Can Blockchain and CryptoNetworks Unite a Fragmented Freelance Economy?

Some advice for digital marketplaces to build the next generation of work platforms

Marco Torregrossa
Apr 23, 2018 · 8 min read
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From Ecstasy to Relevance: Jan Brueghel the Younger, Satire on Tulip Mania, 17th century, Frans Hals Museum

The freelance economy has taken the world by storm, and this is a good thing. As it picks up steam, it will likely become even more widespread with the advent of blockchain technology.

It’s no shocker there could be more self-employed than employees in both the EU and US (with freelance workers contributing approximately $1.4 trillion to the whole economy every year) in just ten years.

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Predictions for the Future of Independent Work, MBO Partners, 2016

Technology, globalisation, mobility and changing ways of work are driving this growth, with online middleman platforms like Upwork and Freelancer facilitating billions of dollars worth of freelance gigs annually.

A recent survey found that 70% of freelancers use digital platforms to find work. A report by McKinsey indicates that the matching activity conducted by such digital platforms are projected to add $2.7 trillion to global GDP by 2025. This is about the size of the entire UK’s GDP or the entire South East Asia GDP.

The easily monetizable freelance economy is a huge market eager for new ways to grow. But … it’s also a market which has inefficiencies and is ripe for disruption.

How could freelancers platforms capitalise on this opportunity? Let’s go in order.

True, the emergence of online platforms has significantly expanded work opportunities for millions, and are an important source of supplementary income for many freelancers. The work on these platforms is varied and abundant, and in a perfect freelance economy, workers who consistently deliver high-quality work matched to their skillsets can earn good reputations and money, with the freedom to pursue their lifestyle.

However, while these platforms offer a convenient service for new and experienced freelancers alike, concerns abound.

Freelance platforms struggle to solve a number of problems and have so far proven incapable of transitioning the workforce to that future and desirable economic reality.

These problems include: bias form customers, lack of visibility of the most suitable freelancers, fake reviews, low levels of trust in centralised platforms and bypassing risks, high fees to platforms born by either freelancers alone or split by freelancers and customers, making prompt payments in different countries, portable reputation and employment benefits, high number of competing freelancers, helping new freelancers get started on a platform and controlling fraudulent activities.

In addition, customers often go for the lowest bids, sometimes have to deal with poor quality work and need to review many almost identical freelancers’ offers. Other niche platforms only accept a very small percentage of freelancers, which guarantees quality but on the other hand, most of the freelance market is left out.

All these problems increase the number of costs-related measures that freelancers platforms have to take to limit them. And to be fair, they are doing it at the best of their capabilities.

Blockchain and bitcoin have become one of the fastest growing skills required –Upwork Q4 2017 Skills Index, ranking the 20 fastest-growing skills for freelancers.

A new tech revolution is set to deliver solutions to these problems and help us build the next generation of work platforms. Blockchain-based alternatives are promising a brighter future for freelancers, their customers and platforms with lower fees, faster payments, efficiencies of scale and new incentives that will boost user experience.

Blockchain is, to put it simply, a distributed network of providers and users that enables secure and trustless peer-to-peer transactions. Blockchain technology enables transparency and accountability of assets in every industry through shared, immutable ledgers.

And, yes, blockchain can work in the freelance economy too.

How blockchain technology works, World Economic Forum

For freelancers, the blockchain offers some unique advantages:

  • Profile, skills and reputation portability — Freelancers can have full control over their data, qualifications, work history, and references. All of this can be backed by encrypted identity verification and rating mechanisms in a hacker-proof environment. This will allow them to share that data and even post tasks across multiple platforms. Any skills and reputation gained on one platform will be transferable to others.
  • Reduced platform fees — Using the blockchain and cryptocurrency (tokens) for transactions will be more direct and secure than through a centralized platform, so the value of the middleman decreases. Freelancers and their customers can eliminate platform fees (usually 15%-25% of the freelancer’s income) and additional money exchange fees, above all when dealing with international transactions.
  • More secure and quicker payments Freelancers can get paid on the basis of self-executing smart contracts written in code between them and their customers, bypassing the long deliverable approval times on the platforms. Payments are transparent and almost instant, even across international borders. This can reduce cashflow problems and reliance on debt.
  • Reward active participants — Freelancers can be rewarded with tokens, which can be used for purchasing premium platform features or converted into cash. Tokens could also be used as an economic incentive for democratic governance on how the platform operates and to promote community-based resolutions (e.g. arbitration).
  • Lower marketing costs — through a decentralised advertising network on the blockchain, freelancers can leverage big data analytics and machine learning technology, allowing effective use of ad space at a fraction of the cost of traditional advertisement offered by big players such as google and facebook.
  • Employment benefits — Freelancers can deposit part of their net profits and rewards gained from referrals or other platform activities in a sort of Reward Bank hosted on the blockchain. That Bank can make payouts to freelancers for sick leave, unemployment periods and finally provide a pension.
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Vitalik Buterin is the founder of the blockchain platform Ethereum

The current public discourse is often focused on the blockchain benefits for freelancers. But how about the WITFM (what’s in it for me) for platforms, employers and HR professionals to transition to the blockchain? They do not receive all the benefits which the freelancer does, however they can enjoy these benefits indirectly.

