financial processes normally initiated by humans on a computer, couldn’t we create alternatives to many of the digital platforms we use today?

In fact, in his best-selling book Blockchain Revolution, Don Tapscott asks the question, ‘Why do you need a $60 billion company called Uber?’ when most of the process centralised by Uber could be automated, reducing the costs for upkeep of the platform and making it easier for drivers to create their own platforms?

Although some of the first attempts at DAOs failed, with experiments like “The DAO”, in which millions were stolen due to a bug in the smart contract code, real improvements have been made. Projects like Aragon, Colony, and DAOStack are all working on creating templates for DAO-based, multi-party ownership structures, governance processes, and user interfaces that may be needed by an assortment of organisations on the blockchain. Aragon even created its own Aragon Coop for engaging with users to support and test out community ideas.

Although the cryptocurrency space was known to have scammers among its mix of hopeful technologists, the end of the Initial Coin Offering (ICO) craze in 2018 further soured the space for many investors, but pushed developers to start creating alternatives to blockchain project funding. One interesting example of an alternative was the airdrop of the UNI token, a governance token used for the Uniswap protocol, popular with those invested in the Decentralised Finance space. On September 16, 2020 this decentralised exchange on the Ethereum blockchain created the UNI governance token to be used by token holders to vote on the direction of the project. Although not technically a DAO, 60% of the total supply was allocated to users based on their use of Uniswap, in which a user that had used the platform only one time could claim 400 tokens, worth over $1000 at the time. While the broader crypto community characterised this approach as innovative, this is not unlike what many consumer coops do for profit sharing with their consumer members.

Another innovative alternative to funding using cryptocurrencies is Exit to Community, proposed by Nathan Schneider and the University of Colorado Media Enterprise Design Lab. Exit to Community is a strategy in which founders can give ownership of the digital platforms they build to the community that uses it while rewarding themselves for doing the work of getting it started by tokenising shares of the enterprise. Users can purchase the shares in small amounts rather than the usual venture capital approach taken by the various platforms at the centre of consumers’ frustrations. Even Vitalik Buterin, the Founder of Ethereum, said

‘The optimal governance structure for early-stage projects is founder dictatorship. The optimal governance structure for mature projects has large user/stakeholder involvement. “Exit to community” continues to be underrated as a way to get both’.

So how far away are we from seeing an attempt at synthesising the technical decentralisation of the blockchain with the user decentralisation of cooperatives? Potentially not too far off. Eva Coop, founded in Montreal, is a multi-stakeholder coop ride-hailing service competing with Uber and Lyft, which uses a combination of a private instance of the EOS blockchain, an intuitive, ever-improving smartphone application, and a social franchise model to facilitate transactions between riders, drivers, franchisees, and the global corporation in Montreal, while protecting the personal data of individual members. They currently boast 850 drivers and 28,000 riders members in the coop and Eva’s app is currently one of the top ride-hailing and food delivery apps in Quebec thanks to the continuous input from both driver and rider members in the cities in which Eva operates. 

Another example of coops built using decentralised technologies, is the Distributed Cooperative Organization or DisCO Coop model. The DisCO model poses itself as an alternative to the DAO model that takes a carefully planned approach to people working together to create value in ways that are cooperative, commons-oriented, and rooted in feminist economics enabled by blockchain technology. The first cooperative to use this model was the Guerilla Media Collective, a commons-oriented translation agency started by activist translators who wanted to combine voluntary translation work for activist causes and providing translation and general communication services on a paid contractual basis. The DisCO technological stack allows members of the collective to be valued for the pro-bono work valued by its members as well as fairly compensate members for their paid translation work.

There has been a recent uptick in research by academics whose research normally revolve around cooperatives to dive into applications built on the blockchain. Morshed Mannan, a PhD candidate at Leiden University, focussed on coops and digital technology, authored a paper in 2018 titled “Fostering Worker Cooperatives with Blockchain Technology: Lessons from the Colony Project”, in which he analyses the capital and governance structures used in Colony to find insight that can help revitalise the by-laws of worker coops (as well as platform coops), to avoid the major pitfalls typically associated with labor managed firms operating across a global digital space. More recently, Morshed published a study titled “Everything Old is New Again: Evaluating the Legal and Governance Structures of Shared-Services Platform Cooperatives”. In this work, he compares the differences, growth trajectories, and respective advantages of transportation coops structured like Eva Coop versus The Mobility Factory, a secondary cooperative which does not use any blockchain technology in its stack. His work could prove useful for both blockchain projects looking to take advantage of cooperative structures or cooperatives interested in adding blockchain to their technology stack.

There are still issues that need to be addressed related to using blockchain, as the technical infrastructure for coops in regards to establishing identity to facilitate the cooperative mantra of “one member, one vote” or disincentivizing bad actors with large amounts of capital to purchase governance rights in what is meant to be a coop on the crypto markets. Additionally, another issue is making the legal wrapper of cooperatives hosted on the blockchain to comply with legal obligations imposed by states. However, growing interest in cooperatives among major media outlets and tech-savvy Millennials suggest that Morshed may be correct. Everything old is indeed new again, centralised organisations are out, and distributed coops are in, as the quest for more decentralisation continues.

Joshua is a Blockchain Solutions Architect at SettleMint based in Brussels interested in exploring novel economic models through the use of decentralised technologies.