How Numerai’s Erasure Improves Freelancing
With the Erasure Protocol, anyone can launch a web app or service with built-in skin in the game.
We are truly living in a gig economy. By one recent measure, freelancers make up about 35% of the U.S. workforce, as of last year. According to the Freelancing in America Survey(2017), that number should climb over 50% in the next decade.
Alongside the rise of gig-based work has been the rise of what is called “freelancing platforms”.
Think Uber for matching freelancers with interested clients based on their backgrounds and reputations.
Like Uber, Airbnb, and other platforms, these sites have become the leaders of their respected space, with most freelancers flocking to a select number of them in the hopes of garnering reliable gigs.
What are the strengths of freelance marketplaces (using Upwork)?
Perhaps the best example of this is Upwork, which boasts around 17 million users and a consistent stream of jobs across all sorts of departments and industries. Like the platforms mentioned above, it is engineered to be easy to use.
In looking at its reputation system as well as its job application process, it’s easy to see how.
How is reputation determined on Upwork?
Similarly to Amazon, both freelancer and client reputations are based on a five-star scale and testimonials, as you can see below.
Total freelancer reputation is measured on a 100% scale, for which testimonials, average stars received and “job success” or whether or not you finished the job to the client’s satisfaction are all considered. Clients, on the other hand are only measured with testimonials and overall stars received, though there is an added mechanism that tracks whether or not they use Upwork’s escrow system to pay freelancers.
How do freelancers apply to jobs with Upwork?
Freelancers use digital tokens called “connects” to apply for jobs and if clients are interested, they reach out and agree to enter into a contract. In most cases, these contracts are nothing more than a job description, a salary, a desired experience level, and an estimated amount of time that the job will take.
As Upwork has grown, it has begun to use direct contracts as well, which allow freelancer payments to be secured by its system at a rate of 3.4%, for which payments are still run through and protected by its escrow system.
In either case, payments are protected by Upwork’s dispute system, which claims to guarantee that freelancers who deserve to be paid, get paid.
All in all, job opportunities are also plentiful, especially if a freelancer has experience across multiple industries, like a copywriter who has worked in the technology space but others as well.
Where does Upwork fall short?
As Upwork has grown in popularity, its cracks have begun to show.
To kick things off, it takes more than double the fees that Paypal charges to facilitate payments (20% for the first $500 with a client, 10% after up to $10,000). Additionally, applying to jobs now costs small nominal amounts of money and competing bids for a job cannot be seen unless you buy a membership that nearly equals the monthly cost of Netflix.
If you are located in the EU, then you pay VAT on top of everything else.
This level of fees, which can reach about 25% initially for EU freelancers, makes Upwork a rent-seeking nightmare.
If you’re not familiar with the term, “rent-seeking,” just think: when a company tries to make as much of a profit as possible without actually offering much or any value while doing so.
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The Job Application Process Favors the Client
On top of everything else, clients have figured out how to turn the application process to their advantage and offer payments for jobs that don’t make sense.
For example, long-term content writing gigs can say $5, and clients can hide their true budget from interested freelancers, often gaining the upper hand in interviews.
In the screenshot above, you can see that the client expects entry-level writers, and yet the language of the proposal makes it sound like said writers need to be experienced.
Furthermore, in the end, it is not really clear what the payment period or even the payment itself will be.
Maybe it will be $5, but what is more likely is that the client is hiding their budget to see what freelancers bid on the project during the interview process.
On the platform, this is far from an isolated case and more of a matter of course.
Some clients even offer a rate like $20-$40 an hour (long-term work) to attract freelancers, then quote them considerably lower once the interview process begins. Generally, this sort of practice is widespread and seems to be a matter of course across the platform.
In the end, payments via Upwork are a serious problem both due to high fees and what appears to be client dishonesty.
The Reputation System Can be Gamed
Though almost every website uses a reputation system like Upwork’s (five-star ratings+testimonials), this sort of system is flawed by design.
First and foremost, as a general rule, users who either have an excellent or a very poor experience are most likely to leave feedback. This extends to Upwork as well, which has made it a platform consisting primarily of “top-rated” freelancers and those who have a difficult time finding any sort of job due to any sort of rating that brings them below 100% success.
