Blockchain will enable a real sharing economy
Grover Norquist, President of Americans for Tax Reform, recently argued that, ‘The war against the sharing or gig economy is the struggle of the dead hand of the past against a forward looking, flexible, consumer-driven future. It is a world war — a war of different possible worlds — being played out on a dozen fronts in many nations.’ This is only partly true. The dead hand of the past is undeniably fighting companies like Uber and Lyft, implementing regulations wherever possible to hold them back. Where he’s wrong is in his belief that what companies like Uber and Lyft do actually puts them in the sharing economy at all.
Despite its protestations, Uber is essentially just a taxi app. Drivers make trips that they would not otherwise be making and get paid to do so. Uber is just a service aggregator, an intermediary that aggregates cars and drivers on a centralized platform and resells them to people who want to use them. Likewise, Airbnb connects home owners with people who require rooms, eBay connects buyers with sellers, and so forth.
These companies make their money by taking a cut of the fee. They also take significant amounts of data from people on both sides of the equation that they can exploit for future commercial use. This model has undeniably been successful. Uber was worth $68 billion at its last valuation, and Airbnb $25.5 billion. Uber will soon be bigger than General Motors, despite having only been founded in 2009.
In his recent Ted Talk, journalist Thomas Ramge discussed the so-called sharing economy, and how blockchain could soon see it genuinely realized. He argued that there were two big promises of the internet — liberating information and making the economy more democratic. The first of these, he says, has borne out, while the second has not. Uber, Airbnb, eBay, Google, Facebook, and the like all have monopolies over their respective industries. Ramge explained that the digital economy is based on platforms. If these attract a critical mass of users, you have network effects on that platform, which leads to exponential growth, which forces competitors out of business and monopolistic structures arise as a consequence. He uses the example of eBay. Ebay has one, centralized database which holds all of the information about buyers and sellers. The only way to access that database is to go to eBay’s website. Therefore, the best option for sellers is to use eBay. As buyers go where sellers go, every possible buyer is in the same place, which maximizes prices for all the sellers.
The promise of blockchain is that it will change all this, disposing of the middlemen. Blockchain is a fully transparent, permission-less, proof-of-work, peer-to-peer distributed ledger that securely allows multiple kinds of transactions to take place directly between different participants. It is a chain of data blocks, with each transaction built on a small data block linked to a blockchain. This blockchain is downloaded to the computers of everyone in the network. While everyone has access to it, however, it runs on trust protocols that mean nobody can forge it.
Blockchain is most famous for being the technology behind Bitcoin, and Bitcoin famous because of the anonymity it affords when making purchases, hence why it is used in the dark web. It provides the kind of logically centralized spreadsheet that eBay does, but to every computer in the network, so that platforms can be built with no central author. According to Ramge, this means you can have ‘platforms that grow without central owners of that platform’. So in the case of eBay, ’all the data points that run an auction (the items, their photos, the bids, when they came in) could all go into a blockchain located on thousands of users’ machines. Creators could build hundreds of different interfaces, all of which would use that same shared database.’
Similarly, in the case of Uber, you can build what is essentially your own competitor to the app on the blockchain. Everyone can get a copy of this app as they do with Uber which offers all the same functionality but it has a native payment system built into it, like Bitcoin. This means that you don’t need a centralized intermediary to process payments, and you don’t need Uber to organize capabilities because it’s all done with the distributed application. This gives more power to the driver, who no longer has to abide by Uber’s centralized pricing structure and can charge what they see fit.
There are a number of startups already looking to compete with the previous generation of disruptors with blockchain. Arcade City, for one, is a new ride-sharing app that connects drivers with customers peer-to-peer using the Ethereum blockchain. Arcade City’s founder, Christopher David, a former Uber driver, argues that, ‘The Achilles’ heel of Uber and Lyft is their centralized management of pricing. By decentralizing that decision to the level of the driver and rider, Arcade City frees the driver to be an entrepreneur, and empowers the rider with control over their entire experience. Both drivers and riders are loving it so far.’ In May of this year, Arcade City came first in the blockchain startup category at the GTEC Awards in Berlin.
The benefits of such a system to both the driver and consumer are clear. Drivers keep more of the value. This value could, or should, theoretically, be passed onto the consumer, translating into lower fares. Uber has a tremendous amount of control over its drivers. Once they are signed up as drivers, Uber can cut rates or up their own percentage on a whim. In blockchain, drivers and riders can also agree to whatever method of payment they like. They can barter with chickens if they want. Companies like Arcade City don’t know about it and receive no cut, so it doesn’t matter.
It is unlikely that new blockchain based apps will suffer any less problems with regulators than their disruptive predecessors. Arcade City has already been served with a $500 citation for operating a ridesharing company without completing the requisite paperwork. The disruptors are also fighting back. Airbnb, for one, has ‘acqui-hired’ the team behind bitcoin-based micropayment startup ChangeCoin, and has looked at a number of others according to insiders, in order to research what the technology could do for its services. It is not necessarily the case that Uber and Airbnb will be left behind, as they could equally embrace the technology. They will know better than most the consequences of not acting quickly. If they fail to do so, the war that Norquist described between disruptors and incumbents could be over before it’s begun, and a new breed of disruptors will rule the day.
