Credit: Shutterstock photoBy Alex Lielacher
One of the blockchain’s most prominent features is that it can bestow trust in a network without the need for a central authority. This is the primary reason why the distributed ledger technology that underlies the digital currency bitcoin is the ideal innovation to be applied to create a truly decentralized, peer-to-peer sharing economy.
Today’s Sharing Economy
The sharing economy refers to a new socio-economic phenomenon in which individuals share products or services with other individuals on a peer-to-peer basis for a fee. However, even though the sharing economy is built on a peer-to-peer model, there are intermediaries who charge a fee for facilitating the transactions.
The most notable sharing economy startups are tech unicorns Uber and Airbnb. However, there is a wide range of other sharing economy services such as peer-to-peer lending, house swapping, pet sitting, tool sharing, bike sharing and skill sharing. In nearly any area in which a person has excess that they would like to sell or rent for a fee, a sharing economy platform will exist.
While the sharing economy has been tremendously beneficial for society by enabling individuals to supplement their incomes and lowering costs for consumers, the industry is run by centralized platforms acting as authorities and charging facilitation fees.
Enter Blockchain Technology
In a true peer-to-peer sharing economy, there should never be an intermediary who dictates the terms and conditions of a transaction or takes a cut of the payment.
Currently, centralized sharing economy platforms have two key roles in making the sharing economy work. Firstly, they provide a platform that brings together buyers and sellers. Secondly, they provide a degree of security and governance to ensure the service is safe for users. By performing these two essential roles, startups such as Airbnb, Zipcar, Kickstarter and TaskRabbit have paved the way for the sharing economy to blossom into a $335 billion industry by 2025, as predicted by PwC.
However, by implementing blockchain technology into the sharing economy, there is no longer a need for a central authority to ensure that terms and conditions are upheld and that transactions are conducted accordingly. The distributed ledger technology can provide smart contracts, digital identities linked to a publicly-viewable user reputation systems and digital currency payments, all of which alleviate the need for a central authority.
It should be noted that some blockchains are permissioned, while others, such as the Bitcoin blockchain, are public.
Proof of Concept
To better explain how blockchain technology can create a true peer-to-peer sharing economy, let’s look at the following example:
Say you want to rent a car for a short trip from one side of town to the other. To do so, you could use a mobile app to identify vehicles that are available in your vicinity. Then, after verifying the digital identities of both yourself and the vehicle owner, you agree to terms and conditions, such as the fee and duration of the rental, and buy a micro-insurance policy covering the ride, via an immutable smart contract. Once the terms and conditions are agreed upon and the smart contract is created and verified, you can open the car using your smartphone and the payment is directly deducted from your digital wallet and transferred to the vehicle owner upon completing your trip.
In this scenario, no central authority is needed to agree on transaction terms, verify payments or screen participants’ identities as all that would be handled by the distributed ledger technology underlying the transaction.
This example of a decentralized peer-to-peer transaction is exactly what Carsten Stöcker and Thomas Birr, senior innovation managers at German energy company Innogy SE, have proposed as the future of private transport in a recent World Economic Forum publication. Stöcker and Birr are currently working with Swiss bank UBS and technology company ZF to built blockchain-based eWallets for cars so that toll and parking fees as well as car sharing fees can automatically be deducted from the vehicle owner's digital wallet.
Uber Without Uber
While the above example is purely theoretical at this stage, there are two startups aiming to leverage blockchain technology to create a fairer peer-to-peer economy in the rideshare sector. Austin, Texas-based Arcade City and Israel-based La ‘Zooz both aim to take the “Uber out of Uber” by offering ride sharing without a company acting as a fee-charging intermediary. Instead, drivers and riders deal directly with one another and payments are automatically conducted in cryptocurrency once the ride is completed.
Both startups are currently still in the beta testing stages. However, it will be interesting to see how many disgruntled Uber drivers will switch platforms if they can earn more money and get paid directly.
By decentralizing sharing economy services and allowing participants to deal directly with one another, a true sharing economy is created.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