Due to this and that all past ratings from clients and freelancers alike are generally viewable by any user, there is actually an incentive for both sides to give five-star ratings in any situation that is not considered extremely negative. This can result in strange testimonials with little to no text or even negative comments mixed in with positive ones.
Top-rated freelancers can remove negative feedback, though this has to be approved by Upwork representatives and cannot occur if the negative feedback is a result of a terms of service violation.
In short, with all of this in mind, almost anyone can become “top-rated” as long as they do not leave their clients with a memorably negative impression. This sort of system is ripe for disruption, especially with the rise of skin in the game on the blockchain, which we will discuss further below.
What about disputes between clients and freelancers?
Overarching everything else is how flawed Upwork’s dispute process is.
In a nutshell, any disagreement that freelancers and clients cannot solve themselves is sent to Upwork’s team for review, which decides its fate based on the platform’s terms of service. This incentivizes protecting the platform over resolving the situation in a truly fair manner, based on the facts of it alone.
What is Skin in the Game and why does it matter?
Given all of the above, it seems clear that platforms like Upwork are flawed in more ways than one.
So, how can that change?
How can the relationship between clients and freelancers be equalized?
Truthfully, it all starts with the application of a popular theory called “skin in the game.”
Skin in the game is already pervasive across the cryptocurrency industry and can address all of the issues mentioned above. Currently, the most popular application of skin in the game is “staking,” which is the practice of holding a certain amount of crypto in a cryptocurrency wallet to earn the right to validate blocks on its related blockchain.
As stake-based or “proof-of-stake” networks have evolved over time, many of them have adopted measures like token burn, which gives block validators true skin-in-the-game through destroying their stake if they act against the network. One of the most popular examples of this is the Tezos network, which puts the conditions under which stake can be burned into its protocol.
Still, even, in this case, token burn does not typically extend to other use cases beyond the protocol level.
Freelance marketplaces like Upwork could use similar functions to encourage honesty and quality across all user interactions. Until recently, however, nothing like that was truly possible.
Numerai, through its Erasure Protocol, is the one that’s leading the way in this respect.
What is the Erasure Protocol and how does it work?
Like all blockchain protocols, Erasure can be most easily understood by breaking it down into its smallest possible parts or “primitives.”
Generally, a primitive is a few lines of computer code that perform a specific task, like transferring funds from one place to another. Overall, Erasure is based on three primitives, which are called: payment, recourse, and track record and perform all of the basic actions that the protocol is built to accomplish.
The Payment Primitive
In a universal sense, the payment primitive is the code that makes all payments happen (strictly crypto-based).
In doing so, it can support any Ethereum-based cryptocurrency, though DAI and Numeraire are the only two that are integrated with the Erasure protocol at this time.
The Recourse Primitive
Recourse is the most important primitive in terms of applying skin-in-the-game to traditional apps and services, alongside track record. With its code, it facilitates staking and token burn, which is called “griefing.” Griefing is the act of burning the stake of an individual or party involved in a transaction who has been determined to have acted against the terms of an agreement. Numerai’s team calls these agreements “erasure agreements” because to enter into them, both parties involved have to fulfill the conditions of all three Erasure primitives. In other words, payment, recourse and track record, all have to be addressed for an agreement(contract) to be considered active.
The Track Record Primitive
Track record is the final puzzle piece of the Erasure Protocol, which translates to the measure of a user’s reputation.
If you already know that blockchains allow data to be stored with a timestamp forever, then you know the gist of this particular primitive. Even so, it’s essential, because without it, there would be no record of Erasure-based transactions.
What is Erasure Bay and how does it improve freelancing?
Erasure Bay is a decentralized marketplace for information.
What that means is that anyone can log-on to it and request or fulfill a request for any information at any time. These interactions between “fulfillers” and “requesters” occur via what are called Erasure agreements, which you can see illustrated in the image below.
First, there’s a request for information, like the above “NMR valuation model,” for which the format is specified (CSV or XLSX files only).
Then, there needs to be a reward for the successful delivery of it, which is currently done via staking an amount of the DAI stablecoin ($100 in DAI in the request above). Generally, what this reward turns out to be is entirely up to the requester, though as a general rule, higher rewards result in quicker fulfillment of requests.
