This blog post is Part 1 in a series about platform cooperatives and blockchain. Read the series introduction here.

Blockchains are a type of distributed ledger technology (DLT) that are built to be trust-less. These systems assume actors could be malicious or unreliable (aka Byzantine), and so they use cryptographic proofs in combination with distributed algorithms to allow safely reaching global consensus even in the midst of 50% malicious actors (see: 51% attack). The Bitcoin whitepaper in 2008 introduced the novel Nakomoto longest chain wins protocol to solve this problem, while other approaches like Tendermint put a modern spin on classical research from the 1980s and 1990s. These systems layer on Proof of Work or Proof of Stake to make it economically infeasible for malicious entities to pull off attacks, and the decade-plus history of Bitcoin and Ethereum suggest these approaches are resilient (see: Lindy Effect).

Regardless of the algorithm used, one thing is certain: there is a high cost to this zero-trust assumption. It costs an average of $0.95 per transaction to send Bitcoin in 2022, while the average gas fee to interact with an Ethereum smart contract fluctuates wildly between $1 and over $100. Since these systems solve the zero-trust problem with economic incentives, and their distributed algorithms have limited scalability in the form of "block space", the cost to transact becomes a highest-bidder-wins scenario. Imagine an 8-lane toll booth with growing queues, where the richest drivers willingly pay $100 to skip the wait. This quickly devolves into a plutocracy, and becomes most cost prohibitive during times of crisis when lots of people want to transact.

Contrast this to the historic operation of cooperatives, which often sprung up precisely to bring economic justice in the midst of a crisis. Coops, when founded in local communities, tend to be high-trust institutions. Each member-owner is likely to know each other personally due to the geographically localized nature of operation, and due to the fact that many coops begin as collective reading groups (see Collective Courage by Jessica Gordon Nembhard, chapter 4). This is even more true in coops rooted in feminist principles (see DisCO Manifesto) where caring for individual members is a key part of meetings and other dynamics.

A nascent platform cooperative will most likely start locally and therefore have the benefit of this high-trust atmosphere. This begs the question: is the high cost of trust-less blockchain technology worthwhile for coops that already have high trust among members? At best, it seems inefficient for coops to pay a high premium for trust-less guarantees which they don't need. At worst, the high gas fees of some blockchain platforms can stop a coop with minimal funds from getting off the ground: during a high-traffic time, setting up a multi-signature wallet , registering an ENS domain, and deploying a new smart contract could easily cost hundreds of dollars in gas fees. Depending on the jurisdiction, these fees may be less than the legal fees and other costs of incorporating a traditional cooperative business, but they still add a barrier to adoption since they also affect every transaction that the cooperative must do.

The transaction cost issues can be mitigated by leveraging blockchains with low transaction fees such as Solana. However, many low-cost blockchains have dubious VC connections that make users wonder if they are the product, or if the chain could vanish as soon as it is deemed unprofitable. The alternative way to get lower transaction fees is to use a Layer 2 blockchain like Arbitrum, which rolls up to Ethereum. These Layer 2's run into another major problem in the blockchain space, which is that most blockchains operate as shared platforms, where many different dApps are deployed and they all must follow the rules of the "core" protocol. This paradoxically creates a need to trust the broader community and ecosystem of whichever "trustless" blockchain a dApp is deployed on. While the Ethereum and similar communities are certainly diverse politically, there is an ongoing debate about whether any of it truly aligns with cooperative values. This creates a pretty serious problem for a platform coop that might consider blockchain technology: their dApp may be at the mercy of a larger ecosystem where they don't have much sway. Ethereum's EIP process does allow anyone in the community to propose changes, but it requires getting consensus across the whole ecosystem which would include dApps with wildly different goals and values. If the name of the EIP stewarding group - Ethereum Cat Herders - is any indication, it is quite difficult to get a change approved on the core system.

With the above critiques in mind, some blockchain ecosystems may be more compatible with cooperatives than others. The Ethereum vision can be crudely summarized as trying to make a "world computer", but a competing vision in the Cosmos ecosystem is instead trying to enable the creation of many "community computers". Founders of Cosmos like Ethan Buchman and Zaki Manian have explained the differing vision in various podcasts. Buchman points out how Ethereum's model focuses on rock-solid centralized security, but this comes at the loss of sovereignty in each application and the cost of gas (which we might term "rent" in this context) - analogous to various empires of history who offered military protection and shared infrastructure in return for taxes and cultural assimilation. The Cosmos thesis is instead about offering an open-source toolkit that application developers can use to create their own application-specific blockchain. The Cosmos SDK combines the open-source Tendermint consensus protocol, various optional pre-built modules for common blockchain application needs like a token bank, and IBC (inter-blockchain communication) which allows Cosmos blockchains to communicate among each other. Much of this work is pushed forward by organizations that are themselves coops, foundations, and DAOs.

By leveraging the Cosmos SDK, a platform coop could create not only their own dApp but also their own blockchain, freeing them from the extractive gas models and competing values of blockchains like Ethereum. The benefits ultimately go far beyond gas costs, though. A platform cooperative building their own blockchain could form the foundational layer in which federated coops could deploy and manage their applications. The common issues which face all global platform coops, like how to raise funds, vote on decisions, and distribute earnings could be solved at this blockchain level, drastically reducing the development time and cost for each additional dApp. This would be a huge undertaking, but it seems like a better idea than each blockchain-interested platform coop building their own smart contracts that depend on a huge financial ecosystem like Ethereum which they will have no material control over.

Zooming out from the aspirational platform coop foundational blockchain, Cosmos can also offer small-scale coops an interesting option if they desire to run their own blockchain. In a high-trust local coop, one idea would be for each member-owner or committee group within the coop to run a validator node. This would ensure that the blockchain itself is decentralized among members of the coop. There are non-zero costs associated with running such servers, but if the volume of the blockchain is relatively low, it could easily run on a low-cost, low-power computer such as a $35 Raspberry Pi. There are major technical barriers to running validators (and adopting blockchain in general), but for a platform cooperative that is already investing in technology and software, there should hopefully be some expertise available to help with this setup and in educating others about it.

Given all the concerns listed above, cooperatives would be wise to carefully consider whether blockchains are right for them. However, the one elephant in the room, and the main impetus for considering this technology, is the issue of cooperative scalability. While it may be true that a platform coop starts locally and expands to a few dozen member-owners that all know and trust each other, the platform may aspire to grow larger. This is not growth for growth's sake, but can also be part of the cooperative's mission to contribute to global public goods infrastructure or being able to offer high-paying, stable, high-dignity jobs to more people. Certain platform products (especially any two-sided marketplace) will require sufficient scale to deliver on their product goals via network effects. As this growth happens, the ability to form personal relations (and thus trust) diminishes. Dunbar's number suggests that people are limited to ~150 relationships. A traditional approach to scale coops is to form a federation of independent local entities, but this runs into practical challenges around how to share infrastructure or funds and also how to operate legally across national or state borders. Trustless blockchain technology can help here, with some specifics being explored in the subsequent articles of this blog series.

In summary, platform coops in their early, geographically local stages are likely to have much higher trust than that which is assumed by blockchain technology. This means they will be paying a wasteful premium for zero-trust assumptions they don't immediately need. For many coops, there really is no need to get involved with blockchains at all. However, for a platform coop that expects to scale or seeks to raise capital from diverse sources, trustless blockchains can increase their ability to grow while maintaining their principles. The "community computer" vision of Cosmos seems a particularly good fit for platform coops that solves for some of the key challenges around transaction costs and end-to-end sovereignty, while producing shared infrastructure for dApps that share common values.