Blockchain and the Sharing Economy
Fàbrica Damm 20 february 2017 - Blockchain and the Sharing Economy
I am here today to share with you my vision about why I think that Blockchain, through the Sharing Economy, is a facilitator for creating social impact and transforming our society in a better one.
When we talk about the Sharing Economy, we usually describe platforms that have some points in common:
- The existence of an idle capacity. A car parked 23 hours a day, a room, my time for driving, a drill,…
- Connectivity between ”hosts” and ”guests”, ”sellers and buyers”.
- A community beyond the critical mass. The critical mass is achieved when the platform has enough users to attract ”sellers” for offering their idle capacity; and ”buyers” for looking for the one that suits best for their needs.
- An implemented system of trust. As transactions are done between complete strangers, a system of trust is needed for protecting payments and guaranteeing that the transaction is done.
But, what we are seeing today, as Eckhard and Bardhi explained in a HBR article in 2015, can be mainly defined as an access economy. Consumers are paying to access someone else’s goods or services for a particular period of time. There is an utilitarian value, rather than a social one. Consumers are mainly concerned about making savvy purchases.
Is this the sharing economy that we wanted?
I think it’s not. Instead of a sharing economy becoming mainstream because of the common use of goods and resources with others, and the establishment of close ties inside communities, we have, as said, an access economy, sometimes also called extractive, controlled by a few powerful companies, that is creating collateral social problems, such as gentrification, job insecurity and inequality. This is what, inspired by Evgeni Morozov, I call ’the sharing delusion’.
When Rachel Botsman wrote her famous book ”What’s mine is yours”, she described a fifth characteristic for the Sharing Economy, that she called The belief on the commons. David Bollier describes this belief as a new paradigm for creating value and organizing a community of shared interests.
More than 10 years ago, in The Wealth of Networks, Yochai Benkler described a networked environment that made possible a new modality of organizing production: radically decentralized, collaborative, and nonproprietary; based on sharing resources and outputs among widely distributed, loosely connected individuals who cooperate with each other without relying on either market signals or managerial commands. He called that environment “commons-based peer production.”.
We all use some CBPP tools. All of us are using Wikipedia here; some of you share code on Github daily; and also some of you prefer using Firefox as web browser or using OpenStreetMap instead of Google Maps.
Commons-based peer production is also part of the Sharing Economy. This type of sharing economy involves cooperation as a main driver, and it usually involves a long-term strategy related to create social value. Despite of the CBPP cases are large (only in Barcelona, the project P2P value identified more that 1200 cases), they barely are able to compete with the giants of the commercial sharing economy.
But thanks to the Blockchain, things may change.
Blockchain is, at the same time, an immutable ledger of transactions, and a distributed network that allows platforms and apps running over it. Blockchain inherently provides connectivity between peers, a trust system, and a secure payment method.
So, my first conclusion is that, from an operational point of view, platforms built over Blockchain are able to provide the same features that we see on access-economy platforms.
In other words:
Blockchain-based sharing-economy systems are potentially substitute products for the current access-economy platforms.
But, why would we, as users, want to change a mainstream service for a new one offering us the same characteristics?
The only reason for doing that is that the new system provides us more value than the older one.
What is this new value that Blockchain enables?
This new value is, in my opinion, on technologically empowering those peers that share a common motivation for creating social impact.
But, as sociologist Juliet Schor says, our value proposal must include economic value for engaging users.
So, we have to provide not only a potential technological solution, but also those mechanisms that allow us to compete with commercial platforms in a way that provides useful value to our users.
Blockchain empowers all of us for creating social value.
Let’s see an example:
Brooklyn Microgrid, started in 2016, is a project providing peer-to-peer energy transactions between residents in the same neighbourhood, in Brooklyn, New York. Some prosumers have photovoltaic cells on their roofs, that they use for their own energy consumption. If they have excendents, they sell the energy to the market, composed by consumers living across the street. Other consumers may choose to buy locally generated green energy instead of consuming a carbon-footprinted one. The microgrid is also a backup alternative in case of emergencies, and it boosts the local economy by creating jobs. The whole system is based on Blockchain and Ethereum. It provides security, a currency system, trust, and smart contracts, that regulate the commitment between prosumers and consumers.