At the same time that the reward is set, the “fulfiller stake” and the burn ratio need to be set as well. Think of both of these together as the skin in the game that the fulfiller needs to account for to attempt the request.
If we circle back to our discussion of Erasure above, then you will remember that the burn ratio is the percentage of a fulfiller’s stake that can be destroyed if they provide low quality work. The key idea with such a mechanism is that people will be incentivized to act more honestly since they have real money to lose through doing the opposite.
Attached to the fulfiller stake are the punish ratio and punish period, which are represented by 10% and 5 days in the image above. On the whole, all of these mechanisms combined illustrate how the recourse primitive works in practice, which is the Erasure protocol’s defining feature. This is because together, they serve to keep the requesters honest as well since it costs them money to burn a fulfiller’s stake and they only have a limited time to do so.
Once all of these measures are set, the request is tweeted out via the Erasure Bay twitter handle and becomes a live “Erasure Agreement,” which you can think of like a freelance contract on the blockchain.
So, does the Erasure Protocol eliminate the need for Upwork?
Yes.
In theory, Erasure Agreements can involve any sort of request for any amount of money, which is what makes the Erasure Bay system applicable to all sorts of use cases, including freelance marketplaces.
Let’s circle back to Upwork’s shortcomings.
As discussed above, it has far too high fees, a proliferation of spam-like jobs, a gameable application process, a flawed reputation system, and a centralized dispute process.
Using either Erasure Bay or the Erasure protocol fixes this.
Erasure Bay as a Better Freelance Marketplace
On Erasure Bay, every interaction between clients and freelancers is direct and managed by Erasure agreements.
All client-side disputes can be settled with Erasure’s griefing mechanism, which gives them a period ranging typically from five to 30 days to review a freelancer’s work before releasing payment (the reward). This period has to be set by the client before the agreement goes live to fulfillers (freelancers).
For freelancers, payments are instantaneous and managed by smart contracts instead of the legacy financial system. Furthermore, reputation is determined by successful interactions in which no stake is griefed (burned), so the more quality a freelancer’s work is, the more work they will get.
In the event of a dispute, the client has the right to decide whether or not to release the full payment (reward) to the freelancer, but the fact that griefing costs them money incentivizes an honest review process in this case.
At no point does an organization like Upwork need to sit in the center of these interactions and take fees for “monitoring them.” To put it even more simply, with Erasure, no one but freelancers and clients needs to be involved in the freelance process at all.
Does Erasure work beyond Erasure Bay?
Yes, absolutely. It’s built to be the backbone of a new, blockchain-centered internet.
Because the Erasure primitives are fully composable, anyone can build any sort of platform that uses them to facilitate interactions between any sort of parties.
Think Erasure-focused Tinder, Uber, Airbnb, or even Amazon.
No platform is off-limits.
On the outside, an Erasure app wouldn’t have to look any different than the typical freelance marketplace. The staking/griefing system would be just another box that needs to be filled in and checked before a client and a freelancer enter into a working relationship.
Furthermore, the reputation system could be based on whether or not a freelancer’s stake was burned, as Erasure Bay does with fulfillers. This track record would be available at all times and secured through being hashed onto the Ethereum blockchain. Because it would not be based on stars or testimonials, it would be impossible to game and would represent an honest record of a freelancers’ history on the platform.
Despite all of these technical features, all the average person would have to see is a site similar to Upwork or any other popular marketplace like it. In Erasure Bay’s case, it comes out looking more like a cryptocurrency exchange for information.
This means all of the “blockchain stuff” would be behind the scenes, driving better, higher-quality interactions between everyone on the platform, and overall, there would be no need for a rent-seeking firm sitting in the middle.
In the end, this discussion was just the beginning of our exploration of the potential of the Erasure Protocol. In future posts, I aim to analyze it across all sorts of contexts. Until next time, if you enjoyed this discussion, please let me know in the comments below and reach out on Twitter @Expatcrypto3.
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Disclaimer: None of this is meant to be financial advice. I’ve researched and worked in crypto since 2016 and I aim to merely educate people on the upsides and downsides of all sorts of projects. Additionally, I’m a student just as all of us are. Therefore, my thoughts on projects evolve naturally over time as I learn more about them.
Special thanks to: Natasha-Jade and Anthony Mandelli as well as the Numerai team.
