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May 28, 2016

#Blockchain and the Real Sharing Economy

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It started off so beautifully. The sharing economy was the answer to what ailed the world. Then the realities of economics set-in and the walls came crashing down, bringing the sharing economy in line with many of its ‘capitalistic’ predecessors.

But everything happens for a reason, and now with the birth of the blockchain, we took a look at how a real sharing economy becomes possible and what the new mechanisms are that can make that happen.

The Hype Surrounding the Sharing Economy

When the Sharing Economy ‘launched’ several years back, it was branded as a revolutionary moment in the history of the world. It was imagined that human beings would return to their tribal roots, share everything, and bring the planet back to ecological balance, all the while creating a multitude of co-operative companies that would rebalance the global economy in the process.

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Almost none of that happened. The sharing economy flopped. Not in economic terms, but in social terms. Or maybe it never really got started in the first place.

“It was a beautiful idea that struck hard, but when it died, nobody seemed to notice … And nobody seemed to ask the question of how an idea that everybody loved so much, an idea that made so much sense on a practical and social level, morphed into the pure capitalism that it is today.” The Sharing Economy is Dead and We Killed It

It wasn’t for lack of ambition or effort. It was because structurally, the mechanisms for a real sharing economy to flourish were not in place.
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The early players who gained traction in the market were able to access big VC dollars, just as all the other hot tech companies before them had done, and scale-up.  Those that took those dollars were seen as pseudo-traitors for turning their back on the values that drove the sharing movement to prominence, and those that didn’t were seen as future heroes.

“Though a few pieces of the original “sharing economy” promise survived, like peer-to-peer car-sharing services RelayRides and Getaround and bike-sharing site Spinlister, today they are largely divorced from the concept of a global village.” The Sharing Economy is Dead and We Killed It

After a few years, the only companies who survived and thrived were those who took the capital, in the process becoming Unicorns and making multi-Millions/Billions for their shareholders in the process. Meanwhile, the tie-dyed heroes who represented the core values of the sharing economy either went under or were unable to grow enough that they simply became niche communities. The Ubers and AirBNBs of the world were crowned as the winners of the game until …

The Blockchain

After the fuzz around bitcoin started to fade, many started to become excited about the underlying technology that existed behind bitcoin, known as the blockchain. As the blockchain started to surface, it became apparent that it would have huge applications for the sharing economy.

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The blockchain is like a giant spreadsheet built on top of advanced mathematical proofs, enabling ‘trustless’ transactions between two parties on a scalable, global layer that is auditable in real-time. In other words, the blockchain enables frictionless value transfer between two parties, regardless if they know each other or not, and doesn’t require any central party to oversee the transaction.

With the blockchain, the marginal cost of a transaction goes to zero. For ‘sharing economy’ sites that make millions from a fat percentage/fee per engagement, 1 + 1 does not equal 2.  If such a technology exists, it means that the pillars under which these titans built their business models start to crumble; suddenly the ‘disruptors’ are the ones on the verge of being disrupted.

“Rather than use Uber, Airbnb or eBay to connect with other people, blockchain services allow individuals to connect, share, and transact directly, ushering in the real sharing economy. Blockchain is the platform that enables real peer-to-peer transactions and a true “sharing economy.” Blockchain and the Sharing Economy 2.0 – IBM DeveloperWorks

What if, suddenly, I don’t need Airbnb as the middleman for renting a room in Rome on my next vacation. If I know the room I am looking for, I can use a blockchain-based platform to instantly send them the money in a completely traceable and verifiable way, the room can be officially booked right on the blockchain. What this means is that all of the added layers of ‘value’ that AirBnB adds in the current structure of the Internet – room reservation, payments, confirmations, etc. – become essentially redundant in a blockchain world.

“If blockchains are a new way to implement trusted transactions without trusted intermediaries, soon we’ll end up with intermediary-less trust.” The blockchain is the new Google

What will matter are their trust signals, developed from years of usage by their user base, and the network that they have built on top of their room rentals. The value of the brand – which has greatly diminished in recent years from a social perspective – will be what matters most, as trust in the platform will supersede utility once blockchain enters the world.  When trustless enters the equation, it doesn’t mean trust in the entity will lose it’s value, it’s the factors that the trust is based around that will change.

AirBNB has pursued an aggressive growth strategy to reach their targets and turned the company into a much more transactional entity. Sentiment and enthusiasm for AirBNB brand, while still high, has decreased in recent months, meaning user loyalty is not high enough to prevent many globetrotters and travelers from exploring whatever competitive alternatives arise on the blockchain.

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With their ‘sharing economy’ business model under threat from the blockchain’s inception, AirBNB is working on its own blockchain strategy that recently caught a lot of attention due to their acqui-hire of ChangeTip.  There is speculation that they will start to mine their network data to design proprietary trust signals, publish them to the blockchain, and enable users to use their AirBNB profile as a trust passport across other sharing economy services while travelling. Time will tell how companies like AirBNB will respond to the blockchain, as ‘the middleman,’ business model, digital or not, will be under massive pressure in the not-too-distant future.

Connected Commerce

So much of the competitive advantage derived by today’s titan platforms is a result of the back-end payment and banking rails. It takes time, effort, and systems that solicit trust before anyone will transact on any web platform. The Amazons, Ebays, PayPals and other giants of the digital world thrive within this type of infrastructure because they gain so much advantage just from securely storing your payment data.

“[Using blockchains] the speed to transact will be shortened from days/weeks/months to minutes or seconds” Blockchain’s Big Innovation Is Trust not Money – Coin Desk

By making free, instantaneous transactions a reality in the market, the door is opened to a more ‘connected’ form of commerce. We won’t need to worry about security, speed, or verifiability of payments in a blockchain world, we just need to find what we want and the transaction can be executed between two parties without any fees or fussy interface.

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So much of our commercial activity in this era is filtered and managed through middlemen that we have lost the feel for what it’s like to transact between people. This new phenomenon, called P2P (peer-to-peer), represents a move towards a more warm and personal way of transacting, rather than a move towards some cold and robotic form of digital commerce.

The blockchain liberates people to transact between themselves without the need for banks, payment portals, lawyers or accountants. A ‘smart contract’ can be created that dictates the terms of the agreement – the ‘smart’ part ensures that these terms are literally coded into the blockchain, while the ‘contract’ ensures that the two contracting parties ‘sign’ the agreement on the blockchain and transform it into a binding legal contract that can be upheld in a court of law.

And what if you just want to send someone a few pennies for the great video they made, or donate a few dollars to their cause?

Blockchain will facilitate seamless microtransactions, creating a structure for people to transfer small amounts of value as a simple gesture of support, appreciation or good will. In this type of environment, we no longer have to think about always consuming, as mechanisms like micropayments enable new business models for creators and producers alike.

 

The Future …

Many macro forces are at work that will drive people towards sharing, community, and eco-friendliness – there’s a level of necessity that’s driving this movement. But beneath the need is a desire for that sense of connectivity that we all crave. If we could engage with different actors in our society in a more fluid and connected way, it would shift the whole commercial model that we operate on.

The future is about putting the core values of society at the heart of commercial endeavors and realigning the incentive schemes so that large swaths of society benefit from economic growth, not just a few elite actors. The blockchain is a new mechanism, part social innovation part technological breakthrough, that will pave the way for new business models and new methods of engagement across the different layers of society.

How long will it take to go mainstream?

Like any breakthrough innovation, it’s very difficult to predict. Some say days, others say decades … but what we do, it’s not a question of if for the blockchain but when.

vamonos!