Realising the Promise: how the Blockchain enables a genuine Sharing Economy
by Tommaso Maschera and Julius Lang
The Internet’s promise
Throughout the 1990s, the rebellious, almost subversive promise of the Internet resonated throughout every stratum of society: it would at once democratise our economy and the spread of information, removing all barriers between users and content creators.
A decade and-a-half later, the same promise was rekindled by the sharing economy, this time advancing a new idea of work and service provision. Thus, we were told that platforms of the kind of Uber, Airbnb, and TaskRabbit would transform workers into entrepreneurs — establishing an alternative to the one-cut-fit-all-9-to-5 model, and providing us the ability to rent out unused assets and skills.
Yet, the reality we face today is somewhat different: in both instances the rebels became captains, then tycoons, and then monopolists — and, for all the innovation they contributed, the promise gave way to far-reaching and all-mighty Internet giants.
To be sure, we do not wish to argue that giants are inherently bad — nor do we suggest that they haven’t positively impacted on our lives, work, and opportunities. Far from it: as evidenced by surveys, freelancing will become the primary occupation for US American workers — among whom 35% already draw income from such activities — and the sharing economy now contributes roughly $1.4 trillion to US output.
Still, it would be naive to say that we live in an Ubertopia: often, the freelancers’ working times are only as flexible as the platforms want them to be, and even when individuals do decide to log-in and work, they are reportedly nudged to keep going for longer hours — at lower wages. By the same token, it is often the case that individuals don’t have any power over prices, which are rather set in a top-down fashion.
All this, then, begs the question: are we moving towards a genuine sharing economy — i.e. one where individuals are actually empowered to be their own entrepreneurs? And if we find that the answer is “no” — like British courts recently did — then why aren’t we?
The cost of trust
Rather surprisingly, a convincing answer is found in Coase’s almost-century-old “The Nature of the Firm”: corporations are significantly more efficient than individual agents at handling transaction costs. And while many transaction costs involving information and bargaining were dramatically abated by the Internet and the Platfirms in turn, trust-related costs have proven significantly more elusive. Thus, we are happy to pay a premium to ensure that our iPhones are actually delivered, and that we will not be kidnapped by our drivers. And since it would be too expensive to pay premia to everyone we transact with directly, we reward well-established brands — intermediaries that are able to provide trust at scale and for cheap. This, it seems, is the primary friction preventing a truly decentralised economy.
Enter the trust machine
Still, the promise lingers, and it is now voiced more strongly than ever. This time, its standard is borne by the blockchain technology, and its exotic-sounding declaration that we no longer need to trust our peers — for trust can be built in the very design of our transactions through distributed and immutable ledgers of who owns/is owed what.
Take blockchain-enabled smart contracts, for instance — i.e. algorithms based on transparent, pre-established, and unalterable rules that are able to self-execute once certain conditions are met. Imagine ordering an IoT-enabled product from an unknown seller; you sign a smart contract, specifying that that your payment will only leave your account when GPS coordinates of your parcel are such-and-such, and a number of other physical characteristics are met. Or picture this, perhaps even more straightforward, example: you listen to a song, and the moment you reach, say, minute 00:34, an infinitesimal transfer is made to the artist.
What role is left for intermediaries of trust then?
Put simply, if the blockchain enables a distributed and immutable ledger, smart contracts make it a double entry one: they specify eminently trustworthy rules whereby it is automatically guaranteed that all transfers of value are rewarded with a corresponding and opposite flow. Similarly to its analogical counterpart — which many commentators credit as having laid the bases for capitalism — such innovation promises a whole new techno-economic paradigm. Accordingly, not only will organisations be increasingly dematerialised — i.e. without physical spaces, assets or even employees — but they will also be increasingly decentralised. After all, the principal reason to establish centralised points of contact — like companies do with brands — is to fabricate a sense of reliability and trustworthiness.
As the blockchain makes this need obsolete, we face shifts of systemic proportions, which will especially hit the service economy — where initial investments are typically required to establish the role of a company as a trustworthy intermediary. Saliently, with dematerialisation and decentralisation, entrants will face less of a financial burden when establishing a new venture, which, in turn, diminishes the role for external investors. Granted, economies of scale will still provide certain operational advantages — most obviously seen in capital-intensive activities, such as mass-consumer product manufacturing.
Yet, it seems that the promise is now within reach: without the need for external investors, the shareholders, managers and workers of this new kind of organization will be one and the same — the multitude. While in the platform sharing economy the multitude was primarily source and consumer in the value creation; in the blockchain-enabled platform cooperativism the multitude is part of every step the value creation and hence the created value is more equally distributed among the collaborating individuals.
