How Cryptocurrency Could Change the Sharing Economy

The sharing economy has huge latent value. Cryptocurrency could help unlock that potential, if we just gave it the chance.

AccessTimeIconDec 13, 2014 at 2:08 p.m. UTC
Updated Sep 11, 2021 at 11:23 a.m. UTC
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Grassroots efforts have defined much of recent technological history.

Whether we’re talking about file sharing via BitTorrent, disrupting money via bitcoin, or even the emergence of the web itself, innovation has often trickled up, rather than down. Even some of the companies that dominate today’s Internet started small, and gained traction quickly.

Could the next generation of sharing economy companies do the same, backed by cryptocurrency-like tokens?

The sharing economy

The sharing economy is a potentially huge development. Also sometimes termed ‘collaborative consumption’ or ‘the collaborative economy’, it revolves around the unlocking of otherwise unused assets. It typically uses marketplaces, in which one set of providers offers services or products for rent to another set of customers.

The sharing economy typically uses technology to help bring these people together. Examples include Uber, the ride-sharing service that enables people with their own vehicles to provide rides to consumers, who are charged based on the length of their ride. It’s all handled via the mobile phone and Uber's back-end system.

Uber has just been valued at $40bn, following its latest fundraising round. Those numbers indicate that the sharing economy is more than just hot air. Indeed, PwC says that worldwide revenues from unlocking these assets could hit $335bn by 2025.

The sectors that can benefit from this business model are many and varied; transportation is a key one (taxi rides are down 65% in San Francisco thanks to ride-sharing firms) and accommodation is another.

AirBnB, which uses the Internet to match up people wanting to rent out their houses with visitors, has a $13bn valuation. Then there’s music streaming, peer-to-peer (p2p) staffing (Elance, TaskRabbit and others), and even p2p finance, with sites like Lending Club.

A role for bitcoin micropayments

One of the biggest barriers for shared economy companies has been credit cards, which have suffered from numerous security issues, and don’t lend themselves to highly agile, flexible payment models. There have been some leaps forward, with services like Stripe, which make it easier to co-ordinate payments in a marketplace model.

Even there, though, there are limitations. Stripe is great for sharing economy operations in some countries, but not others (it doesn’t support Canadian businesses sending funds to third-party bank accounts, for example).

Bitcoin would certainly make payments easier still, because people wouldn’t have to hand over their credit-card information at all when participating in a sharing economy marketplace.

What happens as more services are leased on a more granular basis? If I want to use, say, three minutes’ use of someone’s password-protected Wi-Fi hotspot, 10 minutes’ parking in someone’s driveway, or a fast-charge for my electric car, how will those payments be made? What about if I want to pay for an online expert to solve my Ruby on Rails problem, but it only takes a three-minute video call?

This is something that large marketplace companies can support to a certain extent today. For example, Car2Go rents out cars by the minute and aggregates charges to a credit card.

But bitcoin’s micropayments protocol makes that kind of thinly sliced charging far easier.

Some companies are already looking at bitcoin payments. The two giants of the industry are sympathetic too. AirBnB gave Coinbase the opportunity to speak at its headquarters earlier this month, and PayPal’s Braintree payments processor, which serves some of the largest sharing economy marketplaces, has also decided to accept bitcoin.

When p2p isn’t p2p

There’s another issue that cryptocurrencies may be able to solve in the future. At the moment, the phrase ‘p2p’ (peer to peer) is floating around sharing economy circles to describe what’s happening. People are doing everything from swapping house visits to getting rid of their second-hand goods on a P2P basis, the rhetoric says.

In truth, most of the sharing economy isn’t P2P at all. True peer to peer involves direct communication between one node and another, but most marketplaces sit in the middle, acting as intermediaries between these conversations and transactions.

This creates some easy regulatory targets. Sharing economy businesses tend to disrupt entrenched sectors, such as accommodation rental and taxicab services. AirBnB is already the target of an anti-accommodation sharing group that objects to what it sees as a temptation for full-time apartment renters to violate their leases.

Uber, too, has been the target of multiple lawsuits from state insurance agents worried about its insurance practices, and from regulators protesting the company’s actions.

Playing God

Haters gonna hate, and regulators gonna regulate. But perhaps what’s more troublesome are the activities of Uber, which has a ‘God View’ that shows it the live movements of anyone using its service.

The firm has used this to track journalist rides, and it also transpired that Uber threw up maps showing the real-time locations of riders at parties using the God View system, which is said to have been easily accessible across the company. And perhaps Uber isn’t the only one to violate privacy practices.

In some cases, then, the hub-and-spoke model used by some sharing economy companies can introduce significant privacy and control concerns. Uber also recently came under fire when an executive openly suggested snooping on the personal life of a journalist who had written negative articles about the company.

A crypto-based sharing economy

Is there a better way? One of the most significant promises of bitcoin was its ability to operate in a decentralised, autonomous way, with a degree of trust that was coded into the network. We know that cryptocurrencies excel at payments; could they also be used to run the other parts of a sharing economy service?

One other part of the system involves matching marketplace participants together. That requires at least two things: a web or mobile app (depending on the nature of the service), and a back-end system that could track the status of all marketplace participants.

Bitcoin’s cryptographic algorithm has already proven itself capable of tracking an entire network’s status without a central point of control, so technologically, these seems feasible.

Other decentralised marketplaces concentrating on product sales rather than sharing economy business models are already emerging. Bitmarkets, which launched this week, is one such marketplace; while OpenBazaar is another trying to revolutionise e-commerce sales with decentralisation.

Not everyone is convinced, though. Jeremiah Owyang, founder of CrowdCompanies, is an analyst who serves corporate clients by helping them understand how they can benefit from the sharing economy.

He said:

“The purists think that they should be co-ops and owned by the people. But in reality they will be squashed by venture-backed startups.”

One of the biggest problems facing a sharing economy application today may indeed be a lack of visibility. The venture-backed companies that Owyang describes have pots of cash to throw at marketing and technology development.

Others are more sanguine about it. Emma Clarence, co-author of a recent report on the collaborative economy for UK innovation charity Nesta, says that co-owned sharing economy marketplaces backed by crypto-tokens might have some future traction.

“The collaborative economy just seems to have caught the zeitgeist at the moment. There’s a lot of big operators and governments are having to respond, but it is still quite new,” she said, suggesting that new business models could emerge. “It’s going through growing pains in terms of working out what it is and what it needs.”

Building trust

Another big issue for any sharing economy app will be trust. Large marketplaces have plenty of unknown participants, and there will always be bad actors. Both Bitmarkets and OpenBazaar use escrow to tackle that issue.

Could crypto-based tokens be used as a means of building trust and social capital in a sharing economy network, perhaps by using a token designed specifically to represent value in the service? The blockchain excels at transparency. An address that accrued a particular amount of social capital could be seen by everyone.

As the cryptocurrency community evolves, we’re seeing more talk about decentralised apps (Dapps). These applications issue their own tokens, with the tokens gaining value as the relevance and importance of the application increases. Users gain more tokens if they contribute to the operation of the site.

The concept of a DApp-based sharing economy marketplace with no large intermediary is worth discussing. In fact, some people trying to spark a decentralised sharing economy have gone further than that.

Share image via Shutterstock.

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