Blockchain and the real sharing economy: ‘Uberisation’ demystified
Uber/AirBnB are often referred to as the poster kids of the ‘sharing economy’ which consequently, yet deceivingly, became synonymous with ‘Uberisation’. Harvard Professor and #sharing economy Guru, Yochai Benkler sheds light on the misconception in an interview with the authors of Blockchain Revolution (p. 134): “It is indeed ‘nonsense’ to call Uber or AirBnB ‘sharing economy’ companies. Uber has used the availabilityof mobile #technology to create a business that lowers the cost of transportation for consumers. That’s all it has done.” These centralized platforms are but service aggregators which use mobile technologies to tap into unused value (be it vacant rooms or be it seats in a car) while creating value for the platform owners, rather than for the participants in the exchange. While some Internet companies, such as Wikipedia, have facilitated genuine sharing, others have appropriated and commoditized the social relationships and vocabulary of sharing. Uber and Air BnB have cracked the code for large scale service aggregation and distribution at global scale, but all this at a cost to the users. Both Uber and Air BnB leverage the value found in excess capacity via participatory platforms which are designed to reward the platform owners. Uber drivers create considerable value but get to keep only part of it. The company retains a significant share of the price paid for every ride, not to mention the retention of user information involved in transactions as well as their moving patterns to be lateron commercialized with no returns to the users – or the risks that that personal information be hacked, which already happened to Uber drivers.
Uber, Air BnB and the likes are smart intermediary platforms that create value for their owners. Namely the value collected from those who use its intermediation capacity to find a ride / a place to stay (or any other service mediated by similar platforms). Users help build such a private network by simply creating a profile with personal information as requested, and the network consists of all the people who exposed their profile to that private network. However, when they try to do business with other people in the network they have to pay network operators in order to do that (ask any Uber driver how frustrating and demoralizing that is!). This begs the question: what would aplatform enabling true sharing economy, with the value created being returned back to reward the value creators, look like? Are there principles which can guide the design of such platforms? To understand the paradigm shift that demystifies the sharing economy lets go back to the basics of communication networks. In such networks decentralization leads to faster innovation, greater openness, and lower cost while it also creates the conditions for competition and diversity in the services the network provides.
This is not the case with the good old landline telephone network. The telephone itself was a very primitive, or as Andreas Antonopoulos calls it – a ‘dumb’ device. The telephone network was a ‘smart network’ offering services dependent entirely on the central switches owned by the phone company, and consumed via ‘dumb’ devices that gave users no opportunity to improve nor change their network providers.
A glimpse into the highly specialized and service-specific networks on which the financial services industry is built, reveals the same pattern. Most of these are layered atop the Internet, but they are architected as closed, centralized, and “smart” networks with limited intelligence on the edge. All these networks mediate the services by interposing the service provider between the “users,” and they allow minimal innovation or differentiation at the edge. The #banks have built closed network systems on top of the decentralized Internet. Only banks can be members, and the network services are highly centralized. Centralized innovation means slow innovation. It also means innovation directed by the goals of a single company.
Enter the #Blockchain to change all this through an open network platform for financial services on top of the open and decentralized Internet. The financial services built on top of blockchain are themselves open because they are not “services” delivered by the network; they are “apps” running on top of the network.
But how can you tell if a network is decentralized, and what makes it more likely to be decentralized? To the novice, Uber-like networks seem to be decentralized… After all, aren’t they running on “smart” devices? Here comes the deception. While Uber indeed runs on a ‘smart’ phone, it does so via a … quite dumb app which is completely controlled by and supports the goals of the company.
Decentralizing that network means to detach people’s profiles from the apps themselves, and expose those profiles to a public shared network. The blockchain offers a secure infrastructure on which this can be done, so the costs of establishing trust become NIL. On blockchain trust does not rest with the organization owning the platform (such as in the case of Uber and AirBnB) but rather it comes with the functionality, security and auditability of the underlying code and the mass collaboration of the countless people securing the blockchain. In fact, the blockchain offers a basic dumb network that connects peers from anywhere in the world. It doesn’t require membership registration or identification. It doesn’t control the types of devices or applications that can live on its edge. It offers one service: securely time-stamped scripted transactions. Everything else is built on the edge-devices as an application. It allows any application to be developed independently, without permission, on the edge of the network. A developer can create a new application using the transactional service as a platform and deploy it on any device. This arrangement opens a market for applications, putting the end user in a position of power to choose the right application without restrictions.
