The gig economy is in trouble. Blockchain can help fix it.
“Coming together is a beginning. Keeping together is progress. Working together is success.” — Henry Ford
Much ink has been spilled on the perils of the gig economy. Last year, the New Yorker wrote a scathing critique of an ad campaign by freelance marketplace Fiverr. The campaign, which included taglines like “You eat a coffee for lunch” was called “In Doers We Trust”.
The New Yorker wasn’t the only prominent media source to criticize the campaign. The idea that work should be a constant struggle, where the only success is working yourself to death, was called “deeply depressing” by Metro.
Although Fiverr refreshed the campaign, the core premise — that entrepreneurial individuals could find more success if they struck out for themselves — is not fundamentally a new one in our economy. In fact, a recent study by McKinsey shows that contractors, consultants, and other independent workers currently make up roughly 30% of the workforce in the United States and Europe.
Corporations often prefer independent contractors because they are less expensive. But as this kind of labor becomes more and more ubiquitous in modern economies, its flaws are becoming clearer. It’s hard to track whether external contractors are doing the work for which they’re being paid. Fraud is rampant. Resumes and references can easily be faked. For the contractors themselves, businesses all too often fail to pay, even when a job is completed. A lack of trust threatens to cripple the entire industry, if the ship is not righted.
All of this has lead tech entrepreneurs in Silicon Valley and around the world to ask if the blockchain can help. An immutable ledger and a trustless system of verification could open up the gig economy of consultants and contractors in an unparalleled way, and cut a swath through this trillion-dollar industry, almost overnight.
What is contract work?
The gig economy, wherein workers are paid only for the work they complete in place of full time work, and where they are simply contractors who receive none of the benefits of full employment, has been called exploitative by critics in the media, and exceptionally freeing by companies like Uber and Upwork, which profit off the system in different ways.
Despite the criticisms, however, it is a system that has already seen tremendous adoption by the American workforce. According to Hackernoon, there are 57 million freelancers in the United States, who together make a combined $1.4 trillion a year. A McKinsey survey from 2016 puts the number at closer to 68 million. Those are disruptive numbers in any sense of the word, but perhaps even more shocking is this: in 10 years time, it’s possible that there will be more freelancers than full time workers in the United States.
Size of independent workforce in the United States
Whether compelled by financial strain or drawn in by the promise of flexible working arrangements, it’s clear that many individuals have sought out consultant or contractor relationships with corporations.
Equally obvious are the benefits for those corporations. They don’t have to pay for expensive medical benefit packages, which costs an average of almost $15,000 a year, 70% of which is paid for by employers. They also have fewer obligations in terms of firing employees whose services are no longer required.
But more crucially, a consultant can bring businesses a specific set of skills. As an outside agent, they solve a problem with as little in the way of onboarding costs as possible, and then make a graceful exit. It’s a neat exchange, and can work well for all parties involved.
The problems with consultants and contractors
For all their benefits, consultants and contractors can also bring with them a mountain of managerial headaches.
For any business, hiring is a risk. Candidates can lie on their resumes, make up references, or mislead the corporation in any number of ways. Once hired, an employee gains access to potentially valuable intellectual property, which businesses can find hard to control.
Even once a freelancer or contractor is successfully hired, managers must face down the same issues that often plague other remote workers, like timezone coordination and the transfer of files. But because external contractors are designed to be isolated, replaceable elements in the workforce, they often lack any outstanding loyalty to the corporation, which can further exacerbate these issues.
So how can a business trust an external element? 70% of freelancers use an online marketplace to find work, so these websites have taken on a responsibility to implement various solutions.
Freelance websites like Upwork attempt to solve the problem with the use of a Time Tracker app. Once installed by the contractor, it randomly records screenshots while a timer is run. The corporation is then sent these images and can verify if the contractor or consultant is actually engaged in their project.
Other platforms, like Toptal and Codeable solve the problem through exclusivity. They screen all contractors before allowing them onto the platform. At Toptal, only 3% of contractors are accepted and their work is fully guaranteed.
And in each case, money is held in escrow to protect the consultant and the corporation.
Solutions are clearly underway. But they are expensive. In the case of Upwork, their fee scales from 20% on the first $500 earned on any given job to 5% on any amount above $10,000 earned. Fiverr takes 20% and Freelancer.com claims 13%. In each case, these amounts can add up over time and encourage contractors and corporations to move their relationship off-platform, putting them back at risk of fraud and poor work quality.
Upwork fee structure
If a dispute arises over quality or completion of work, the owners of the platform make a decision. Often inscrutable, internet forums for freelancers are rife with complaints about the capricious and impenetrable nature of these decisions, which can instantly leave external contractors cut off from their livelihoods forever.
Why the blockchain is a better solution
Blockchain technology is still relatively nascent. Most well-known for its association with the tumultuous cryptocurrency world, and with its most famous representative, bitcoin, the blockchain is a way of storing data. It’s an immutable ledger, replicated and verified simultaneously by every member.
Because a blockchain is theoretically impossible to forge or defraud, it presents a very compelling solution to the trust issues surrounding a workforce of consultants and contractors.
Already being explored by the medical and insurance sectors for its ability to create private, verified networks of information, that same technology could help businesses authenticate contractors. Credentials, references, and past jobs could be checked, while ensuring that private data remains in the hands of the contractor who controls the access key.
Perhaps even more enticing is the concept of a smart contract. Rather than rely on corporations to pay when their accounting department remembers to send the check, a smart contract would automatically pay the external consultant when certain pre-agreed actions take place or markers are passed.
Several companies have already launched platforms on this premise. CanYa claims to be the world’s first marketplace of services, powered by the blockchain. Promising fees of only 1%, they allow businesses to pay external consultants in cryptocurrencies. Powered by their own token, the Canya coin, their platform has over 10,000 users and 46,000 service providers.
Blocklancer is also working to create what they call a Distributed Autonomous Job Market or a DAJ. Instead of allowing a centralized business to handle disputes about work, Blocklancer has a collaborative approach. Members weigh in on issues and reach collective decisions. In return, they are awarded with Ethereum for their participation.
Both these platforms, and others like them, use the blockchain to prevent fake reviews, expensive fees, and poor dispute resolution.
However, they don’t address the issue of protecting intellectual property. For large corporations, data is often their most valuable asset. Although it must be communicated to external consultants in their business network for projects to be completed, it remains sensitive and difficult to control.
Loyakk uses the immutable nature of the blockchain to create secure, structured movement of data and value between businesses and their external partners. It’s not only decentralized, but protected and permissioned remote work.
Conclusion
A workforce of consultants and contractors can be a powerful arrow in the quiver of businesses who seek out experts in any particular field. It’s also freeing for individuals who desire more control over their working life. Although plagued by the potential for fraud, the blockchain can help solve that through immutable ledgers and smart contracts. One way or another, we’re all going to have to work together. Technology can make that as frictionless as possible.
