AirBNB and Uber are the embodiment of the decentralized sharing economy. Suppliers exchange their otherwise untapped labor and assets in real time, receiving payments via their smartphones.
The companies that pioneered these systems are not themselves providing services directly to their customers. They are intermediaries. Since they created the digital match-making infrastructure, they command a cut of the revenue for each transaction made on their platform.
Without the credit card payment infrastructure, Uber drivers and AirBNB hosts wouldn’t have a convenient and secure method for receiving payment for the value they and their assets provide. Card companies like Visa and Mastercard also charge a small percentage of each transaction made on their platforms for providing the security, reliability, and ubiquity of their cashless payment systems. The data harvested by both network operators and the credit card companies from transactions pour through their systems can also generate value once it is sold on.
The sharing economy remains, by and large, centralized system. It is made up of privately-held networks that use proprietary payment systems. Startups that rapidly scaled sharing-economy business models attracted investment and multi-billion valuations, largely on the speculation that they will continue to dominate and govern the marketplaces they’ve created and tightly control. If a new innovation challenged this assumption, most of their value would simply vanish.
And just such a disruptive change might be just around the corner. During the financial crisis, the digital currency Bitcoin was invented. Bitcoin transactions are recorded and replicated in blocks of data that are chained together to create a public ledger shared amongst all the users. This digital ledger is called the blockchain. Since the block containing a record of who owes who exists in many places simultaneously, a fraudster would have to alter millions of copies of the ledger simultaneously. Any doctored transaction would be quickly invalidated by a consensus of millions of accurate records stored elsewhere. Validating the transactions is, by design, a computationally intensive operation to make editing the ledger slower and more challenging. In return for running these trust-generating calculations on their computers, so-called “miners” are paid in Bitcoin itself. This virtual “trust machine” provides a point-to-point method of guaranteeing and verifying every transaction. And its decentralized proliferation and peer-to-peer authentication make the blockchain a highly resilient system.
One can already envision the growth of a digital currency to displace the circulation of cash, credit cards, and other forms of payment backed by government notes. But blockchains have numerous potential applications beyond digital currencies like Bitcoin. They can verifiably store almost any information. Arun Sundararajan, a Professor at NYU’s Stern School of Business, identifies this as the shift from a market where the crowd is sourced to one where the crowd is the market. No longer will the market rely on centralized operators like Uber and AirBNB, Sundararajan argues. Users themselves will be able operate the market in a truly distributed fashion.
Blockchain technology has potential to facilitate trust beyond digital currencies: storing property records, tracking supply chains, trading securities, and protecting intellectual rights are but a few such avenues. There are doubtlessly numerous startups busily developing new peer-to-peer applications built upon the blockchain. Some, such as the Isreali ride-sharing startup called La’Zooz, aim to democratize already established crowd-sharing marketplaces, such as Uber’s. La’Zooz’s users generate “zooz” as an app on their phone tracks their location throughout the city. Drivers accept zooz from passengers in exchange for rides. Even the website’s consortium of coders and designers are compensated in the stuff. At the other end of the financial spectrum, investment banks including Goldman Sachs and Barclays are also early blockchain adopters. They see real value in its more literal, accounting applications.
Despite much buzz, blockchain startups have been slow to gain a critical mass of users and transactions. La’Zooz has only signed-up a few thousand users. Proponents claim that the blockchain is only in its nascent phase. They liken it to the days of the early internet, when its revolutionary potential was not yet comprehended. Indeed, the development of the internet could be an instructive model. Initially, web pages were widely distributed, but difficult to navigate to. Users found it difficult to connect and adoption was slow. When lists emerged to lead users to useful information, the internet began to take off. Web portals grew, and some of still exist today (Google, Yahoo!, and AOL). Sundararajan points out that today’s most successful internet companies overcome the internet’s openness: by searching and discovering information, handling logistics, or building trust. Uber, for example, does all three.
To disrupt the likes of Uber and AirBNB, the blockchain must contain a self-organizing feature that supplants the coordinating roles served by the market operators. This seems like a tall order. Widely adopted peer-to-peer technologies still rely on centralized aggregators. For example, file sharers who use Bittorrent would be lost without indices – like the Pirate Bay – to link them to the file they wish to download.