By eliminating intermediaries, the cost for every participant in the network lowers dramatically. Users are no longer needed to pay to private network operators with money, their digital footprint, or by consuming advertisements extensively.
What happens when an industry transitions from using one or more “smart” and centralized networks to using a common, decentralized, open, and dumb network? First of all, the internal costs shrink considerably. The costs of contracting are reduced via software contracts which take care of policing, timely payments, transaction execution, bargain, etc. On this foundation a tsunami of innovation that was pent up for decades is suddenly released. All the applications that could never get permission in the closed network can now be developed and deployed without permission. At first, this change involves reinventing the previously centralized services with new and open decentralized alternatives, which involves the removal of entire layers of intermediaries which are no longer necessary.
The Internet effected such disintermediation by replacing brokers, classified ads publishers, real estate agents, car salespeople, and many others with search engines and online direct markets. In the financial industry, the blockchain creates a similar wave of disintermediation by making clearinghouses, exchanges, and wire transfer services obsolete.
The time has come for the ‘smart’ platform intermediaries, such as Uber and Air BnB to be disrupted.
Where the Internet reduced the cost of search and coordination, the blockchain cuts the costs of bargaining, contracting, policing, and enforcing these contracts. Platform users are peers able to negotiate the best deals and get the service from any entity that is registered on the blockchain platform. Where in contributing to Wikipedia peers do so altruistically, for the fun of it, as a hobby – the blockchain enables reputation systems and other incentives which can reward the peers per the value of their contribution.
For Uber and AirBnB, blockchain technology provides the platform users (aka the suppliers and consumers of these services, namely drivers and their cars, and passengers) a means to collaborate that delivers a greater share of the value back to them. The blockchain can make platform building cheaper through its open APIs (standard common data base) and more manageable through standard common contracts. The common database offer transparency which consumer and suppliers can use to obtain the best terms and also to cooperate as peers to create their own platform rules. If drivers want to set up their own network on blockchain – they do not need the intermediary services of Uber any longer, they can share for good the value they create together.
With this clarified lets return to our initial question and quest for demystification of the sharing economy. The new models would look more like a member owned cooperative. In a car-sharing cooperative most people don’t own cars but rather share vehicles in a commons. All revenue, except for the overhead would go to its members, who would also control the sharing software platform and make decisions. If this were a blockchain-enabled car-sharing platform, it would consists of a set of smart contracts that store data on the cars in the fleet. The initial entry and registration of each driver would contain criminal record, record of previous driving, vehicle ownership, safety inspections and insurance, etc. Smart contracts would continuously watch for timely reinspection/insurance and permit renewals. The drivers have thus created a blockchain cooperative and they receive all the wealth they create. A room sharing coop would consist of a home listings blockchain which also maintains reputations scores and has a similar interface with AirBnB where pictures and info about the rental places can be uploaded. So, the user experience is identical to AirBnB – the difference is that the communication is done peer to peer on the network via cryptographically signed messages that only you and the room renters can see, not stored on AirBnB data base any longer.
In regard to privacy protection, the blockchain enabled sharing platforms do not track nor store all the transactions in a database (as in the case of Uber / AirBnB). They simply return a True or False when an identity request needs to be confirmed, which is validated via a separate service. This separation of identity from the transactions carried between the identities implicitly resolves the privacy issues while reducing risks associated with hacking private information. Smart contracts working in the background also enable personalization of service, such as insurance for the renters based on ther reputation of both owner and renter, house / car value, etc.