The Brooklyn Microgrid is a decentralized network of users that share own-produced energy. It’s now based on a profit organization, LO3 Energy, that aims to sell or gift shares to local organizations and individuals once the grid becomes fully developed, in order to the community is empowered to own and manage the microgrid.
I’ve talked before about four elements that characterize the profit-oriented sharing economy: idle capacity; connectivity; a community; and trust. I’ve also added a fifth one that is oriented to create social value: commons-based peer production.
One thing that commercial platforms have demonstrated is that there is demand for those kind of peer-to-peer services.
This is the point where we are now, our state-of-art. We have now the demand, we have the technology, and we have huge social needs to try to solve, such as wealth distribution or climate change.
But there is still an unnoticed sixth element, essential when dealing with distributed systems; the governance of the shared resources.
As in any organization, Blockchain-based sharing-economy organizations need a system of governance.
Let’s see another example:
La’zooz, which means ”to move” in Hebrew, is an Israeli blockchain-based decentralized realtime ridesharing solution implemented in 2013. It ”enables people with private cars to share their drive with others traveling the same route”. You probably are now thinking on Uber or Blablacar, but La’Zooz’s realtime ridesharing is based on that there is no pre-planning before travelling. In fact, the idea is close to hitchhiking.
Although La’Zooz catched a community of enthusiasts at the beginning, it has been so far unable to scale and compete with ”incumbent” ridesharing platforms. Why? For Arun Sundararajan, business professor at New York University, it’s a matter of untrust due to the present still poor logistics of descentralized systems. La’Zooz, built as a DAO, has mechanisms for encouraging the achievement of a critical mass and taking decisions, but they have proved to be inadequate to establish a real competition.
La’zooz’s case tells us that there is not enough just with building a technological platform that really works. In order to compete with mainstream services, an effective system of governance is needed. This system of governance has to be so robust to answer the same questions that other sharing economy services need to answer:
- How are we going to solve the chicken egg problem? In other words, how are we going to create a critical mass?
- How are we going to segment the market?
- How are we going to get funds to invest in marketing?
- How are we going to efficiently invest our resources?
- And so on, and so on…
As we have seen, neither systems based on sharing neither commons-based peer production are new concepts. The governance of DAOs is currently a trendy topic inside the Blockchain community. But, when we are dealing with the governance of common goods, it’s necessary to take into account that so much has been researched.
We have evidences about successful commons-based communities. The Nobel prize Elinor Ostrom demonstrated how commons-based communities are able to successfully self-organize. One of her studies was about how ”La huerta”, in Valencia, and how irrigators self-organize today for sharing water (the common asset) in the most efficient way, as they have been doing for centuries. Her work went beyond the widespread belief known as ”The Tragedy of the Commons”, that defended that individuals are selfish by nature and they always look for self-profit, instead of the commons good.
Since 2014, Trebor Scholz is boosting the concept of platform cooperativism, as a model that joins a democratic system of governance, online technologies, and a mindset of solidarity, a common social purpose, and real sharing.
*There is a still quite unexplored field of governance compound of the intersection of three elements: optimum-automated DAOs; common-based communities; and co-ops.
But we still miss an ingredient. In order to make change possible, to spread the development of sharing-economy decentralized systems that satisfy needs and solve social problems, we need to be able to develop easy-to-use systems that require no coding, in the same way that we now, instead of programming in HTML, are able to publish a website using, for example, Wordpress.
This is more or less what the Swarm City is building. Swarm City is an ecosystem that will enable anyone to start their own sharing economy system. Swarm City is still under construction. We can say that, while the city is built, a Swiss private company is taking care of the process. But, once built, the Swarm City will work as a DAO. Swarm City will start with ride sharing to make the power of the platform visible, but any service can be added in the future by anyone.
We need to make it easy for people to create and publish useful and clean sharing economy decentralized solutions, without they need to code a line.
I am aware of my vision is inside what the European Comission calls the Great Transformation, an optimistic development view based on a desire for green, social, and fair economic prosperity. I am old enough to remember that the same utopian views were attached to the concept of Internet 25 years ago.
So, we have now a second opportunity to make it possible.
But, aren’t second chances attractive enough to try it?
Thank you very much!!
NOTE: The presentation is available here.