Traditional commerce has always operated in a simple, straightforward manner: a company provides a service or creates a good which is then sold to the consumer. If you needed a ride, you called a taxi. If you needed your sink fixed, you called a plumber. The specialization of labor allowed for people to receive goods and services that they would not otherwise be able to acquire themselves. Through this system businesses have flourished by hiring the necessary people who could deliver the good/service.

This system has worked for a while and still does, providing the majority of economic activity in today’s world. However, with the advent of the Internet and smartphones, a new possibility was allowed to thrive, one where individuals able to provide goods and services can connect directly to those needing them.

The Gig Economy

What has been come to be known as the “gig economy,” refers to short-term, freelance work as opposed to traditional permanent employment. We have seen a boom in this as of recently with the meteoric rise of Uber, Airbnb, Fiverr and the like all disrupting their respective industries. The idea of calling a taxi is a completely foreign idea to many, including myself, because of the growth of this gig economy (I will use Uber frequently as it is a well known, easy to understand business).

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Consumers receive incredible convenience, often just a few taps away on their smartphone, and typically a lower cost by utilizing these services. Additionally those looking for income can work for themselves and escape the 9–5, working whatever hours they want. This has proven to be an enticing proposal as freelancers now compose 35% of the U.S. workforce, and that number is expected to grow to 58% in the next decade. Not only are more people going to be finding work, but the user base will be growing rapidly as well which is expected to more than double the revenue in this sharing economy to $40 billion in the next 5 years.

Problems

The gig economy has clearly provided tremendous value for users, freelancers, and of course the multi-billion dollar companies that operate them. As these economies mature, it appears the majority of value tends to accrue to the enterprises themselves (~$70 billion of value for Uber) as a result of their near complete control over the system.

When these new gig economy services first get rolled out, the company has incentives to make sure those participating receive the value from the peer to peer interactions. This is so the users save substantial time and money while the freelancers make good money which invariably grows the network. For this reason, these companies will be operating at a substantial loss in their early days so that the economy has time to grow.

The problem lies in how the incentive structure shifts once the service gains scale. As more people participate, the more valuable the service becomes, particularly for the user. Think about how much shorter Uber wait times are now that there are drivers on every corner of every major city. Now from the perspective of Uber, their incentive becomes how to create the best experience for the customers since they are the ones driving revenue. This means keeping fares and wait times as low as possible. Unfortunately, this comes at the expense of the drivers. According to a new study out of MIT — Drivers are seeing a median income of $8.55/hr with 54% of them making under minimum wage for their state (Revised after initially reported $3.37/hr). Now throw in the lack of benefits, 401k, paid sick days and health insurance and you see how these contractors are getting the short end of the stick here.

Since Uber has gained the scale they have, it is no longer possible for Uber drivers to simply switch back to taxi as the demand is not where it was in the pre-Uber days. This lack of flexibility means Uber has substantial control over their drivers. According to a report from the Columbia Law Review, Uber

“leverages its access to information and control of the interface to its advantage. The company manipulates what ride-hailers and providers see and limits or channels all participants’ behaviors”

One example Uber trying to manipulate driver behavior

For example, when drivers would try to log out, the app would tell them they are only a certain amount away from a seemingly arbitrary amount. This is meant to exploit our inherent desire to reach goals in order to get them drive longer. This type of behavior is manipulative and can manifest itself in a variety of ways ultimately being disadvantageous for the entire system. For more examples of the psychological techniques employed by Uber, I suggest reading this article by the New York Times.

The key idea here is that companies like Uber clearly have found a superior business model connecting people in ways that were not possible before. That being said, they are also highly rent-seeking organizations with the ability to control the economy to their desire. As I argue this type of peer to peer interaction is entirely possible without a company at all.

In Comes Blockchain

In one of my previous articles, I mentioned how cryptoassets have the potential to remove rent-seeking middlemen with the breakthrough of trust-less transfers of value. Just like the internet revolutionized the gig economy by allowing service providers to connect with users more directly, the blockchain will allow this same interaction but without any company controlling the ecosystem and extracting value in the process. Decentralized organizations allow for truly peer to peer interactions such that the value accrues to both the provider and user of the service, as opposed to the company standing in between them.

What might this look like?

Just one example of a project working on this kind of solution is Origin, which allows decentralized marketplaces to be built on top of it. Service providers and users will be connected directly where they will exchange the native Origin token for the service. However, the token acts as more than a payment token. In order to prevent spam, you will need to deposit a certain amount of the tokens before creating a listing or user profile. In addition, you can challenge suspect content by depositing an equivalent amount as the posting. The community then votes and the loser forfeits their deposit which is distributed to the winner and voters who voted correctly. This same voting mechanism will be used to make decisions on feature enhancements, code updates, and policy changes.

This incentive structure essentially replaces the function of the corporate entity and ensures that the platform is functioning to adequately serve the community. For more information on how exactly it works, I suggest reading their white paper.

Conclusion

For the same reason we didn’t have Netflix in 2000, we won’t have a widely used gig economy on the blockchain for at least a few years. I believe we are in the “mid 90’s of internet” right now where there is still substantial work to be done on the underlying infrastructure as well as a large learning curve for the general public to actually wrap their head around how this technology works and to get comfortable with it.

With the advancements in distributed ledger technology, it seems to be an inevitability that we will have peer to peer interactions done in a truly decentralized manner. The value that multibillion dollar companies are now collecting will be distributed to both the users and service providers in the form of lower costs and higher wages. No enterprise will have control of massive amounts of data to then manipulate participants activity. And finally, early adopters of the system will be benefitted for their work growing the network through token appreciation.

To conclude: There is a massive opportunity for the value creation in the gig economy to be shifted from centralized enterprises to the participants involved.

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