With that 15–25% reduction in platform fees, freelancers will likely reduce their rates to stay competitive, resulting in significantly cheaper and more available freelancers. Also, one of the biggest concerns for freelancers platforms is attracting top talent. If fees are the lowest and the freelancer has the most benefits on the blockchain, top freelancers will seek out a blockchain-based platform.

However, the most significant benefit for freelancers platforms is the efficiency of the blockchain and its streamlining potential.

Freelancers platforms will run much more efficiently by using blockchain technology, leveraging smart contracts and crypto incentives to manage contractual obligations between customer and freelancer. Customers looking for freelancers will be able to find immutable and reliable information about potential hires all in one place, streamlining the hiring process.

When the work starts, the smart contract locks the agreed amount in cryptocurrency from the customer’s account. When both parties confirm the completion of the task, the smart contract automatically transfers the cryptocurrency to the freelancer’s wallet. Platforms will no longer have to spend legal and administrative resources (such as escrows) to deal with that.

This combination of benefits should lead to a higher quality of freelance work associated with less on-boarding risk for platforms.

Another problem freelancers and their platforms often face is scope creep. Customers sometimes abuse freelancers by having them work on additional deliverables that are outside the initial scope. Often, these customers will even withhold payment until freelancers are forced to deliver these extra requirements. Blockchain smart contracts will help parties define details such as scope, deadlines, and payment. Agreements between freelancers, customers and platforms become part of a permanent record, which means they’re tamper-proof and nearly impossible to breach. Bypassing a blockchain platform and its payment system also becomes very difficult.

In addition, blockchain based platforms will not have to pay for their own servers, database, maintenance, dispute resolution, and 24/7 customer service which will bring down infrastructure costs and can compensate the loss of commission fees.

All in all, the blockchain offers high levels of security, increased productivity and huge investment opportunities, making it a great leap beyond current solutions.

Decentralised solutions for freelancers are now possible thanks to the blockchain.

There are some fascinating projects under development that are looking to make platforms connecting supply and demand of independent labour work better for everyone.

One of them is Blue Whale (full disclosure: of which I am an advisor and early investor) is a crypto-network that aims to create a decentralised ecosystem for freelancers and their respective clients, which has already raised 25 million S$. Blue Whale will solve traditional problems of high commission fees by platforms, expensive advertising costs and crucially, the lack of employment benefits for gig workers.

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Blue Whale WORK System, from its White Paper

Freelancers platforms can become a decentralised node part of the same Blue Whale powered blockchain. They could use the same Blue Whale cryptocurrency (BWX), or launch an ICO to create their own, to incentivise users’ participation, and benefit from white-labelled SaaS tools like this one to manage their pool of freelancers and orchestrate referrals.

In addition, all nodes of the network can use and adapt the Blue Whale WORK system (like an API) that rewards freelancers with BWX tokens for their activities (verification, arbitration, referrals, reviews etc) and disburse employment benefits such as paid leave and pension.

It’s hard to tell if moving to new blockchain freelancers platforms will be difficult, as mature ones just don’t exist yet and usability is still a major challenge. And it’s unsure if these platforms will be able to attract a critical mass of users to create a self-sustaining ecosystem and break-even with operating costs, given the freemium business model.

Moreover, platforms will need blockchain experts to help them set up smart contracts and efficient blockchain systems. Right now, these experts are in short supply.

Will it work out? Only time will tell. But early signals are pointing in that direction.

Theoretically, a trustless blockchain appears to hold the keys to freelancer emancipation. Platforms too, will pivot towards the blockchain to increase their value proposition. Adoption will be gradual and, if done correctly, it could be the easiest transition ever.

Blockchain and smart contracts are quickly moving from being the future of work to being the reality of work. As online talent platforms are disrupting traditional employment agencies, the same pattern is repeating with blockchain and crypto-networks vs centralised platforms.

However, partnerships can be established with win-win scenarios for both incumbents and innovators — because other platforms can independently become part of decentralised networks such as the one of Blue Whale, function on the same blockchain and use the same cryptocurrency.

The nature of work is changing. Distributed ledger technologies are poised to become the ideal structure for ensuring that this change is a successful and sustainable one.

Expect its uptake to rise in the near future as to become yet another avenue for freelancers to monetize skills, and labor, as well as connecting ambitious talent with projects.

If you are also working at the intersection of policy, HR and blockchain, I’d like to hear from you. Get in touch at @MarcoTorreg or or in the comments below.

Blockchain and the Distributed Workforce

Articles and resources about new decentralized models for…

Marco Torregrossa

Written by

Workforce & Labour Markets Advisor | I help organisations prepare for the #FutureOfWork and build better workplaces

Blockchain and the Distributed Workforce

Articles and resources about new decentralized models for work, using blockchain and other technologies. Will also cover related topics including demographics, the job market and new organisational models.

Marco Torregrossa

Written by

Workforce & Labour Markets Advisor | I help organisations prepare for the #FutureOfWork and build better workplaces

Blockchain and the Distributed Workforce

Articles and resources about new decentralized models for work, using blockchain and other technologies. Will also cover related topics including demographics, the job market and new organisational models.

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