These cooperative blockchain empowered platforms enable the rental of excess capacity beyond rooms or car seats. In a true sharing economy, on such platforms people can share anything, such as the examples listed in the book Blockchain Revolution:“expensive power tool or farming equipment used seasonally, as well as garage / parking space, woodwork shop space, a plane / boat or even fishing gear. Further one can rent their commodities such as Wi-Fi hot spots, computing power or storage capacity, the heat generated by our computers, excess energy from our solar panels, extra mobile minutes, and even our expertise. When you travel your WiFi can rent itself out in your absence, charging for every second of usage; further, your subscriptions, physical space and energy sources can become sources of income metering their use directly to a counterparty and charging them for it through micropayments. The blockchain’s decentralized value transfer protocol allows them to securely transact with one another. In the case of a car cooperative people can reserve, unlock and use a car for a certain amount of time metered on the blockchain which will take care of the charges seamlessly per smart contract specifications.”
The blockchain offers a foundation for peer to peer organizations that enable economic models for shared value creation – and open possibilities of ‘prosperity for the many’ through distribution of value creation and value participation, solving the ‘wealth for the few’ prosperity paradox plaguing our society today in spite of increased wealth creation by corporations. To achieve this, Luis Fernando Molina and colleagues propose the following pillars to sustain a sharing economy enabling platform:
● Decentralized: Like the internet, a sharing economy enabling platform is not owned by anyone in particular. Any individual can own some nodes, but not the network itself.
● Open Standard: It is possible for anyone to implement the network protocol. This protocol must be defined by a standards organization where anyone can participate in.
● Open System: Different apps of the same type using the platform can interoperate between each other.
● Permissionless: Anyone can run a network node. Anyone can use the network. Anyone can write apps that consume the network services.
● Dumb (Antonopoulos article from above): It is a dumb network that pushes innovation to the edge, giving end-users control over the pace and direction of innovation.
● Shared Asset: The resulting network of people is a shared commons asset anyone can use. The cost of contacting these people is transferred directly to the people without intermediaries.
● Inclusive: The technology enables maximum connectivity independent of node location.
● Incentivized: There is an economic incentive to run a network nodes.
Molina is working with peers to deploy such platforms which are user controlled, censorship resistant, flexible and scalable – enabling person to person exchange of goods, services, assets and data, and free from the whims, risks, costs and interference of unwanted, self-interested third parties who are no longer needed to facilitate the exchange. Sharing economy blockchain-enabled platforms reward through an open ended stream of micropayments to authors of reusable software components that can be perpetually combined and recombined to create an ever-expanding library of useful, highly customizable, peer to peer commercial applications (‘apps’).
Mike Hearn envisioned such a sharing economy and used the example of an autonomous car to illustrate it. Residents of a particular neighborhood could invest in such an autonomous car and be rewarded with free or discounted rides for a prescribed period. The car owns itself — or, more precisely, the operating computer program owns it. This program would pay the car’s running costs and take in its own revenue on blockchain (from users, investors, etc). The funding itself resonates with the sharing economy – since everyone would share the risk via ‘cryptocurrency assurance contracts’, a blockchain- based version of the popular crowdfunding model in which organizers pledge a certain amount when others’ donations reach target levels. Further, any programmer or niche business can customize ‘apps’ for the car. Such ‘apps’ could post offers on rates, or rank those offers to help the passenger make choices depending various factors (such as if they are willing to pay for faster routes e.g. toll roads etc.) Apps can identify parking options and prices and even book parking spaces in advance. The blockchain-enabled sharing platform could also support safety controls, such as prevention of unqualified or inebriated drivers from taking control of the wheel.
Models for using the blockchain as foundation for the sharing economy are being currently arduously explored, mainly from the perspective of the commons, where thework of Bollier brings forth novel perspectives regarding the deployment of collaborative entities that issue blockchain-based shares—or crypto-equity tokens—that give the holders ownership or membership rights in a type of decentralized cooperative.
I’m still at a loss when it comes to coining a nickname for the “Blockchain-enabled sharing economy” – but I can state for sure that to equate Uber and AirBnB with the ‘sharing economy’ and consequently name it ‘Uberisation’ is a regrettablemisconception!…
[linkedinbadge URL=”https://www.linkedin.com/in/mihaelaulieru” connections=”off” mode=”icon” liname=”Dr. Mihaela Ulieru”] is Global Technology Policy Innovator
A millennial friend of mine recently mentioned the shift from CapEx to OpEx in the millennials as something that was likely to define new models in lots of industries.
Reply